<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended March 31, 2000
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 000-24263
CONRAD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 72-1416999
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1501 Front Street 70381
P.O. Box 790 (Zip Code)
Morgan City, Louisiana
(Address of principal executive
offices)
Registrant's telephone number, including area code: (504) 384-3060
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 [X] No [_]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of May 12, 2000, 7,077,723 shares of the registrant's Common Stock were
outstanding.
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<PAGE>
FORM 10-Q
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets March 31, 2000 and December 31, 1999......... 3
Consolidated Statements of Operations Three Months Ended March 31, 2000
and 1999................................................................ 4
Consolidated Statements of Cash Flows Three Months Ended March 31, 2000
and 1999................................................................ 5
Notes to the Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................................. 15
Signature.................................................................. 16
</TABLE>
FORWARD-LOOKING-STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements contained herein other than statements of
historical fact are forward-looking statements. When used in this Form 10-Q,
the words "anticipate", "believe", "estimate" and "expect" and similar
expressions are intended to identify forward-looking statements. Such
statements reflect the Company's current views with respect to future events
and are subject to certain risks, uncertainties and assumptions, including the
Company's reliance on cyclical industries, the Company's reliance on principal
customers and government contracts, the Company's ability to perform contracts
at costs consistent with estimated costs utilized in bidding for the projects
covered by such contracts, variations in quarterly revenues and earnings
resulting from the percentage of completion accounting method, the possible
termination of contracts included in the Company's backlog at the option of
customers, operating risks, competition for marine vessel contracts, the
Company's ability to retain key management personnel and to continue to
attract and retain skilled workers, state and federal regulations, the
availability and cost of capital, and general industry and economic
conditions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations
will prove correct.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 5,703 $ 4,252
Accounts receivable, net.............................. 4,192 3,072
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ 2,835 3,843
Inventories........................................... 186 175
Other current assets.................................. 1,438 2,025
------- -------
Total current assets................................ 14,354 13,367
PROPERTY, PLANT AND EQUIPMENT, net...................... 17,287 17,377
COST IN EXCESS OF NET ASSETS ACQUIRED................... 13,979 14,176
OTHER ASSETS............................................ 199 200
------- -------
TOTAL ASSETS............................................ $45,819 $45,120
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable...................................... $ 1,198 $ 769
Accrued employee costs................................ 733 421
Accrued expenses...................................... 1,053 971
Current maturities of long-term debt.................. 2,508 2,508
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ 195 535
------- -------
Total current liabilities........................... 5,687 5,204
LONG-TERM DEBT, less current maturities................. 4,179 4,806
DEFERRED INCOME TAXES................................... 3,187 3,126
------- -------
Total liabilities................................... 13,053 13,136
------- -------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000 shares
authorized, 7,077,723 shares outstanding in 2000 and
1999................................................. 71 71
Additional paid-in capital............................ 27,780 27,780
Retained earnings..................................... 4,915 4,133
------- -------
Total shareholders' equity.......................... 32,766 31,984
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $45,819 $45,120
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
REVENUE....................................................... $ 9,875 $ 9,460
COST OF REVENUE............................................... 7,350 6,970
------- -------
GROSS PROFIT.................................................. 2,525 2,490
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................. 1,139 979
------- -------
INCOME FROM OPERATIONS........................................ 1,386 1,511
INTEREST EXPENSE.............................................. (148) (178)
OTHER INCOME, NET............................................. 100 66
------- -------
INCOME BEFORE INCOME TAXES.................................... 1,338 1,399
PROVISION FOR INCOME TAXES.................................... 556 567
------- -------
NET INCOME.................................................... $ 782 $ 832
======= =======
Net income per common share:
Basic and diluted........................................... $ 0.11 $ 0.12
======= =======
Weighted average common shares outstanding:
Basic and diluted........................................... 7,078 7,078
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 782 $ 832
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 554 567
Deferred income tax expense................................ 61 93
Changes in assets and liabilities:
Accounts receivable....................................... (1,120) 1,858
Net change in billings related to cost and estimated
earnings on uncompleted contracts........................ 668 (474)
Inventory and other assets................................ 573 (466)
Accounts payable and accrued expenses..................... 823 136
------- -------
Net cash provided by operating activities................ 2,341 2,546
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment................ (263) (190)
------- -------
Net cash used in investing activities.................... (263) (190)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of debt................................ (627) (669)
------- -------
Net cash used in financing activities.................... (627) (669)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 1,451 1,687
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... 4,252 3,074
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ 5,703 $ 4,761
======= =======
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION:
Interest paid............................................... $ 148 $ 178
======= =======
Taxes paid.................................................. $ 80 $ 325
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of Conrad Industries, Inc. and its wholly-owned subsidiaries (the
"Company") which are primarily engaged in the construction, conversion and
repair of a variety of marine vessels for commercial and government customers.
The Company was incorporated in March 1998 to serve as the holding company for
Conrad Shipyard, Inc. ("Conrad") and Orange Shipbuilding Company, Inc.
("Orange Shipbuilding"). New construction work and the majority of repair work
is performed on a fixed-price basis, but the Company also performs some repair
work under cost-plus-fee agreements. All significant intercompany transactions
have been eliminated. In the opinion of the management of the Company, the
interim consolidated financial statements included herein have been prepared
in accordance with generally accepted accounting principles and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (such
adjustments consisting only of a normal recurring nature) considered necessary
for a fair presentation have been included in the interim consolidated
financial statements. These interim consolidated financial statements should
be read in conjunction with the Company's audited 1999 consolidated financial
statements and related notes filed on Form 10-K for the year ended December
31, 1999.
The results of operations for the three-month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
2. RECEIVABLES
Receivables consisted of the following at March 31, 2000 and December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
U.S. Government:
Amounts billed.......................................... $1,977 $ 347
Unbilled costs and estimated earnings on uncompleted
contracts.............................................. 1,358 3,505
------ ------
3,335 3,852
Commercial:
Amounts billed.......................................... 2,215 2,725
Unbilled costs and estimated earnings on uncompleted
contracts.............................................. 1,477 338
------ ------
Total................................................. $7,027 $6,915
====== ======
</TABLE>
Included above in amounts billed is an allowance for doubtful accounts of
$20,000 at March 31, 2000 and December 31, 1999. During 2000 and 1999 there
were no significant transactions recorded in the allowance for doubtful
accounts.
Unbilled costs and estimated earnings on uncompleted contracts were not
billable to customers at the balance sheet dates under terms of the respective
contracts. Of the unbilled costs and estimated earnings at March 31, 2000,
substantially all is expected to be collected within the next twelve months.
6
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to uncompleted contracts as of March 31, 2000 and
December 31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Costs incurred on uncompleted contracts.................. $25,658 $27,108
Estimated earnings....................................... 7,763 8,257
------- -------
33,421 35,365
Less billings to date.................................... 30,781 32,057
------- -------
$ 2,640 $ 3,308
======= =======
</TABLE>
The above amounts are included in the accompanying balance sheets under the
following captions (in thousands):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... $2,835 $3,843
Billings in excess of cost and estimated earnings on
uncompleted contracts................................... 195 535
------ ------
Total.................................................. $2,640 $3,308
====== ======
</TABLE>
3. LONG-TERM DEBT
The Company has a Loan Agreement with a commercial bank, which specifies
the terms of the Term Loan and the Revolving Credit Facility. Interest accrues
at LIBOR plus 2.0% until May 25, 2000, and thereafter at the option of the
Company either at the lender's prime rate minus 0.5% or LIBOR plus 2.0%. The
Loan Agreement is secured by substantially all of the Company's assets and
contains customary restrictive covenants and the maintenance of certain
financial ratios, including a current ratio requirement of 1.25 to 1.0 that
could limit the Company's use of available capacity under the Revolving Credit
Facility. In addition, the Loan Agreement prohibits the Company from paying
dividends without the consent of the lender and restricts the ability of the
Company to incur additional indebtedness. At March 31, 2000, the Company was
in compliance these covenants.
The Term Loan is payable in monthly principal payments of $209,000 plus
interest, with a final payment due on April 2004. At March 31, 2000, the Term
Loan balance outstanding was $6.7 million.
The Revolving Credit Facility permits the Company to borrow up to $10.0
million for working capital and other general corporate purposes, including
the funding of acquisitions and matures on April 30, 2001. The Company pays a
fee of 0.25% per annum on the unused portion of the facility. No draws against
the Revolving Credit Facility were outstanding as of March 31, 2000.
4. INCOME PER SHARE
The calculation of basic earnings per share excludes any dilutive effect of
stock options, while diluted earnings per share includes the dilutive effect
of stock options. The number of weighted average shares outstanding for
"basic" and "diluted" income per share was 7,077,723 for the three months
ended March 31, 2000 and 1999.
7
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. SEGMENT AND RELATED INFORMATION
The Company classifies its business into two segments:
Vessel Construction
The Company constructs a variety of marine vessels, including large and
small deck barges, single and double hull tank barges, lift boats, push boats,
offshore tug boats and offshore support vessels. The Company also fabricates
components of offshore drilling rigs and floating production, storage and
offloading vessels including sponsons, stability columns, blisters, pencil
columns and other modular components.
Repair and Conversions
The Company's conversion projects primarily consist of lengthening the
midbodies of vessels, modifying vessels to permit their use for a different
type of activity and other modifications to increase the capacity or
functionality of a vessel. The Company also derives a significant amount of
revenue from repairs made as a result of periodic inspections required by the
U.S. Coast Guard, the American Bureau of Shipping and other regulatory
agencies.
The Company evaluates the performance of its segments based upon gross
profit. Selling, general and administrative expenses, interest expense, other
income, net, and income taxes are not allocated to the segments. Accounting
policies are the same as those described in Note 1, "Summary of Significant
Accounting Policies" in the Company's Form 10-K for the year ended December
31, 1999. Intersegment sales and transfers are not significant.
Selected information as to the operations of the Company by segment is as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
Revenue:
Vessel construction......................................... $ 6,977 $ 7,125
Repair and conversions...................................... 2,898 2,335
------- -------
Total revenue............................................. 9,875 9,460
------- -------
Cost of revenue:
Vessel construction......................................... 5,145 5,074
Repair and conversions...................................... 2,205 1,896
------- -------
Total cost of revenue..................................... 7,350 6,970
------- -------
Gross profit:
Vessel construction......................................... 1,832 2,051
Repair and conversions...................................... 693 439
------- -------
Total gross profit........................................ 2,525 2,490
Selling, general and administrative expenses.................. 1,139 979
------- -------
Income from operations........................................ 1,386 1,511
Interest expense.............................................. (148) (178)
Other income, net............................................. 100 66
------- -------
Income before income taxes.................................... 1,338 1,399
Provision for income taxes.................................... 556 567
------- -------
Net income.................................................... $ 782 $ 832
======= =======
</TABLE>
8
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain other financial information of the Company by segment is as follows
(in thousands):
<TABLE>
<CAPTION>
Three
Months
Ended
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Depreciation and amortization expense:
Vessel construction.......................................... $195 $203
Repair and conversions....................................... 122 131
Included in selling, general and administrative expenses..... 237 233
---- ----
Total depreciation and amortization expense................ $554 $567
==== ====
</TABLE>
<TABLE>
<CAPTION>
Three
Months
Ended
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Capital expenditures:
Vessel construction.......................................... $134 $ 23
Repair and conversions....................................... 33 18
Other........................................................ 96 149
---- ----
Total capital expenditures................................. $263 $190
==== ====
</TABLE>
Total assets of the Company by segment is as follows as of March 31, 2000
and December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Total assets:
Vessel construction..................................... $34,606 $34,307
Repair and conversions.................................. 6,225 5,663
Other................................................... 4,988 5,150
------- -------
Total assets.......................................... $45,819 $45,120
======= =======
</TABLE>
Certain assets and capital expenditures of the Company are allocated to
corporate and are included in the "Other" caption.
Revenues included in the consolidated financial statements of the Company
are derived from customers domiciled in the United States. All assets of the
Company are located in the United States.
6. COMMITMENTS AND CONTINGENCIES
Legal Matters--The Company is a party to various legal proceedings
primarily involving commercial claims and workers' compensation claims. While
the outcome of these claims and legal proceedings cannot be predicted with
certainty, management believes that the outcome of all such proceedings, even
if determined adversely, would not have a material adverse effect on the
Company's consolidated financial statements.
Employment Agreements--The Company has employment agreements with certain
of its executive officers which generally provide for an initial term of three
years ending on March 31, 2001 and minimum annual total compensation of
$851,000.
9
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Letters of Credit and Bonds--In the normal course of its business, the
Company is required to provide letters of credit to secure the payment of
workers' compensation obligations. Additionally, under certain contracts the
Company may be required to provide letters of credit and bonds to secure
certain performance and payment obligations of the Company thereunder.
Outstanding letters of credit and bonds relating to these business activities
amounted to $1.8 million at March 31, 2000 and December 31, 1999.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and
for hedging activities. SFAS No. 133 requires the Company to measure all
derivatives at fair value and to recognize them in the balance sheet as an
asset or liability, depending on the Company's rights or obligations under the
applicable derivative contract. In June 1999, the FASB issued SFAS No. 137,
which deferred the effective date of adoption of SFAS No. 133 for one year.
The Company will adopt SFAS No. 133 no later than the first quarter of fiscal
year 2001. The Company has considered the implications of adopting the new
method of accounting for derivatives and hedging activities and has concluded
that its implementation will not have a material impact on the Company's
consolidated financial statements.
10
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the Unaudited Consolidated Financial Statements and the Notes to Unaudited
Consolidated Financial Statements included elsewhere in this Form 10-Q as well
as the Company's annual report and Form 10-K for the year ended December 31,
1999.
Overview
The Company was incorporated in March 1998 to serve as the holding company
for Conrad Shipyard, Inc. ("Conrad") and Orange Shipbuilding Company, Inc.
("Orange Shipbuilding"). The Company completed an Initial Public Offering on
June 15, 1998 by issuing 2.1 million shares of common stock. Conrad has
operated since 1948 at its shipyard in Morgan City, Louisiana, and specializes
in the construction, conversion and repair of large and small deck barges,
single and double hull tank barges, lift boats, push boats, tow boats and
offshore tug boats. In December 1997, Conrad acquired Orange Shipbuilding to
increase its capacity to serve Conrad's existing markets and to expand its
product capability into the construction of additional types of marine
vessels, including offshore tug boats, push boats and double hull barges, and
the fabrication of modular components for offshore drilling rigs and FPSOs. In
February 1998, Conrad commenced operations at a conversion and repair facility
in Amelia, Louisiana, thereby expanding its capacity to provide conversion and
repair services for marine vessels.
The demand for the Company's products and services is dependent upon a
number of factors, including the economic condition of the Company's customers
and markets, the age and state of repair of the vessels operated by the
Company's customers and the relative cost to construct a new vessel as
compared with repairing an older vessel. Demand for the Company's products and
services have been adversely impacted recently by decreased activity in the
offshore oil and gas industry. Activity by commercial and government customers
to construct new vessels to replace older vessels and upgrade the capacity or
functionality of existing vessels has remained steady. In addition, the Orange
Acquisition has enabled the Company to capitalize on the demand for new vessel
construction by government customers such as the U.S. Army, U.S. Navy, U.S.
Coast Guard and Corps of Engineers.
The Company is engaged in various types of construction under contracts
that generally range from one month to 36 months in duration. The Company uses
the percentage-of-completion method of accounting and therefore, takes into
account the estimated costs, estimated earnings and revenue to date on fixed-
price contracts not yet completed. The amount of revenue recognized is equal
to the portion of the total contract price that the labor hours incurred to
date bears to the estimated total labor hours, based on current estimates to
complete. This method is used because management considers expended labor
hours to be the best available measure of progress on these contracts.
Revenues from cost-plus-fee contracts are recognized on the basis of cost
incurred during the period plus the fee earned.
Most of the contracts entered into by the Company for new vessel
construction, whether commercial or governmental, are fixed-price contracts
under which the Company retains all cost savings on completed contracts but is
liable for all cost overruns. The Company develops its bids for a fixed price
project by estimating the amount of labor hours and the cost of materials
necessary to complete the project and then bids such projects in order to
achieve a sufficient profit margin to justify the allocation of its resources
to such project. The Company's revenues therefore may fluctuate from period to
period based on, among other things, the aggregate amount of materials used in
projects during a period and whether the customer provides materials and
equipment. For projects in which the customer provides material or equipment,
the Company generally charges material handling and warehousing fees,
resulting in higher profit margins than for projects in which the Company
provides the materials and equipment. The Company generally performs
conversion and repair services on the basis of cost-plus-fee arrangements
pursuant to which the customer pays a negotiated labor rate for labor hours
spent on the project as well as the cost of materials plus a margin on
materials purchased.
11
<PAGE>
Recent Events
On March 21, 2000 the Company's Board of Directors authorized management to
repurchase up to 200,000 shares or $1 million of its outstanding common stock.
Management may repurchase shares from time to time in the open market at
prevailing prices, or through privately negotiated transactions depending on
prevailing market conditions. The shares will be held as treasury and will be
available for use in connection with the Company's stock option plan and other
compensation programs or for other corporate purposes. Funds for the program
will come from cash, internally generated funds or additional borrowings. The
Company has repurchased approximately 20,800 shares at a total cost of $84,000
through April 27, 2000.
On May 1, 2000 the Company's Board of Directors authorized the construction
of a new dry-dock, up to total size of 280' long and 160' wide with a lifting
capacity of up to 10,000 tons. The estimated cost is $5.3 million. Funds for
the construction of the dry-dock will come from cash, internally generated
funds or additional borrowings. This dock will allow the Company to (1)
increase repair and conversion capacity; (2) compete for larger repair and
conversion projects and; (3) launch larger new vessel construction projects
more competitively.
Results of Operations
The following table sets forth certain historical data of the Company and
percentage of revenues for the periods presented (in thousands):
Conrad Industries, Inc. Summary Results of Operations
<TABLE>
<CAPTION>
Three Months Ended March
31,
-----------------------------
2000 1999
------ ------
<S> <C> <C> <C> <C>
Financial Data:
Revenue
Vessel construction............................. $6,977 70.7% $7,125 75.3%
Repair and conversions.......................... 2,898 29.3% 2,335 24.7%
------ ------
Total revenue................................. 9,875 100.0% 9,460 100.0%
------ ------
Cost of revenue
Vessel construction............................. 5,145 73.7% 5,074 71.2%
Repair and conversions.......................... 2,205 76.1% 1,896 81.2%
------ ------
Total cost of revenue......................... 7,350 74.4% 6,970 73.7%
------ ------
Gross profit
Vessel construction............................. 1,832 26.3% 2,051 28.8%
Repair and conversions.......................... 693 23.9% 439 18.8%
------ ------
Total gross profit............................ 2,525 25.6% 2,490 26.3%
S G & A expenses.................................. 1,139 11.5% 979 10.3%
------ ------
Income from operations............................ 1,386 14.0% 1,511 16.0%
Interest expense.................................. 148 1.5% 178 1.9%
Other expenses (income), net...................... (100) -1.0% (66) -0.7%
------ ------
Income before income taxes........................ 1,338 13.5% 1,399 14.8%
Income taxes...................................... 556 5.6% 567 6.0%
Net Income........................................ $ 782 7.9% $ 832 8.8%
====== ======
EBITDA(1)......................................... $1,940 19.6% $2,078 22.0%
====== ======
Operating Data: Labor hours....................... 146 147
</TABLE>
- --------
(1) Represents income from operations before deduction of depreciation and
amortization. EBITDA is not a measure of cash flow, operating results or
liquidity as determined by generally accepted accounting principles. The
Company has included information concerning EBITDA as supplemental
disclosure because management believes that EBITDA provides meaningful
information regarding a company's historical ability to incur and service
debt. EBITDA as defined and measured by the Company may not be comparable
to similarly titled measures reported by other companies. EBITDA should
not be considered in isolation or as an alternative to, or more meaningful
than, net income or cash flow provided by operations as determined in
accordance with generally accepted accounting principles as an indicator
of the Company's profitability or liquidity.
12
<PAGE>
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999.
During the three months ended March 31, 2000, the Company generated revenue
of $9.9 million, an increase of approximately $415,000, or 4.4%, compared to
$9.5 million generated for the three months ended March 31, 1999. The increase
was due to a $563,000 (24.1%) increase in repair and conversion revenue to
$2.9 million for the three months ended March 31, 2000 compared to $2.3
million for the three months ended March 31, 1999 and a $148,000 (2.1%)
decrease in vessel construction to $7.0 million for the three months ended
March 31, 2000, compared to $7.1 million for the three months ended March 31,
1999. The decrease in vessel construction was attributable to the types of
jobs completed or in progress during the three months ended March 31, 2000
which required less manhours as compared to projects completed or in progress
during the three months ended March 31, 1999. Vessel construction production
hours decreased by 15.8% during the three months ended March 31, 2000 compared
to the three months ended March 31, 1999. The increase in repair and
conversion revenue during the three months ended March 31, 2000 compared to
the three months ended March 31, 1999 were primarily attributable to increase
demand for repair and conversions due to increased offshore oil and gas
activity. Repair and conversion hours increased by 32.6% during the three
months ended March 31, 2000 compared to the three months ended March 31, 1999.
Gross profit was the same at $2.5 million (25.6% of revenue) for the three
months ended March 31, 2000 as compared to gross profit of $2.5 million (26.3%
of revenue) for the three months ended March 31, 1999. Vessel construction
gross profit decreased $219,000 or 10.7% to $1.8 million for the three months
ended March 31, 2000 as compared to vessel construction gross profit of $2.1
million for the three months ended March 31, 1999. Repair and conversion gross
profit increased $254,000 or 57.9% to $693,000 for the three months ended
March 31, 2000 as compared to repair and conversion gross profit of $439,000
for the three months ended March 31, 1999. These fluctuations were due
primarily to the factors described above.
The decrease in gross profit as a percentage of revenue was primarily due
to the decrease in vessel construction gross profit margins to 26.3% for the
three months ended March 31, 2000, compared to gross profit margins of 28.8%
for the three months ended March 31, 1999. This decline was primarily due to
tighter market conditions and competition for vessel construction projects.
Gross profits as a percentage of revenue for repair and conversion were 23.9%
for the three months ended March 31, 2000, compared to gross profit margins of
18.8% for the three months ended March 31, 1999. This increase was primarily
due to less material intensive repair and conversion jobs for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999.
Selling, general and administrative expenses increased $160,000, or 16.3%,
to $1.1 million (11.5% of revenue) for the three months ended March 31, 2000,
as compared to $979,000 (10.3% of revenue) for the three months ended March
31, 1999. These increases were primarily due to an increase in employee
related costs, legal and accounting and taxes and licenses.
Income before income taxes decreased $61,000 to $1.3 million for the three
months ended March 31, 2000 as compared to a net income before income taxes of
$1.4 million for the three months ended March 31, 1999, primarily due to
factors listed above.
The Company had net income of $782,000 for the three months ended March 31,
2000 as compared to net income of $832,000 for the three months ended March
31, 1999. Interest expense decreased $30,000 to $148,000 for three months
ended March 31, 2000 as compared to interest expense of $178,000 for the three
months ended March 31, 1999 due to a reduction of debt.
The Company had income tax expense of $556,000 (41.6% effective tax rate)
for the three months ended March 31, 2000, compared to income taxes of
$567,000 (40.5% effective tax rate) for the three months ended March 31, 1999.
The effective tax rate percent is attributable to the effect of the permanent
tax differences for amortization.
13
<PAGE>
Liquidity and Capital Resources
Historically, the Company has funded its business through funds generated
from operations. Net cash provided by operations was $2.3 million for the
three months ended March 31, 2000 due to an increase in accounts receivable,
offset by decreases in accounts payable and accrued expenses, billings related
to costs and estimated earnings on uncompleted contracts and other assets. The
Company has borrowed in the past to expand its facilities and to fund the
acquisition of Orange Shipbuilding in December 1997. The Company's working
capital position was $8.7 million at March 31, 2000 compared to $8.2 million
at December 31, 1999.
The Company's capital requirements historically have been primarily for
improvements to its facilities and equipment. The Company's net cash used in
investing activities of $263,000 for the three months ended March 31, 2000 was
for improvements to facilities and equipment.
Net cash used in financing activities was $627,000 for the three months
ended March 31, 2000 relating to the repayment of debt.
The Company has a Loan Agreement with a commercial bank, which specifies
the terms of the Term Loan and the Revolving Credit Facility. Interest accrues
at LIBOR plus 2.0% until May 25, 2000, and thereafter at the option of the
Company either at the lender's prime rate minus 0.5% or LIBOR plus 2.0%. The
Loan Agreement is secured by substantially all of the Company's assets and
contains customary restrictive covenants and the maintenance of certain
financial ratios, including a current ratio requirement of 1.25 to 1.0 that
could limit the Company's use of available capacity under the Revolving Credit
Facility. In addition, the Loan Agreement prohibits the Company from paying
dividends without the consent of the lender and restricts the ability of the
Company to incur additional indebtedness. At March 31, 2000, the Company was
in compliance these covenants.
The Term Loan is payable in monthly principal payments of $209,000 plus
interest, with a final payment due on April 2004. At March 31, 2000, the Term
Loan balance outstanding was $6.7 million.
The Revolving Credit Facility permits the Company to borrow up to $10.0
million for working capital and other general corporate purposes, including
the funding of acquisitions and matures on April 30, 2001. The Company pays a
fee of 0.25% per annum on the unused portion of the facility. No draws against
the Revolving Credit Facility were outstanding as of March 31, 2000.
On March 21, 2000 the Company's Board of Directors authorized management to
repurchase up to 200,000 shares or $1 million of its outstanding common stock.
Management may repurchase shares from time to time in the open market at
prevailing prices, or through privately negotiated transactions depending on
prevailing market conditions. The shares will be held as treasury and will be
available for use in connection with the Company's stock option plan and other
compensation programs or for other corporate purposes. Funds for the program
will come from cash, internally generated funds or additional borrowings. The
Company has repurchased approximately 20,800 shares at a total cost of $84,000
through April 27, 2000.
On May 1, 2000 the Company's Board of Directors authorized the construction
of a new dry-dock, up to total size of 280' long and 160' wide with a lifting
capacity of up to 10,000 tons. The estimated cost is $5.3 million. Funds for
the construction of the dry-dock will come from cash, internally generated
funds or additional borrowings. This dock will allow the Company to (1)
increase repair and conversion capacity; (2) compete for larger repair and
conversion projects and; (3) launch larger new vessel construction projects
more competitively.
Management believes that the Company's existing working capital, cash flows
from operations and available borrowing under the Revolving Credit Facility
will be adequate to meet its working capital needs and planned capital
expenditures for property and equipment through 2000. The Company may pursue
attractive acquisition opportunities if and when such opportunities arise. The
timing, size or success of any acquisition effort and the associated potential
capital commitments cannot be predicted.
14
<PAGE>
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and for
hedging activities. SFAS No. 133 requires the Company to measure all
derivatives at fair value and to recognize them in the balance sheet as an
asset or liability, depending on the Company's rights or obligations under the
applicable derivative contract. In June 1999, the FASB issued SFAS No. 137,
which deferred the effective date of adoption of SFAS No. 133 for one year. The
Company will adopt SFAS No. 133 no later than the first quarter of fiscal year
2001.The Company has considered the implications of adopting the new method of
accounting for derivatives and hedging activities and has concluded that its
implementation will not have a material impact on the Company's consolidated
financial statements.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 -- Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any Current Reports on Form 8-K since filing
of the Company's financial prospectus pursuant to Rule 424(b) in connection
with its initial public offering on June 10, 1998.
15
<PAGE>
SIGNATURE
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.
Date: May 11, 2000
CONRAD INDUSTRIES, INC.
/s/ Cecil A. Hernandez
By:__________________________________
Cecil A. Hernandez
Senior Vice President and
Chief Financial Officer
16
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
______________ AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<INVENTORY> 186
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<PP&E> 27,561
<DEPRECIATION> 10,274
<TOTAL-ASSETS> 45,819
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<COMMON> 71
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