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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 September 30, 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 Identification No.)
incorporation or organization) (I.R.S. Employer
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 November 8, 2000, 7,068,923 shares of the registrant's Common Stock
were outstanding.
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FORM 10-Q
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets September 30, 2000 and December 31, 1999.... 3
Consolidated Statements of Operations Three and Nine Months Ended
September 30, 2000 and 1999............................................ 4
Consolidated Statements of Cash Flows Nine Months Ended September 30,
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
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 17
Part II. Other Information
Item 1. Legal Proceedings................................................ 17
Item 6. Exhibits and Reports on Form 8-K................................. 17
Signature................................................................. 18
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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 9,804 $ 4,252
Accounts receivable, net.......................... 4,942 3,072
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 740 3,843
Inventories....................................... 249 175
Other current assets.............................. 2,058 2,025
------- -------
Total current assets............................ 17,793 13,367
PROPERTY, PLANT AND EQUIPMENT, net.................. 20,575 17,377
COST IN EXCESS OF NET ASSETS ACQUIRED............... 13,585 14,176
OTHER ASSETS........................................ 211 200
------- -------
TOTAL ASSETS........................................ $52,164 $45,120
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 2,172 $ 769
Accrued employee costs............................ 1,194 421
Accrued expenses.................................. 1,679 971
Current maturities of long-term debt.............. 2,508 2,508
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 4,558 535
------- -------
Total current liabilities....................... 12,111 5,204
LONG-TERM DEBT, less current maturities............. 2,925 4,806
DEFERRED INCOME TAXES............................... 3,163 3,126
------- -------
Total liabilities............................... 18,199 13,136
------- -------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000 shares
authorized, 7,089,723 shares and 7,077,723 shares
issued at 2000 and 1999.......................... 71 71
Additional paid-in capital........................ 27,861 27,780
Treasury stock at cost (20,800 shares)............ (84) --
Retained earnings................................. 6,117 4,133
------- -------
Total shareholders' equity...................... 33,965 31,984
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $52,164 $45,120
======= =======
See notes to unaudited consolidated financial statements.
3
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- ----------------
2000 1999 2000 1999
------ ------ ------- -------
REVENUE..................................... $8,902 $6,930 $27,388 $25,100
COST OF REVENUE............................. 6,794 5,731 20,473 19,119
------ ------ ------- -------
GROSS PROFIT................................ 2,108 1,199 6,915 5,981
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 1,053 914 3,398 2,904
------ ------ ------- -------
INCOME FROM OPERATIONS...................... 1,055 285 3,517 3,077
INTEREST EXPENSE............................ (72) (152) (356) (491)
OTHER INCOME, NET........................... 128 81 315 203
------ ------ ------- -------
INCOME BEFORE INCOME TAXES.................. 1,111 214 3,476 2,789
PROVISION FOR INCOME TAXES.................. 485 143 1,492 1,194
------ ------ ------- -------
NET INCOME.................................. $ 626 $ 71 $ 1,984 $ 1,595
====== ====== ======= =======
Net income per common share:
Basic..................................... $ 0.09 $ 0.01 $ 0.28 $ 0.23
====== ====== ======= =======
Diluted................................... $ 0.09 $ 0.01 $ 0.28 $ 0.23
====== ====== ======= =======
Weighted average common shares outstanding:
Basic..................................... 7,061 7,078 7,066 7,078
====== ====== ======= =======
Diluted................................... 7,130 7,078 7,075 7,078
====== ====== ======= =======
See notes to unaudited consolidated financial statements.
4
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended
September 30,
----------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 1,984 $ 1,595
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 1,652 1,691
Deferred income tax expense................................ 37 71
Changes in assets and liabilities:
Accounts receivable....................................... (1,870) 2,737
Net change in billings related to cost and estimated
earnings on uncompleted contracts........................ 7,126 (701)
Inventory and other assets................................ (131) (1,493)
Accounts payable and accrued expenses..................... 2,884 (888)
------- -------
Net cash provided by operating activities................ 11,682 3,012
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment................ (4,246) (666)
------- -------
Net cash used in investing activities.................... (4,246) (666)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of debt................................ (1,881) (1,966)
Purchase of treasury stock.................................. (84) --
Proceeds from exercised stock options....................... 81 --
------- -------
Net cash used in financing activities.................... (1,884) (1,966)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 5,552 380
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... 4,252 3,074
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ 9,804 $ 3,454
------- -------
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION:
Interest paid............................................... $ 413 $ 491
======= =======
Taxes paid.................................................. $ 1,210 $ 1,752
======= =======
See notes to unaudited consolidated financial statements.
5
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 some repair work is
performed on a fixed-price basis. The Company performs the majority of 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 accounting principles generally accepted in the United
States of America 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 and nine-month periods ended
September 30, 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 September 30, 2000 and December
31, 1999 (in thousands):
2000 1999
------ ------
U.S. Government:
Amounts billed............................................. $1,379 $ 347
Unbilled costs and estimated earnings on uncompleted
contracts................................................. 740 3,505
------ ------
2,119 3,852
Commercial:
Amounts billed............................................. 3,563 2,725
Unbilled costs and estimated earnings on uncompleted
contracts................................................. -- 338
------ ------
Total.................................................... $5,682 $6,915
====== ======
Included above in amounts billed is an allowance for doubtful accounts of
$20,000 at September 30, 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 September 30, 2000,
substantially all are expected to be collected within the next twelve months.
6
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to uncompleted contracts as of September 30, 2000
and December 31, 1999 is as follows (in thousands):
2000 1999
------- -------
Costs incurred on uncompleted contracts.................... $11,342 $27,108
Estimated earnings......................................... 3,132 8,257
------- -------
14,474 35,365
Less billings to date...................................... 18,292 32,057
------- -------
$(3,818) $ 3,308
======= =======
The above amounts are included in the accompanying balance sheets under the
following captions (in thousands):
2000 1999
------- ------
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... $ 740 $3,843
Billings in excess of cost and estimated earnings on
uncompleted contracts.................................... 4,558 535
------- ------
Total................................................... $(3,818) $3,308
======= ======
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 November 30, 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,
contains customary restrictive covenants and requires 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 September 30, 2000, the
Company was in compliance with these covenants.
The Term Loan is payable in monthly principal payments of $209,000 plus
interest, with a final payment due in April 2004. At September 30, 2000, the
Term Loan balance outstanding was $5.4 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 September 30, 2000.
4. SHAREHOLDERS' EQUITY
Treasury Stock--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 stock and will be available for use in connection with the
Company's stock option 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 20,800 shares at a
total cost of approximately $84,000 as of September 30, 2000.
7
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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" income per share was 7,060,836 and 7,077,723 for the
three months ended September 30, 2000 and 1999, respectively and 7,066,464 and
7,077,723 for the nine months ended September 30, 2000 and 1999, respectively.
The number of weighted average shares for "diluted" income per share was
7,130,419 and 7,077,723 for the three months ended September 30, 2000 and
1999, respectively and 7,074,713 and 7,077,723 for the nine months ended
September 30, 2000 and 1999, respectively.
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.
8
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Selected information as to the operations of the Company by segment is as
follows (in thousands):
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- ----------------
2000 1999 2000 1999
------ ------ ------- -------
Revenue:
Vessel construction.................... $4,408 $4,886 $16,499 $18,769
Repair and conversions................. 4,494 2,044 10,889 6,331
------ ------ ------- -------
Total revenue........................ 8,902 6,930 27,388 25,100
------ ------ ------- -------
Cost of revenue:
Vessel construction.................... 3,368 4,052 12,413 13,957
Repair and conversions................. 3,426 1,679 8,060 5,162
------ ------ ------- -------
Total cost of revenue................ 6,794 5,731 20,473 19,119
------ ------ ------- -------
Gross profit:
Vessel construction.................... 1,040 834 4,086 4,812
Repair and conversions................. 1,068 365 2,829 1,169
------ ------ ------- -------
Total gross profit................... 2,108 1,199 6,915 5,981
Selling, general and administrative
expenses................................ 1,053 914 3,398 2,904
------ ------ ------- -------
Income from operations................... 1,055 285 3,517 3,077
Interest expense......................... (72) (152) (356) (491)
Other income, net........................ 128 81 315 203
------ ------ ------- -------
Income before income taxes............... 1,111 214 3,476 2,789
Provision for income taxes............... 485 143 1,492 1,194
------ ------ ------- -------
Net income............................... $ 626 $ 71 $ 1,984 $ 1,595
====== ====== ======= =======
Certain other financial information of the Company by segment is as follows
(in thousands):
Three
Months
Ended Nine Months
September Ended
30, September 30,
--------- -------------
2000 1999 2000 1999
---- ---- ------ ------
Depreciation and amortization expense:
Vessel construction.............................. $194 $198 $ 582 $ 596
Repair and conversions........................... 118 131 360 393
Included in selling, general and administrative
expenses........................................ 237 236 710 702
---- ---- ------ ------
Total depreciation and amortization expense.... $549 $565 $1,652 $1,691
==== ==== ====== ======
Three
Months Nine Months
Ended Ended
September September
30, 30,
----------- -----------
2000 1999 2000 1999
------ ---- ------ ----
Capital expenditures:
Vessel construction............................... $ 113 $231 $ 413 $264
Repair and conversions............................ 2,025 129 3,603 158
Other............................................. 130 20 230 244
------ ---- ------ ----
Total capital expenditures...................... $2,268 $380 $4,246 $666
====== ==== ====== ====
9
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total assets of the Company by segment is as follows at September 30, 2000
and December 31, 1999 (in thousands):
2000 1999
------- -------
Total assets:
Vessel construction........................................ $29,429 $34,307
Repair and conversions..................................... 9,781 5,663
Other...................................................... 12,954 5,150
------- -------
Total assets............................................. $52,164 $45,120
======= =======
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
$763,000.
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 $0.6 million at September 30, 2000 and $1.8 million at 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. In
June 2000, the FASB issued SFAS No. 138, which addresses a limited number of
issues causing implementation difficulties for numerous entities. The Company
will adopt SFAS No. 133, as amended, 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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101, as amended, is effective beginning in the fourth quarter
of fiscal year 2000. Management currently believes that this new accounting
pronouncement should not have any material effect on the Company's
consolidated financial statements.
10
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 on 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,
offshore tug boats and offshore supply vessels. 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 in the past by decreased activity in the
offshore oil and gas industry. Recently the Company has experienced an
increase in demand for products and services due to the upturn in activity in
the offshore oil and gas industry. Activity by other 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. 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
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 stock 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 20,800 shares at a total cost of
approximately $84,000 through September 30, 2000.
On May 1, 2000 the Company's Board of Directors authorized the construction
of a new dry-dock, up to a 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. The drydock is scheduled to be placed in service during
the first quarter of 2001.
On October 23, 2000 the Company's Board of Directors authorized management
to purchased 52 acres of land in Amelia, Louisiana for $1.3 million. The land
is strategically located on the Intracoastal Waterway approximately 30 miles
from the Gulf of Mexico and provides the Company with the opportunity for
development.
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
(In thousands)
Three Months Ended Nine Months Ended September
September 30, 30,
---------------------------- ------------------------------
2000 1999 2000 1999
------ ------ ------- -------
Financial Data:
Revenue
Vessel construction... $4,408 49.5% $4,886 70.5% $16,499 60.2% $18,769 74.8%
Repair and
conversions.......... 4,494 50.5% 2,044 29.5% 10,889 39.8% 6,331 25.2%
------ ------ ------- -------
Total revenue....... 8,902 100.0% 6,930 100.0% 27,388 100.0% 25,100 100.0%
------ ------ ------- -------
Cost of revenue
Vessel construction... 3,368 76.4% 4,052 82.9% 12,413 75.2% 13,957 74.4%
Repair and
conversions.......... 3,426 76.2% 1,679 82.1% 8,060 74.0% 5,162 81.5%
------ ------ ------- -------
Total cost of
revenue............ 6,794 76.3% 5,731 82.7% 20,473 74.8% 19,119 76.2%
------ ------ ------- -------
Gross profit
Vessel construction... 1,040 23.6% 834 17.1% 4,086 24.8% 4,812 25.6%
Repair and
conversions.......... 1,068 23.8% 365 17.9% 2,829 26.0% 1,169 18.5%
------ ------ ------- -------
Total gross profit.. 2,108 23.7% 1,199 17.3% 6,915 25.2% 5,981 23.8%
S G & A expenses........ 1,053 11.8% 914 13.2% 3,398 12.4% 2,904 11.6%
------ ------ ------- -------
Income from operations.. 1,055 11.9% 285 4.1% 3,517 12.8% 3,077 12.3%
Interest expense........ 72 0.8% 152 2.2% 356 1.3% 491 2.0%
Other expenses (income),
net.................... (128) -1.4% (81) -1.2% (315) -1.2% (203) -0.8%
------ ------ ------- -------
Income before income
taxes.................. 1,111 12.5% 214 3.1% 3,476 12.7% 2,789 11.1%
Income taxes............ 485 5.4% 143 2.1% 1,492 5.4% 1,194 4.8%
------ ------ ------- -------
Net income.............. $ 626 7.0% $ 71 1.0% $ 1,984 7.2% $ 1,595 6.4%
====== ====== ======= =======
EBITDA(1)............... $1,604 18.0% $ 850 12.3% $ 5,169 18.9% $ 4,768 19.0%
====== ====== ======= =======
Operating Data: Labor
hours.................. 112 126 396 405
12
- --------
(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.
Three Months Ended September 30, 2000 Compared with Three Months Ended
September 30, 1999.
During the three months ended September 30, 2000, the Company generated
revenue of $8.9 million, an increase of approximately $2.0 million, or 28.5%,
compared to $6.9 million generated for the three months ended September 30,
1999. The increase was due to a $2.5 million (120.0%) increase in repair and
conversion revenue to $4.5 million for the three months ended September 30,
2000 compared to $2.0 million for the three months ended September 30, 1999.
The increase was partially offset by a $478,000 (9.8%) decrease in vessel
construction revenue to $4.4 million for the three months ended September 30,
2000, compared to $4.9 million for the three months ended September 30, 1999.
The decrease in vessel construction revenue was attributable to the decrease
in vessel construction production hours which decreased by 31.0% during the
three months ended September 30, 2000 compared to the three months ended
September 30, 1999. This decline was primarily due to the construction of the
drydock by production personnel which absorbed hours which could otherwise
have been available for billable work. The increase in repair and conversion
revenue during the three months ended September 30, 2000 compared to the three
months ended September 30, 1999 was primarily attributable to (1) two
conversion jobs in progress during the three months ended September 30, 2000,
which required more material and equipment as compared to projects completed
or in progress during the three months ended September 30, 1999 and (2)
increased demand for repair and conversions due to increased offshore oil and
gas activity. Repair and conversion hours increased by 22.4% during the three
months ended September 30, 2000 compared to the three months ended
September 30, 1999.
Gross profit increased $909,000, or 75.8% to $2.1 million (23.7% of
revenue) for the three months ended September 30, 2000 as compared to gross
profit of $1.2 million (17.3% of revenue) for the three months ended September
30, 1999. Vessel construction gross profit increased $206,000 or 24.7% to $1.0
million for the three months ended September 30, 2000 as compared to vessel
construction gross profit of $834,000 for the three months ended September 30,
1999. Repair and conversion gross profit increased $703,000 or 192.6% to $1.1
million for the three months ended September 30, 2000 as compared to repair
and conversion gross profit of $365,000 for the three months ended September
30, 1999. The increase in vessel construction gross profit was primarily due
to more profitable jobs completed or in progress during the three months ended
September 30, 2000, as compared to the three months ended September 30, 1999.
The increase in repair and conversion gross profit was primarily due to
greater activity and more profitable jobs completed or in progress during the
three months ended September 30, 2000 as compared to the three months ended
September 30, 1999.
Repair and conversion gross profit margins increased to 23.8% for the three
months ended September 30, 2000, compared to gross profit margins of 17.9% for
the three months ended September 30, 1999. Vessel construction gross profit
margins increased to 23.6% for the three months ended September 30, 2000,
compared to gross profit margins of 17.1% for the three months ended September
30, 1999.
Selling, general and administrative expenses increased $139,000, or 15.2%,
to $1.1 million (11.8% of revenue) for the three months ended September 30,
2000, as compared to $914,000 (13.2% of revenue) for the three months ended
September 30, 1999. These increases were primarily due to an increase in
performance bonuses accrued.
13
Income before income taxes increased $897,000 to $1.1 million for the three
months ended September 30, 2000 as compared to income before income taxes of
$214,000 for the three months ended September 30, 1999, primarily due to the
factors listed above.
The Company had net income of $626,000 for the three months ended September
30, 2000 as compared to net income of $71,000 for the three months ended
September 30, 1999. Interest expense decreased $80,000 to $72,000 for three
months ended September 30, 2000 as compared to interest expense of $152,000
for the three months ended September 30, 1999 due to a reduction of debt and
capitalization of interest related to the construction of the drydock.
The Company had income tax expense of $485,000 (43.7% effective tax rate)
for the three months ended September 30, 2000, compared to income taxes of
$143,000 (66.8% effective tax rate) for the three months ended September 30,
1999. The Company's effective tax rate is higher than its statutory tax rate
because its cost in excess of net assets acquired is not amortized for tax
purposes.
Nine Months Ended September 30, 2000 Compared with Nine Months Ended
September 30, 1999.
During the nine months ended September 30, 2000, the Company generated
revenue of $27.4 million, an increase of approximately $2.3 million, or 9.1%,
compared to $25.1 million generated for the nine months ended September 30,
1999. The increase was due to a $4.6 million (72.0%) increase in repair and
conversion revenue to $10.9 million for the nine months ended September 30,
2000 compared to $6.3 million for the nine months ended September 30, 1999.
The increase was partially offset by a $2.3 million (12.1%) decrease in vessel
construction revenue to $16.5 million for the nine months ended September 30,
2000, compared to $18.8 million for the nine months ended September 30, 1999.
The decrease in vessel construction revenue was attributable to the decrease
in vessel construction production hours by 25.8% during the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999. This
decline was primarily due to the construction of the drydock by production
personnel, tighter market conditions and competition for vessel construction
projects, and the delay in the commencement of certain vessel construction
projects. The increase in repair and conversion revenue during the nine months
ended September 30, 2000 compared to the nine months ended September 30, 1999
was primarily attributable to (1) increased demand for repair and conversions
due to increased offshore oil and gas activity and (2) two conversion jobs in
progress during the nine months ended September 30, 2000, which required more
material and equipment as compared to projects completed or in progress during
the nine months ended September 30, 1999. Repair and conversion hours
increased by 42.5% during the nine months ended September 30, 2000 compared to
the nine months ended September 30, 1999.
Gross profit increased $934,000, or 15.6% to $6.9 million (25.2% of
revenue) for the nine months ended September 30, 2000 as compared to gross
profit of $6.0 million (23.8% of revenue) for the nine months ended September
30, 1999. Vessel construction gross profit decreased $726,000 or 15.1% to $4.1
million for the nine months ended September 30, 2000 as compared to vessel
construction gross profit of $4.8 million for the nine months ended September
30, 1999. Repair and conversion gross profit increased $1.7 million or 142.0%
to $2.8 million for the nine months ended September 30, 2000 as compared to
repair and conversion gross profit of $1.2 million for the nine months ended
September 30, 1999. The decline in vessel construction gross profit was
primarily due to the decrease in activity during the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999.
The increase in repair and conversion gross profit was primarily due to
greater activity and more profitable jobs completed or in progress during the
nine months ended September 30, 2000 as compared to the nine months ended
September 30, 1999.
Vessel construction gross profit margins decreased to 24.8% for the nine
months ended September 30, 2000, compared to gross profit margins of 25.6% for
the nine months ended September 30, 1999. Repair and conversion gross profit
margins were 26.0% for the nine months ended September 30, 2000, compared to
gross profit margins of 18.5% for the nine months ended September 30, 1999.
14
Selling, general and administrative expenses increased $494,000, or 17.0%,
to $3.4 million (12.4% of revenue) for the nine months ended September 30,
2000, as compared to $2.9 million (11.6% of revenue) for the nine months ended
September 30, 1999. These increases were primarily due to an increase in
employee related costs and taxes and licenses.
Income before income taxes increased $687,000 to $3.5 million for the nine
months ended September 30, 2000 as compared to income before income taxes of
$2.8 million for the nine months ended September 30, 1999, primarily due to
the factors listed above.
The Company had net income of $2.0 million for the nine months ended
September 30, 2000 as compared to net income of $1.6 million for the nine
months ended September 30, 1999. Interest expense decreased $135,000 to
$356,000 for nine months ended September 30, 2000 as compared to interest
expense of $491,000 for the nine months ended September 30, 1999 due to a
reduction of debt and capitalization of interest related to the construction
of the drydock.
The Company had income tax expense of $1.5 million (42.9% effective tax
rate) for the nine months ended September 30, 2000, compared to income taxes
of $1.2 million (42.8% effective tax rate) for the nine months ended September
30, 1999. The Company's effective tax rate is higher than its statutory tax
rate because its cost in excess of net assets acquired is not amortized for
tax purposes.
Liquidity and Capital Resources
Historically, the Company has funded its business through funds generated
from operations. Net cash provided by operations was $11.7 million for the
nine months ended September 30, 2000 due to an increase in accounts payable
and accrued expenses, and billings related to costs and estimated earnings on
uncompleted contracts, offset by an increase in accounts receivable 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 $5.7 million at September 30, 2000 compared to
$8.2 million at December 31, 1999. The decrease in the working capital
position was primarily due to $4.2 million in capital expenditures for plant
and equipment.
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 $4.2 million for the nine months ended September 30,
2000 was for improvements to facilities and equipment of which approximately
$3.5 million was for work in progress of the construction of a new dry-dock
authorized by the Company's Board of Directors on May 1, 2000.
The Board authorized the construction of a new dry-dock, up to a 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. The drydock is scheduled
to be placed in service during the first quarter of 2001.
Net cash used in financing activities was $1.9 million for the nine months
ended September 30, 2000 relating to the repayment of debt of $1.9 million,
the repurchase of 20,800 shares of the Company's stock at a total cost of
approximately $84,000, and proceeds from exercised stock options of $81,000.
The repurchase of the Company's stock was in conformity with the Company's
Board of Directors authorization on March 21, 2000 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 stock 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.
15
On October 23, 2000 the Company's Board of Directors authorized management
to purchased 52 acres of land in Amelia, Louisiana for $1.3 million. The land
is strategically located on the Intracoastal Waterway approximately 30 miles
from the Gulf of Mexico and provides the Company with the opportunity for
development.
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 November 30, 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,
contains customary restrictive covenants and requires 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 September 30, 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 in April 2004. At September 30, 2000, the
Term Loan balance outstanding was $5.4 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 September 30, 2000.
The Company's backlog of $25.4 million at September 30, 2000 was
attributable to 14 projects, of which $6.3 million was attributable to four
government projects and the remainder to commercial projects. On September 30,
1999 the Company's backlog was $25.1 million and was attributable to 16
projects, of which $13.5 million was attributable to nine government projects
and the remainder to commercial projects.
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 April 2001. The Company may
pursue acquisition opportunities it believes are attractive if and when such
opportunities arise. The timing, size or success of any acquisition effort and
the associated potential capital commitments cannot be predicted.
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. In
June 2000, the FASB issued SFAS No. 138 which addresses a limited number of
issues causing implementation difficulties for numerous entities. The Company
will adopt SFAS No. 133, as amended, 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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101, as amended, is effective beginning in the fourth quarter
of fiscal year 2000. Management currently believes that this new accounting
pronouncements should not have any material effect on the Company's
consolidated financial statements.
16
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the risk of changing interest rates. Interest on
$5.4 million of the Company's long-term debt with an interest rate of 8.62% at
September 30, 2000 was variable based on short-term market rates. Thus a
general increase of 1.0% in short-term market interest rates would result in
additional interest cost of $54,000 per year if the Company were to maintain
the same debt level and structure.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various routine 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 such proceedings in the
aggregate, even if determined adversely, would not have a material adverse
effect on the Company's business or financial condition.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 -- Amended and Restated Certificate of Incorporation (filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for year ended
December 31, 1998 and incorporated by reference herein).
3.2 -- Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for year ended December 31, 1998 and
incorporated by reference herein).
4.1 -- Specimen Common Stock Certificate (filed as Exhibit 4 to the
Company's Registration Statement on Form 8-A and incorporated by
reference herein).
4.2 -- Registration Rights Agreement by and among Conrad Industries, Inc.,
J. Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John
P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glen Alan
Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court
Trust, The James P. Conrad Trust, William H. Hidalgo, and Cecil A.
Hernandez (filed as Exhibit 4.2 to the Company's Annual Report on
Form 10-K for year ended December 31, 1998 and incorporated by
reference herein).
4.3 -- Registration Rights Agreement between Conrad Industries, Inc. and
Morgan Keegan & Company, Inc (filed as Exhibit 4.3 to the Company's
Annual Report on Form 10-K for year ended December 31, 1998 and
incorporated by reference herein).
27 -- Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any Current Reports on Form 8-K during the
quarter which this report is filed.
17
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: November 9, 2000
CONRAD INDUSTRIES, INC.
/s/ Cecil A. Hernandez
By:__________________________________
Cecil A. Hernandez
Senior Vice President and
Chief Financial Officer
18