Conrad Industries, Inc.

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Conrad Industries, Inc.

1501 Front Street
Morgan City, Louisiana 70381
U.S.A.
Telephone: (985) 384-3060
Fax: (985) 385-4090
Web site: http://www.conradindustries.com

Public Company
Incorporated: 1998
Employees: 284
Sales: $41 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: CNRD
NAIC: 336611 Ship Building and Repairing

Conrad Industries, Inc. was incorporated in 1998 as a holding company for its two major operations: Conrad Shipyard, Inc. and Orange Shipbuilding Company, Inc. The main business of these two companies is the construction, conversion, and repair of a variety of marine vessels for both commercial and governmental customers. Among other types, they build large and small deck barges, single and double hull deck barges, lift boats, push boats, tow boats, offshore tug boats, and offshore supply vessels. In addition to building and repairing these, the companies fabricate modular components of offshore drilling rigs and FPSOs (floating, production, storage, and offloading vessels), including sponsons, stability columns, blisters, and pencil columns. Conrad Industries owns and operates three shipyards at three sites along the Gulf Coast at Morgan City and Amelia, Louisiana, and Orange, Texas. Although it is a public company, approximately 62 percent of its outstanding stock is owned or controlled by the Conrad family.

Starting out as a Boat Builder: 1948–51

When J. Parker Conrad formed the company bearing his name, his focus was on building shrimp boats. He would later remark that it was an interesting step to take, as he did not live near shipyards or shrimp boats when he was growing up. He did get into the shrimp business, however, and before setting out to build boats he ran two shrimp packing houses, both of which he eventually sold to General Foods to help finance the cost of his shipbuilding business, which he founded in Morgan City, Louisiana, in 1948.

Morgan City would prove a fortuitous site. Located at the junction of the Atchafalaya River and Intracoastal Waterway, some 18 miles north of the Gulf of Mexico, it was almost perfectly situated as a primary, offshore-oil operations service location and was destined to play a major role in both the shrimping and offshore oil industries over the remainder of the 20th century.

Years of Expansions: 1952–83

Initially, Conrad Industries only built boats, but in 1952 it expanded its operations when, after acquiring one of the Gulf Coast’s dry docks, it was able to undertake boat repairs. That ability gave the company an important new dimension. Among other things, it could now prepare various vessels for inspections by regulatory agencies, including the Coast Guard and the American Bureau of Shipping (ABS).

When off-shore oil exploration and drilling business began flourishing on the Gulf Coast, Conrad devoted much of its energies to fabricating steel barges and other types of boats for the offshore oil and gas industry, including barges and crew and supply boats used for running personnel and materials back and forth between shore installations and offshore oil and gas drilling and production platforms.

Particularly during the 1970s, Conrad Shipyard built one oil barge after another, at times pressed to keep up with the demand. It also expanded its repair capabilities. In 1978, the company spent $1 million to construct a 36,000 square-foot, state-of-the-art covered facility which, according to Kathy Bergen Smith in Workboat, came “to define the niche filled by Conrad.” As the boom continued, Conrad’s business became almost exclusively tied to the fortunes of the offshore oil and gas industry.

Conrad Refocuses Its Operations: 1984–96

When the oil and gas balloon burst in 1984, both Morgan City and Conrad were hit very hard. The town heavily depended on the oil industry, and with the crash it went into a deep recession. During the worst period, unemployment there reached 27 percent, and about 1,500 residents left the community to look elsewhere for work. Many oil service companies were forced to close down, while others, like Conrad, had to refocus their operations.

Conrad turned to constructing and repairing vessels for both foreign markets and other kinds of commercial businesses outside the petroleum industry, although given its location, the company still depended on drumming up whatever business it could get from reeling offshore gas and oil operations. However, it could no longer risk depending exclusively on that industry for its survival.

Although it limped along for five years, by 1989 Conrad had made a significant recovery. That year it went back on double shifts, and its employment rate rose 100 percent from the previous year. Among other types of vessels built for customers outside the oil industry in 1989, Conrad made floating drydocks for South American clients, multipurpose construction barges, and even an excursion boat for use in the Bahamas.

In 1994, having guided his company through its lean years and renewed health in the late 1980s and early 1990s, Conrad stepped down as president and CEO, although he remained chairman. Bill Hidalgo, who had left Oil & Gas Marine to work for Conrad Shipbuilding in 1994, succeeded him in those posts and took over the day-to-day operational control of the business.

Growth through Acquisition and IPO: 1997 and Beyond

In 1997, Conrad made a major purchase when it acquired Orange Shipbuilding Co. Inc. of Orange, Texas. Because the deal included a 140,000-square-foot facility located on the Sabine River, the acquisition allowed Conrad to extend and enlarge its building capabilities.

Over its history, Orange, founded in 1974, had built a variety of vessels for use in offshore oil and gas exploration and production. Among other kinds of vessels, it built tugboats and ferry boats as well as barges and other vessels for the U.S. Navy. Also, in 1996, just before its acquisition by Conrad, Orange had been awarded a U.S. Army contract to build two pusher tugs, with an option for six more.

Orange’s facility allowed for the indoor construction of boats and barges up to 400 feet in length, a capacity that permitted Conrad to build other types of marine vessels there. With the acquisition of Orange, Conrad also began fabricating modular components for offshore drilling rigs and FPSOs (floating, production, storage, and offloading vessels). Still, the main focus at the company’s Orange shipyard would gradually shift to the building of small and medium-sized vessels for the federal government.

The next year, 1998, Conrad began operations at a conversion and repair facility in Amelia, Louisiana. Previously owned by Brown & Root, the facility consisted of two vessel slips and an 8,000-square-foot building. Located on about 16 acres on the Bayou Boeuf, about five miles from Morgan City, the site offered both convenience and flexibility.

It was also in 1998 that Conrad was reorganized and reincor-porated as a holding company and went public. In June of that year it made its initial public offering (IPO), issuing 2.1 million shares of stock. Part of the money raised was used to make improvements to the Morgan City and Orange shipyards, but much of it was used for other projects, including expansions in its operations. In October 2000, at a cost of $1.3 million, Conrad acquired an additional 52 acres of land in Amelia, located on the Intracoastal Waterway, within a mile of the company’s existing Amelia facility. Plans were soon put into operation to develop about 16 acres of the property for a repair and conversion facility. The following May, the company began construction of a new ABS classed and certified dry dock capable of lifting 10,000 tons, a capacity over three times that of its next largest dry dock. The new dry dock, 280 feet long and 160 feet wide, was put into operation in March 2001. Although it cost $5.7 million to build, it greatly enhanced the company’s ability to repair and convert larger vessels, making the company more competitive in its industry.

During fiscal 2001, 71.7 percent of Conrad’s total revenue was derived from its vessel construction segment and 28.3 percent from its repair segment. Of the revenue from its construction segment, 61.2 percent came from energy-related vessel construction, 15.1 percent from government sources, and 23.7 percent from other commercial businesses. During that year there was also a changing of the guard when Kenneth G. Myers, Jr. replaced Hidalgo as president and CEO. Previously, Myers had worked at Northrop Grumman, where he had last served as vice-president of that company’s Avondale Operations in charge of the Navy’s newest shipbuilding program, the LPD (a kind of vessel combing the capabilities of three existing types: the landing ship (LSD), the tank landing ship (LST), and the attack cargo ship (LKA). The next year, Myers brought Northrop Grumman’s Avondale Operations associate, Lewis J. Derbes, Jr., into the Conrad fold as vice-president and CFO. Just prior to joining Conrad, Derbes had served two years as vice-president and comptroller with his former company.

Company Perspectives

Conrad is committed to maintaining and enhancing its reputation for quality, service, and integrity. Plans continue to be to develop new markets and expand existing products, services, customers, and markets while maintaining attractive profit margins. Conrad continues to position itself to increase capacity and services to meet the growing needs of customers while enhancing shareholder value.

Under Myers’ leadership, part of the company’s forward-looking strategy called for even greater expansion of its repair and conversion capacity, particularly as it related to offshore energy operations. The company also sought to expand through diversifying into the construction of aluminum vessels. In August of 2002, it announced that it had drafted a non-binding letter of intent to purchase Swiftshifts Shipbuilders, LLC and Swiftships Technologies for about $12.5 million in cash. These sister companies, with two shipyards in Morgan City, designed, built, overhauled, and repaired aluminum crew, supply, and patrol boats, as well as other marine vessels. However, in October, experiencing a downturn in its business—in part blamed on the effect that the September 11, 2001 terrorist attack on New York and Washington, D.C., had on its industry—Conrad terminated negotiations.

In 2003, Conrad landed a few significant construction contracts. Some of these were totally unrelated to the energy industry, including a $9.5 million steel ferry built for the Alaska Marine Highway System. The 149-passenger, 18-vehicle, 181-foot ferry, modeled after a North Sea supply boat, was designed to withstand winds over 30 knots and seas up to 20 feet.

The company also recommitted itself to further growth in 2003. Notably, it opened its new facility in Amelia, moved its two largest drydocks to that site, and then quickly added two more. The new facility, which could handle deeper draft vessels than was possible at Morgan City, further increased the range of the company’s repair and conversion capabilities. In June of the same year, it also began constructing a $5.5 million shipbuilding yard in Amelia. According to Conrad’s CFO, Lew Derbes, as reported in the Times-Picayune, the new operation, largely financed by industrial revenue bonds issued by St. Mary Parish, would specialize in the construction and repair of aluminum craft, including “supply boats for the offshore oil and gas industry, patrol vessels for foreign governments, and high speed ferries.” Under the arrangement, the St. Mary Parish would own the facility and lease it to Conrad.

Conrad has enjoyed steady growth despite the fact that a significant part of its business is related to the volatile energy industry, which has resulted in some lean years. However, its client retention rate has been high, among the best in its industry, and the diversity and range of its customers has helped buffer it against energy industry downturns. It services both domestic and international businesses and agencies, which, according to its Web site, include “marine service companies, offshore support companies, rig fabricators, offshore and inland barge and support vessel operators, offshore construction and drilling contractors, diving companies, energy companies, the U.S. Army, the U.S. Navy, U.S. Coast Guard and Corps of Engineers.” That client base has and should continue to help Conrad maintain an enviable stability.

Principal Subsidiaries

Conrad Shipyard L.L.C.; Orange Shipbuilding Company, Inc.

Principal Competitors

First Wave/New Park Shipbuilders; Northrop Grumman Corporation; Todd Shipyards Corporation.

Key Dates

1948:: J. Parker Conrad founds a boat-building company in Morgan City, Louisiana.
1952:: Conrad expands into repair operations after acquiring one of the first drydocks on the Gulf Coast.
1962:: The company starts building and repairing vessels for the offshore oil and gas industries.
1984:: Hit by the widespread oil-business downturn, Conrad begins building and repairing vessels for other kinds of domestic and foreign markets.
1994:: Founder Conrad steps down as company’s president but remains chairman; Bill Hidalgo succeeds him as president and CEO.
1997:: The company purchases Orange Shipbuilding.
1998:: Conrad Industries, Inc. is newly incorporated as a holding company for Conrad Shipyard, Inc. and Orange Shipbuilding Company, Inc., and goes public.
2001:: A new, state-of-the-art dry dock at the Morgan City shipyard is completed; Kenneth G. Myers, Jr., is named company president and CEO.