Conrad Industries, Inc. 2010 ANNUAL REPORT
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Section I Conrad Industries, Inc. 2010 ANNUAL REPORT TABLE OF CONTENTS REPORT TO OUR FELLOW SHAREHOLDERS.................................................................................................................. 3 An Important Note About This Report..................................................................................................................................... 4 Business Overview.................................................................................................................................................................... 5 General ................................................................................................................................................................................. 5 Operations............................................................................................................................................................................. 8 Customers............................................................................................................................................................................. 9 Contract Procedure, Structure and Pricing.......................................................................................................................... 10 Bonding and Guarantee Requirements ............................................................................................................................... 10 Engineering......................................................................................................................................................................... 11 Materials and Supplies........................................................................................................................................................ 11 Vessel Construction Process............................................................................................................................................... 11 Competition ........................................................................................................................................................................ 11 Employees .......................................................................................................................................................................... 12 Insurance............................................................................................................................................................................. 12 Regulation........................................................................................................................................................................... 12 Risk Factors........................................................................................................................................................................ 13 Properties ............................................................................................................................................................................... 19 Morgan City Shipyard ........................................................................................................................................................ 19 Amelia Shipyards ............................................................................................................................................................... 20 Orange Shipyard................................................................................................................................................................. 20 Legal Proceedings .................................................................................................................................................................. 21 Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities......... 21 Selected Financial Data ......................................................................................................................................................... 22 Management’s Discussion and Analysis of Financial Condition and Results of Operations................................................. 24 Overview ............................................................................................................................................................................ 24 Results of Operations.......................................................................................................................................................... 27 Liquidity and Capital Resources......................................................................................................................................... 29 Directors and Executive Officers............................................................................................................................................ 30 Executive Compensation......................................................................................................................................................... 31 Option Grants During 2010.................................................................................................................................................... 32 Directors’ Compensation........................................................................................................................................................ 32 Agreements with Directors and Executive Officers ................................................................................................................ 32 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters............................... 33 Certain Relationships and Related Transactions ................................................................................................................... 34 Annual Incentive Plan ............................................................................................................................................................ 34 Financial Statements .............................................................................................................................................................. 34 2010 Quarterly Results of Operations.................................................................................................................................... 35 Consolidated Financial Report............................................................................................................................................... 37 FORWARD-LOOKING-STATEMENTS In this Annual Report and in the normal course of business, we, in an effort to help keep our stockholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward looking statements. All statements contained herein, other than statements of historical fact, are forward looking statements. When used in this Annual Report, the words “anticipate,” “believe,” “estimate” and “expect” and similar expressions are intended to identify forward looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including our reliance on cyclical industries, our reliance on principal customers and government contracts, our 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 our backlog at the option of customers, operating risks, competition for marine vessel contracts, our 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. These and other risks and assumptions are discussed in more detail in our Annual Report. 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. We do not intend to update these forward looking statements. Although we believe that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove correct. 2 REPORT TO OUR FELLOW SHAREHOLDERS We are very pleased with our financial results for 2010, in light of the economic and financial crisis which began in the latter part of 2008 and the Deepwater Horizon incident and ensuing U.S. government actions which have basically shut down oil and gas exploration in the Gulf of Mexico. Demand declined beginning in late 2008 and we experienced pricing pressure from our customers and potential customers throughout 2009 and 2010. Our backlog declined to $38.3 million at the end of 2009 from $56.3 million in 2008 and $80.9 million in 2007. Our Board of Directors approved the construction of stock barges from time to time, to cover temporary gaps in our production schedules, which helped maintain cost efficiencies and retain our valuable employees. At December 31, 2010 we had seven stock barges under construction which are included in our inventory at a cost of $9.5 million. At