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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003

OR

For the transition period from                     to                     

Commission File No. 000-24263

CONRAD INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

(985) 702-0195

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

Preferred Stock Purchase Rights

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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨    No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $8.2 million as of June 30, 2003, based on the closing sales price of the registrant’s common stock on the NASDAQ National Market on such date of $2.41 per share. For purposes of the preceding sentence only, all directors, executive officers and Katherine Conrad Court are assumed to be affiliates. As of March 29, 2004, 7,235,954 shares of common stock of Conrad Industries, Inc. were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Conrad Industries, Inc.’s definitive proxy statement relating to the registrant’s 2004 annual meeting of stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of the registrant’s fiscal year ended December 31, 2003, are incorporated by reference into Part III of this Form 10-K.

PART I

Item 1: Business

Overview

General

We specialize in the construction, conversion and repair of a wide variety of steel and aluminum marine vessels for commercial and governmental customers. Through our subsidiaries, we operate four shipyards: one in Morgan City, Louisiana, two in Amelia, Louisiana and one in Orange, Texas. During 2003, we expanded into the aluminum marine fabrication and repair business after transforming one of our existing repair yards in Amelia, Louisiana into a facility specifically designed to handle aluminum marine fabrication and repair. In addition, in February 2003, we significantly expanded our repair capabilities when we opened our second facility in Amelia. We now have the four largest of our six drydocks at that facility.

Our new construction segment accounted for 67.5%, 75.1%, and 71.7 % of our total revenue for 2003, 2002 and 2001, respectively. Vessels we construct include barges, tug boats, towboats, ferries, lift boats and aluminum crew/supply vessels. All of our new construction is performed indoors, which we consider to be a significant strategic advantage. Our facilities allow us to construct vessels up to 400 feet in length.

Our repair and conversion segment accounted for 32.5%, 24.9%, and 28.3% of our total revenue for 2003, 2002, and 2001, respectively. We repair a wide variety of marine vessels. Our conversion projects are included in our repair segment and 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.

We serve a variety of customers and markets, including the Gulf of Mexico oil and gas industry, other commercial markets, various local and state governments and the U.S. government. We believe that our ability to provide products and services to a variety of customers is a competitive strength. Due to the continuing depressed conditions in the Gulf of Mexico oil and gas industry, our new construction backlog has shifted to consist primarily of government contracts. For example, at December 31, 2003, our backlog consisted of 73.8% government projects, 6.3% energy projects and 19.9% other commercial projects. By comparison, energy projects accounted for 9.9%, 32.3% 59.8% and 33.0% of our backlog at December 31, 2002, 2001, 2000 and 1999, respectively. In addition, because much of our repair work comes from the Gulf of Mexico oil and gas industry, depressed conditions in that industry have adversely affected our repair segment. For 2003, 2002, and 2001, we received approximately 37.0%, 59.4 %, and 66.8%, respectively, of our total revenues from customers in the offshore oil and gas industry, 49.2%, 19.9 %, and 11.7% from government customers and 13.8%, 20.7%, and 21.5% from other commercial customers.

The depressed conditions in the Gulf of Mexico oil and gas industry have caused a reduction in our labor hours and have adversely affected our financial performance. Our repair business has high fixed costs primarily associated with the depreciation of facilities, floating drydocks and the marine travel lift. As a result, our margins and profits are adversely affected when the volume of our work declines. These fixed costs have been increased by our expansion into the aluminum business and the opening of our new Amelia repair yard. The reduced demand and resulting increased competition have led us to bid some work from time to time at margins lower than we would have been willing to accept historically. In addition, we have experienced inefficiencies associated with the shift in the nature of our backlog to primarily government work which requires more administrative functions than our traditional commercial customers. We have responded to these challenges by, among other things, aggressively reducing our costs, pursuing new business opportunities, and seeking to operate more efficiently. Our financial performance is discussed in more detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

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Internal Expansion

In the fourth quarter of 2003, we opened our Conrad Aluminum yard in Amelia, Louisiana and announced our first new construction contract at that facility, an aluminum crew/supply boat. We purchased the yard for approximately $1.0 million in 1996 and commenced steel conversion and repair operations there in 1998. In 2003, we obtained approximately $5.5 million in funding to convert the yard into an aluminum marine fabrication and repair facility capable of serving both commercial and government customers. The funding was primarily used to construct a 37,500 square foot two-bay building; to purchase a 300 ton travel lift, six overhead cranes and other tools and equipment; and to make modifications and improvements to the docks. As part of the financing, we contributed the facility to the St. Mary Parish Industrial Development Board and have entered into a 15 year lease with an option to extend the lease or repurchase the facility. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

In the first quarter of 2003, we opened a new steel marine vessel repair and conversion yard at another location in Amelia, Louisiana, which is located within one mile of Conrad Aluminum. We refer to this facility as “Conrad Deepwater.” The facility is located on a 52-acre previously undeveloped site that we purchased in 2000 for $1.3 million. During 2002 and 2003, we invested approximately $7.0 million developing approximately 14 acres of the site into the new facility. The development included clearing the land, dredging, installing a steel sheet-pile bulkhead system, constructing a 5,400 square foot building, making other infrastructure improvements and outfitting the yard with tools and equipment. The facility allows us to handle vessels with deeper drafts than we have historically been able to service at our other facilities. In addition, the infrastructure improvements allow for potential further development of the facility to accommodate vessel construction should the market so dictate. We currently have the four largest of our six drydocks at Conrad Deepwater.

During 2002, we completed an extension of one of our fabrication buildings at our Morgan City shipyard at a cost of approximately $800,000. The extension increased our enclosed building space by approximately 15,000 square feet and increased our efficiencies in making pre-fabricated components and in using modular construction techniques.

In the first quarter of 2001, we placed into operation a new American Bureau of Shipping-classed, state-of-the-art drydock that we constructed ourselves, beginning in May 2000. The drydock has a lifting capacity of 10,000 tons, which is 7,000 tons greater than the 3,000 ton lifting capacity of our next largest drydock. The cost was $5.7 million. The new 280’ long by 160’ wide dock allowed us to (1) increase our repair and conversion capacity; (2) lift and compete to repair larger vessels such as derrick and pipe laying barges and the large offshore service vessels recently built for the deep water drilling activities in the Gulf of Mexico; and (3) launch larger new vessel construction projects more competitively. In addition, constructing the drydock allowed us to maintain our skilled workforce during a period of slower activity in the yard. The drydock was originally put into operation at the Morgan City shipyard and was moved to Conrad Deepwater in February 2003.

History

Our company was founded in 1948 by J. Parker Conrad, Co-Chairman of our Board of Directors, and began operations at our shipyard in Morgan City, Louisiana. In December 1997, we paid approximately $22.8 million in cash (net of cash acquired) to purchase all of the stock of Orange Shipbuilding Company, Inc., which owns our shipyard in Orange, Texas. The acquisition expanded our new construction capacity and expanded our product capabilities into additional types of marine vessels, including vessels for the U.S. government and modular components for offshore drilling rigs and floating, production, storage and offloading vessels. Orange Shipbuilding has been engaged in shipbuilding since 1974. Our parent company Conrad Industries, Inc. was incorporated in March 1998 to serve as the holding company for our wholly-owned subsidiaries, currently Conrad Shipyard, L.L.C., Orange Shipbuilding Company, Inc. and Conrad Aluminum, L.L.C. We completed our initial public offering in June 1998 by issuing 2.1 million shares of common stock.

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Operations

Our principal operations consist of the construction, conversion and repair of a wide variety of steel and aluminum marine vessels for commercial and governmental customers.

Backlog

Our construction and fabrication projects in progress as of December 31, 2003 consisted of 14 vessels: four 124-foot towboats, two 295-foot dump scows, two small tugs, a 255-foot crane barge, a 180-foot passenger ferry, a 175-foot aluminum crew/supply vessel, a 120-foot spud barge, a 94-foot Z-drive tug, and a 55-foot crane barge. Our backlog (including remaining contract revenue for projects currently in progress) as of December 31, 2003 was approximately $43.6 million compared to $36.2 million as of December 31, 2002. Of this remaining contract revenue, approximately $22.7 million was attributable to a contract to build four towboats for the U.S. Army Corps of Engineers, $8.6 million was attributable to a contract to construct two dump scows for a commercial customer, and approximately $5.5 million was attributable to a contract to build a crane barge for the U.S. Army Corps of Engineers. We anticipate that the majority of the aggregate remaining revenue from firm contracts as of December 31, 2003 will be realized during fiscal 2004.

Construction of Vessels

We manufacture a variety of small and medium sized vessels for commercial and governmental customers. This activity accounted for 67.5%, 75.1%, and 71.7 % of our total revenue for 2003, 2002 and 2001, respectively. All of our new vessel construction is done indoors in well-lighted space specifically designed to accommodate construction of marine vessels up to 350 feet in length. As a result, marine vessel construction is not hampered by weather conditions, and we are able to more effectively utilize our workforce and equipment. We employ modular construction techniques and zone outfitting, which involve the installation of pipe, electrical wiring and other systems at the modular stage, thereby reducing construction time while at the same time simplifying systems integration and improving quality. At Orange, we also use computerized plasma arc metal cutting for close tolerances and automated shot blasting and painting processes for efficiency and high quality.

The following is a description of the main types of vessels we manufacture:

Offshore and Inland Barges. We build a variety of offshore barges, including tank, container and deck barges for commercial customers and YCs (yard carrier barges) and YONs (yard oiler Navy barges) for the U.S. Navy. We also build a variety of inland barges, including deck and tank barges. We have constructed a variety of barges used in the offshore oil and gas industry, including shale barges, pipe laying barges, oil and gas drilling barges, and oil and gas production barges. Our barges are also used in marine construction and are used by operators to carry liquid cargoes such as petroleum and drilling fluids, dry bulk cargoes such as aggregate, coal and wood products, deck cargoes such as machinery and equipment, and other large item cargoes such as containers and rail cars. Other barges function as cement unloaders and split-hull dump scows. We have built barges ranging from 50 feet to 400 feet in length, with as many cargo tanks, decks and support systems as necessary for the intended functions of the barges.

Lift Boats. Lift boats are used primarily to furnish a stable work platform for drilling rigs, to house personnel, equipment and supplies for such operations and to support construction and ongoing operation of offshore oil and gas production platforms. Lift boats are self-propelled, self-elevating and self-contained vessels that can efficiently assist offshore platform construction and well servicing tasks that traditionally have required the use of larger, more expensive mobile offshore drilling units or derrick barges. Lift boats have different water depth capacities and have legs, ranging from 65 to 250 feet, which are used to elevate the deck of the boat in order to perform required procedures on a platform at different heights above the water.

Tug Boats/Push Boats/Tow Boats. We build boats for towing and pushing, anchor handling, mooring and positioning, dredging assistance, tanker escort, port management, shipping, piloting, fire fighting and salvage.

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Other Offshore Support Vessels. In addition to lift boats and tug boats, we build other types of offshore support vessels that serve exploration and production facilities and support offshore construction and maintenance activities. These offshore support vessels include supply vessels, utility vessels and anchor handling vessels.

Aluminum Crew/Supply Vessels. Aluminum crew boats are used to transport crews to offshore facilities at a higher speed than their traditional steel counterparts. These vessels may also transport supplies.

Drydocks. Drydocks are used to lift marine vessels from the water in order to facilitate the inspection and/or repair of the vessels’ underwater areas. A drydock is composed of a floodable pontoon with wing walls and its designated capacity identifies the number of tons it is capable of safely lifting from the water. The drydock is submerged by opening valves to flood compartments; the vessel is then placed over the submerged deck of the drydock; and the vessel is lifted from the water by closing the valves and pumping the water out of the flooded compartments.

Conversion and Repair Services

Conversion and repair services accounted for 32.5%, 24.9%, and 28.3% of our total revenue for 2003, 2002, and 2001, respectively. We have six drydocks and dockside space capable of accommodating vessels and barges up to 500 feet long. Our marine repair activities include shot blasting, painting, electrical system and piping repairs, propeller and shaft reconditioning and American Bureau of Shipping certified welding. Our 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. All U.S. Coast Guard inspected vessels and ABS classed vessels are required to undergo periodic inspections and surveys which require regular drydock examination. Non-U.S. flag vessels are subject to similar regulations. The inspection of vessels generally results in repair work being required in order to pass inspection. In addition, vessel owners often elect to make other repairs or modifications to vessels while in drydock undergoing required repairs. While we are not aware of any proposals to reduce the frequency or scope of such inspections, any such reduction could adversely affect our results of operations.

Our conversion and repair business tends to be seasonal, with increases in the colder months in the Gulf of Mexico during the latter part of our fourth quarter and beginning of our first quarter. During this time, vessel owners and operators tend to repair or modify their vessels as a result of or in anticipation of work during the warmer months in the Gulf of Mexico.

Customers

We service a wide variety of customers. Customers 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, U.S. Army Corps of Engineers, U.S. Navy, U.S. Coast Guard and various state and local governmental agencies, many of whom have been our customers on a recurring and long-term basis. We have also provided and continue to provide repair and conversion services to many of the major offshore support vessel companies and barge operators. Our principal customers may differ substantially on a year-to-year basis due to the size and limited number of new construction projects performed each year. All of our customers for the last three years have been domiciled in the United States and Puerto Rico, but we are currently pursuing projects with foreign governments and businesses, primarily in our aluminum construction business.

During fiscal 2003, we derived 26.1% of our revenues from the State of Alaska’s Marine Highway System for the construction of a passenger ferry and 12.9% from the U.S. Army for the construction of three ST (“Small Tug”) tugs, a crane barge and a steel towboat. The remaining 61.0% of revenue was attributable to 101 other customers.

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During fiscal 2002, we derived 12.4% of our revenues from ConocoPhillips for the construction of four towboats, 11.6% from the U.S. Army for the construction of four ST tugs and 10.2% from Oceanic Fleet for the construction of an aluminum crew/supply vessel. The remaining 65.8% of revenue was attributable to 87 other customers.

During fiscal 2001, we derived 15.8% of our revenues from Danos & Curole Marine for construction of a lift boat, 12.4% from Marine Industrial Fabricators for the construction of five lift boat hulls, and 10.8% from the U.S. Army for the construction of six ST Tugs. The remaining 61.0% of revenue was attributable to 96 other customers.

Contract Procedure, Structure and Pricing

Our contracts for new commercial construction projects generally are obtained through a competitive bidding process. In addition, contracts for the construction and conversion of vessels for the U.S. government are generally subject to competitive bidding. As a safeguard to anti-competitive bidding practices, the U.S. Army, the U.S. Navy, the U.S. Coast Guard and the U.S. Army Corps of Engineers employ the concept of “cost realism,” which requires that each bidder submit information on pricing, estimated costs of completion and anticipated profit margins. The government agencies use this and other data to determine an estimated cost for each bidder. They then conduct a cost comparison of the bidders’ estimates against an independent estimate to arrive at a close approximation of the real cost. The award is then made on the basis of the expected cost to build, which often may result in an award to a higher bid that is considered a best value to the government.

We submit a large number of bids to commercial customers. However, because the bidding process for U.S. government contracts is significantly more detailed and costly, we tend to be more selective regarding the government projects on which we bid.

Most of the construction contracts we enter into, whether commercial or government, are fixed-price contracts under which we retain all cost savings on completed contracts but are liable for all cost overruns.

Contracts with the U.S. government are subject to termination by the government either for its convenience or upon our default. If the termination is for the government’s convenience, the contracts provide for payment upon termination for items delivered to and accepted by the government, payment of our costs incurred through the termination date, and the costs of settling and paying claims by terminated subcontractors, other settlement expenses and a reasonable profit.

Although varying contract terms may be negotiated on a case-by-case basis, our commercial and government contracts ordinarily provide for a down payment, progress payments at specified stages of construction and a final payment upon delivery. Final payment under certain contracts may be subject to deductions if the vessel fails to meet certain performance specifications based on tests we conduct prior to delivery.

Under commercial contracts, we generally provide a six-month to twelve-month warranty with respect to workmanship and materials we furnish. In the majority of commercial contracts, we pass through the respective suppliers’ warranties to the customer and do not warrant materials acquired from our suppliers. Our government contracts typically contain warranties up to two years covering both materials and workmanship. Historically, our expenses to fulfill such warranty obligations have not been material in the aggregate.

Bonding and Guarantee Requirements

Although we generally meet financial criteria that exempt us from bonding and guarantee requirements for most contracts, certain contracts with federal, state or local governments require contract performance bonds, and foreign government contracts generally require bank letters of credit or similar obligations. Commercial contracts also may require contract bid and performance bonds if requested by the customer. As of December 31, 2003,

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outstanding letters of credit and bonds amounted to $46.3 million. We believe that general industry conditions have led customers to require performance bonds more often than in the past. We believe that we have secured adequate bonding for potential future job prospects. Although we believe that we will be able to obtain contract bid and performance bonds, letters of credit, and similar obligations on terms that we consider acceptable, there can be no assurance we will be successful in doing so. In addition, the cost of obtaining such bonds, letters of credit and similar obligations has increased and may continue to increase.

Engineering

We generally build vessels based on our customers’ drawings and specifications. We also develop in-house custom designs for customers’ special requirements using our computer-aided design (CAD) capabilities and outside engineering services. We have designed and built numerous barges, towboats, tug boats and other vessels. This library of projects allows us to respond quickly to customers’ needs. The process of computer drafting, preparation of construction drawings and development of cut tapes for numerically controlled plasma cutting of steel with the latest 3-D software programs allows us to minimize engineering mistakes and costly rework.

Materials and Supplies

The principal materials we use are standard steel shapes, steel plate and paint. Other materials used in large quantities include aluminum, steel pipe, electrical cable and fittings. We also purchase component parts such as propulsion systems, hydraulic systems, generators, auxiliary machinery and electronic equipment. All these materials and parts are currently available in adequate supply from domestic and foreign sources. In late 2003, the price of steel began to rise substantially. Although this increase did not have a material effect on our operations in 2003, sustained higher or further increased steel prices could materially increase our costs and adversely affect our margins and profits in 2004. We have not engaged, and currently do not intend to engage, in hedging transactions with respect to our purchase requirements for materials. All of our shipyards obtain materials and supplies by truck or rail.

Vessel Construction Process

Once a contract has been awarded to us, a project manager is assigned to supervise all aspects of the project, from the date the contract is signed through delivery of the vessel. The project manager oversees the engineering liaison’s completion of the vessel’s drawings and supervises the planning of the vessel’s construction. The project manager also oversees the purchasing of all supplies and equipment needed to construct the vessel, as well as the actual construction of the vessel.

We construct each vessel from raw materials, which are fabricated by shipyard workers into the necessary shapes to construct the hull and vessel superstructure. We purchase component parts, such as propulsion systems, hydraulic systems and generators, auxiliary machinery and electronic equipment, separately and install them or have them installed in the vessel. We use job scheduling and costing systems to track progress of the construction of the vessel, allowing ourselves and the customer to remain apprised of the status of the vessel’s construction.

With the assistance of computers, construction drawings and bills of materials are prepared for each module to be fabricated. Modules are built separately, and penetrations for piping, electrical and ventilation systems for each module are positioned and cut during the plasma cutting operation. Piping, raceways and ducting are also installed prior to the final assembly of modules. After the modules are assembled to form the vessel, piping, electrical, ventilation and other systems, as well as machinery, are installed prior to launching, testing and final outfitting and delivery of the vessel.

Sales and Marketing

We believe that our reputation and experience help to facilitate our marketing efforts. We also believe that our customer-driven philosophy of quality, service and integrity leads to close customer relationships that provide us with ongoing opportunities to be invited to bid for customer projects.

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Our marketing and sales strategy is led by our Director of Marketing and includes utilizing key employees as salespersons to target relationships previously established and develop new relationships with customers in the targeted markets. Our personnel identify future projects by contacting customers and potential customers on a regular basis in order to anticipate projects that will be competitively bid or negotiated exclusively with us. Our personnel also keep our customers advised of available capacity for drydocking, conversion and repair activity.

We also use print advertisements, primarily in trade magazines, attend trade shows and maintain a company website.

We are actively involved in strengthening our relationships with customers through continuous interaction among our key personnel, project managers and the customers’ project supervisors with respect to ongoing projects. To accommodate the needs of the customers’ project supervisors, we have established on-site office facilities that these project supervisors may use during the construction, repair or conversion project. We also seek to anticipate the current and future needs of our customers as well as broader industry trends through these relationships.

Competition

U.S. shipbuilders are generally classified into two categories: (1) the two largest shipbuilders, which are capable of building large scale vessels such as aircraft carriers and battleships for the U.S. Navy and oceangoing cargo vessels for commercial customers; and (2) other shipbuilders that build small to medium-sized vessels for government and commercial markets. We compete in the second of these categories. We compete for U.S. government contracts to build small to medium-sized vessels principally with four to six U.S. shipbuilders, which may include one or more of the two largest shipbuilders. We compete for domestic commercial shipbuilding contracts principally with approximately six to ten U.S. shipyards. The number and identity of competitors on particular projects vary greatly depending on the type of vessel and size of the project, but we generally compete with only three or four companies with respect to a particular project. We compete with approximately ten shipyards in our conversion and repair business.

Competition is based primarily on price, available capacity, service, quality, and geographic proximity. We believe that we compete effectively because of our hands-on, team management approach to design, project management and construction; our indoor vessel construction capabilities; our specialized equipment; our advanced construction techniques; and our skilled work force. We seek to differentiate ourselves from our competition in terms of service and quality (1) by investing in enclosed work spaces, modern systems and equipment, (2) by offering a broad range of products and services, including modular component fabrication, (3) through our hands-on team management, (4) by targeting profitable niche products and (5) by maintaining close customer relationships.

Employees

At December 31, 2003, we had 262 employees, of which 52 were salaried and 210 were hourly. At December 31, 2002, we had 284 employees, of which 42 were salaried and 242 were hourly. At December 31, 2001, we had 333 employees, of which 35 were salaried and 298 were hourly. We are not a party to any collective bargaining agreements.

Insurance

We maintain insurance against property damage caused by fire, flood, explosion and similar catastrophic events that may result in physical damage or destruction to our facilities and equipment. The insurance currently excludes acts of terrorism as we have determined that this coverage is not available at a reasonable cost. We also maintain commercial general liability insurance, including builders’ risk coverage, employment practices, professional (design), and directors and officer’s liability. We currently maintain excess and umbrella policies. Other coverages currently in place include workers compensation, water pollution, automobile, and hull/property and indemnity. All policies are subject to deductibles and other coverage limitations.

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Regulation

Environmental Regulation

We are subject to extensive and changing federal, state and local laws (including common law) and regulations designed to protect the environment, including laws and regulations that relate to air and water quality, impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage and disposal of toxic and hazardous wastes (“Environmental Laws”). Stringent fines and penalties may be imposed for non-compliance with Environmental Laws. Additionally, these laws require the acquisition of permits or other governmental authorizations before undertaking certain activities, limit or prohibit other activities because of protected areas or species and impose substantial liabilities for pollution related to our operations or properties. We cannot predict how existing laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on our business, financial condition or results of operations.

Our operations are potentially affected by the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (“CERCLA”). CERCLA (also known as the “Superfund” law) imposes liability, without regard to fault, on certain categories of persons for particular costs related to releases of hazardous substances at a facility into the environment and for liability for natural resource damages. Categories of responsible persons under CERCLA include certain owners and operators of industrial facilities and certain other persons who generate or transport hazardous substances. Liability under CERCLA is strict and generally is joint and several. Persons potentially liable under CERCLA may also bring a cause of action against certain other parties for contribution. In addition to CERCLA, similar state or other Environmental Laws may impose the same or even broader liability for the discharge, release or the mere presence of certain substances into and in the environment.

Because industrial operations have been conducted at some of our properties by previous owners and operators and by us for many years, various materials from these operations might have been disposed of at such properties. This could result in obligations under Environmental Laws, such as requirements to remediate environmental impacts. There could be additional environmental impact from historical operations at our properties that require remediation under Environmental Laws in the future. However, we currently are not aware of any such circumstances that are likely to result in any such impact under Environmental Laws.

Although no assurances can be given, we believe that our operations are in compliance in all material respects with all Environmental Laws. However, stricter interpretation and enforcement of Environmental Laws and compliance with potentially more stringent future Environmental Laws could materially and adversely affect our operations.

Health and Safety Matters

Our facilities and operations are governed by laws and regulations, including the federal Occupational Safety and Health Act, relating to worker health and workplace safety. We believe that appropriate precautions are taken to protect employees and others from workplace injuries and harmful exposure to materials handled and managed at our facilities. While we do not anticipate that we will be required in the near future to expend material amounts by reason of such health and safety laws and regulations, we are unable to predict the ultimate cost of compliance with these changing regulations. Orange Shipbuilding, one of our subsidiaries, entered into a settlement agreement with the federal Occupational Safety and Health Administration (“OSHA”) during August 2001 following a six-month investigation by OSHA of the Orange shipyard. In the settlement, Orange agreed to employ a full time safety and health professional on location at the shipyard, employ an independent outside auditor to audit its OSHA 2000 logs for 2001 through 2003, correct conditions relating to alleged violations and pay a fine of $149,850. The settlement did not constitute an admission by Orange that it violated any laws, regulations or safety standards. We believe we have fully complied with all aspects of the settlement order. In addition, in November 2003, Orange Shipbuilding signed a one-year Strategic Partnership Program Agreement for Worker Safety and Health with OSHA. This voluntary, cooperative relationship is designed to increase occupational safety and health and to reduce injuries and illnesses.

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Jones Act

Section 27 of the Merchant Marine Act of 1920 (the “Jones Act”) requires that all vessels transporting products between U.S. ports must be constructed in U.S. shipyards, owned and crewed by U.S. citizens and registered under U.S. law, thereby eliminating competition from foreign shipbuilders with respect to vessels to be constructed for the U.S. coastwise trade. Many customers elect to have vessels constructed at U.S. shipyards, even if such vessels are intended for international use, in order to maintain flexibility to use such vessels in the U.S. coastwise trade in the future.

OPA90

Demand for double-hull carriers has been created by the Oil Pollution Act of 1990 (“OPA90”), which generally requires U.S. and foreign tank vessels carrying oil and certain other hazardous cargos and entering U.S. ports to have double-hulls by 2015. OPA90 establishes a phase-out schedule that began January 1, 1995 for all existing single-hull tank vessels based on the vessel’s age and gross tonnage. OPA90’s single-hull phase-out requirements do not apply to most offshore supply vessels.

Title XI and the OECD Accord

Title XI of the Merchant Marine Act of 1936 permits the Secretary of Transportation to provide a U.S. government guarantee for certain types of financing for the construction, reconstruction, or reconditioning of U.S.-built vessels. As a result of amendments in 1993, the Secretary of Transportation was authorized to guarantee loan obligations of foreign vessel owners for foreign-flagged vessels that are built in U.S. shipyards on terms generally more advantageous than available under guarantee or subsidy programs of foreign countries. Additionally, Title XI includes tax and subsidy programs that provide benefits limited to vessels constructed in the U.S. The U.S. Congress may reduce or eliminate funding for the Title XI program. In fact, Congress did not appropriate new funding to the Title XI program during its 2003 session, although there are currently limited funds in the Title XI program with which to provide new subsidies and benefits. We do not know whether Congress will appropriate new funding to the program in the future.

Moreover, if Congress adopts the Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and Repair Industry (the “OECD Accord”), which was signed in December 1994, among the U.S., the European Union (on behalf of the twelve European member countries), Finland, Japan, Korea and Norway and Sweden (which collectively control a significant portion of the market for worldwide vessel construction), the Title XI guarantee program would need to be amended to eliminate its competitive advantages. However, management believes that the OECD Accord could improve the ability of U.S. shipbuilders to compete successfully for international commercial contracts with foreign shipbuilders, many of which currently are heavily subsidized by their governments. Although Congress has failed to adopt or ratify the OECD Accord, proponents of the Accord may seek to introduce the legislation in the future.

Available Information

Our internet website is http://www.conradindustries.com. Information on our website is not part of this Form 10-K. We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, these reports, as well as Forms 3, 4 and 5 filed by our directors, executive officers and 10% stockholders with respect to our common stock, are available through our website.

Cautionary Statements

In this Form 10-K 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

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writing or orally, that are or contain “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-K, 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 but not limited to those discussed below. 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. Factors that could cause or contribute to such difference include those discussed below, as well as those discussed elsewhere herein.

Risks Related to our Business

Because a significant portion of our revenues comes from customers in the Gulf of Mexico oil and gas industry, decreases in offshore oil and gas activities tend to reduce demand for our products and services and negatively impact our revenues and profits. The level of offshore oil and gas activities can be affected by prevailing oil and gas prices, which historically have fluctuated significantly.

Since the latter part of 1998, depressed conditions in the Gulf of Mexico oil and gas industry have adversely affected our revenues, margins and profits. For 2003, 2002, and 2001, we received approximately 37.0%, 59.4%, and 66.8%, respectively, of our revenues from customers in the Gulf of Mexico oil and gas industry, 49.2%, 19.9%, and 11.7% from government customers and 13.8%, 20.7%, and 21.5% from other commercial customers. The Gulf of Mexico oil and gas industry can be affected by prevailing oil and gas prices, which historically have fluctuated significantly. Low oil or gas prices or a decline in demand for oil or gas can depress offshore exploration, development and production activity and result in decreased spending by our Gulf of Mexico oil and gas industry customers. This can result in a decline in the demand for our products and services and can have a substantial negative effect on our revenues and profits. Although oil and gas prices have been relatively high for the last several years, there has not been a corresponding increase in exploration, drilling or production activity in the Gulf of Mexico. We cannot predict whether and if so when these activities in the Gulf of Mexico will increase.

We perform a significant amount of our work under U.S. and other government contracts. Reductions in government spending on the types of products and services we offer or our inability to secure new government contracts could have a substantial negative impact on our revenues and profits.

We have built vessels for the U.S. Army, U.S. Navy, U.S. Coast Guard and U.S. Army Corp of Engineers. We have also built vessels and performed conversion or repair services for local and state governments, either directly or as a subcontractor. Revenue derived from U.S. government customers accounted for approximately 13.0%, 11.7%, and 10.8% of our total revenue in 2003, 2002 and 2001, respectively. Government contracts accounted for approximately 73.8%, 84.9%, and 52.9% of our backlog at December 31, 2003, 2002 and 2001, respectively. Government contracts are generally subject to strict competitive bidding requirements. In addition, the number of vessels that are purchased by governments varies with their budgets and the appropriation of government funds. We cannot predict whether we will be able to secure new government contracts. If we do not secure new government contracts, our revenues and profits could decline substantially. This risk factor has assumed increased importance for our operations in recent years, as the proportion of our government work has risen due primarily to the decline in Gulf of Mexico oil and gas activity.

Our internal expansion projects may not produce the revenues and profits that we anticipate.

We recently completed a new drydock, an extension of a fabrication building in our Morgan City shipyard, expanded our repair and conversion services with the addition of Conrad Deepwater and expanded into the aluminum marine fabrication, repair and conversion market through our subsidiary Conrad Aluminum. Although

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these projects so far have had a positive impact on our revenues, the impact has not been sufficient to offset our corresponding increases in fixed costs. We cannot predict whether or when these projects will result in increased profits for our company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We have only recently expanded into the aluminum marine fabrication, repair and conversion business and our expansion may not be successful or profitable. In addition, we are pursuing contracts with foreign customers, which involves new risks for our company.

Expansion into a new business involves numerous risks and uncertainties. These include whether we will be able to attract customers from our competitors which will be more experienced, whether we will be able to attract and retain a workforce that can perform efficiently and effectively, whether our facility adequately meets the needs of potential customers and whether we will be able to bid and perform on contracts profitably. In addition, in our aluminum business we are pursuing contracts with foreign customers including foreign governments. This exposes our company to new risks, as all of our customers in the last three fiscal years have been domiciled exclusively in the United States and Puerto Rico. Risks in dealing with foreign customers include:

U.S. government-imposed export restrictions or trade sanctions, under the Export Administration Act, the Trading with the Enemy Act or similar legislation or regulation may also prohibit or restrict our relationships with foreign customers.

Our repair business has high fixed costs, which can adversely affect our margins and profits.

Our repair business has high fixed costs primarily associated with the depreciation of facilities, floating drydocks and the marine travel lift. As a result, our margins and profits are adversely affected when the volume of our work declines. These fixed costs have been increased by our expansion into the aluminum business and the opening of our Conrad Deepwater yard.

Measures we may take to respond to a slowdown in new construction or repair projects due to a deterioration in general economic conditions or in our customers’ industries may not be sufficient to prevent a decline in earnings.

Reductions in activities in our business may cause us to reevaluate our operations. We may respond to these conditions by reducing our prices and anticipated profit margins in order to attempt to maintain activity levels in our yards and thereby maintain our workforce. Price and profit margin reductions may lead to decreased profitability, particularly over the short term. In addition, we may respond by beginning construction of historically marketable vessels before obtaining a customer contract in order to preserve our workforce. We may also respond by cutting costs, including through employee attrition or layoffs. Decreases in costs may not be adequate to offset losses in revenues, particularly over the short term. We may also seek new customers or different types of projects, which may increase our marketing and other costs. These measures, among others we may take, may not be sufficient to prevent a decline in our earnings.

We could incur losses under our fixed-price contracts as a result of cost overruns or delays in delivery.

Most of our contracts for marine vessel construction, including government contracts, are fixed-price contracts. Under fixed-price contracts, we retain all cost savings on completed contracts but are liable for the full

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amount of all cost overruns. We attempt to anticipate increases in costs of labor and materials in our bids on fixed-price contracts. However, the costs and gross profits realized on a fixed-price contract may vary from our estimates due to factors such as:

Depending on the size of the project, variations from estimated contract performance could significantly reduce our earnings, and could result in losses, during any fiscal quarter or year. In addition, some of our fixed-price contracts provide for incentive payments for early delivery and liquidated damages for late delivery. If we miss a specified delivery deadline under one of those contracts, we may be subject to liquidated damages.

From time to time, we bid on fixed-price contracts to construct vessels that we have not constructed in the past. We believe we have sufficient related experience to perform these contracts profitably. However, the risks of cost overruns or delays in delivery on those contracts are greater than for contracts for vessels that we have built in the past.

Estimates we may make in applying percentage-of-completion accounting could result in a reduction of previously reported profits and have a significant impact on quarter-to-quarter operating results.

We use the percentage-of-completion method to account for our construction contracts in process. Under this method, revenue and expenses are based on the percentage of labor hours incurred as compared to estimated total labor hours for each contract. As a result, the timing of recognition of revenue and expenses we report may differ materially from the timing of actual contract payments received and expenses paid. We make provisions for estimated losses on uncompleted contracts in the period in which the losses are determined. To the extent that those provisions result in a reduction of previously reported profits on a project, we must recognize a charge against current earnings. These charges may significantly reduce our earnings, depending on the size of the contract and the adjustment. In addition, because many of these contracts are completed over a period of several months, the timing of the recognition of related revenue and expense could have a significant impact on quarter-to-quarter operating results.

A decline in general economic conditions or a deterioration in the financial condition of a particular customer or that customer’s industry can increase our customer credit risk, which may adversely affect our profits.

Although varying contract terms may be negotiated on a case-by-case basis, our commercial and government construction contracts ordinarily provide for a down payment, with progress payments at specified stages of construction and a final payment upon delivery. Conversely, repair and conversion customers are typically billed upon completion of the work performed. If we are unable to collect an account receivable in the amount we have estimated to be collectible, we must recognize a charge to earnings that is in effect a reversal of previously recorded profits.

The loss of a significant customer could result in a substantial loss of revenue.

A relatively small number of customers have historically generated a large portion of our revenue, although not necessarily the same customers from year to year. For the years ended December 31, 2003, 2002 and 2001, our ten largest customers collectively accounted for 75.3%, 68.5% and 74.8% of our revenues, respectively. The loss of a significant customer could result in a substantial loss of revenue and significantly reduce our earnings. See “Business—Customers.”

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We have actively pursued acquisition opportunities, but may not be able to complete acquisitions on terms we find acceptable. Any completed acquisitions may not produce the financial results we anticipate.

We often pursue acquisition opportunities that we identify or are presented to us. However, we may not be able to find sellers willing to sell to us at prices and on other terms we find acceptable, and/or we may not be able to obtain financing on terms we find acceptable. We may need additional debt or equity financing to complete an acquisition, which may result in increased leverage and/or dilution of existing stockholders’ interests. In addition, any acquisitions that we complete may not produce the financial results we anticipated. We have not made any acquisitions since our acquisition of Orange Shipbuilding Company, Inc. in December 1997.

From time to time, we may not be able to hire sufficient numbers of trained shipyard workers. Any labor shortage may increase our cost of labor, limit our production capacity and materially decrease our earnings.

Shipyards along the Gulf Coast have experienced shortages of skilled labor from time to time as a result of low unemployment in the economy in general and/or increased demand for skilled labor in the offshore oil and gas and related industries in particular. We believe that our shipyards are not currently experiencing labor shortages, although we may experience labor shortages in the future. Labor shortages could increase our cost of labor, limit our production capacity, and materially decrease our earnings.

If our customers terminate projects, our reported backlog could decrease, which could substantially reduce our revenues and earnings.

Our backlog is based on unearned revenue attributable to projects for which a customer has authorized us to begin work or purchase materials. Our contracts with commercial customers generally do not permit the customer to terminate the contract. However, some of our government projects included in our backlog are subject to change or termination at the option of the customer. In the case of a termination, the government is generally required to pay us for work performed and materials purchased through the date of termination and, in some cases, pay us termination fees. Our backlog of $43.6 million at December 31, 2003 was attributable to 14 projects, of which 73.8% was attributable to ten government projects. Either the change or termination of those contracts could substantially change the amount of backlog currently reported and could substantially decrease our revenue and earnings.

We rely on key personnel.

We are dependent on the continuing efforts of our executive officers and key operating personnel. The loss of the services of any of these persons could result in inefficiencies in our operations, lost business opportunities and the loss of one or more customers. We generally do not have employment agreements with our employees other than our executive officers and we do not carry key person life insurance.

We are exposed to the risk of changing interest rates. Interest on all of our long-term debt is variable and based on short-term market rates. An increase in market rates may adversely affect our profits.

Interest on all of our long-term debt (including current maturities) totaling $16.5 million with an average interest rate of 3.06% at December 31, 2003, was variable based on short-term market rates. As a result, an increase in short-term interest rates could adversely affect our profits. For example, a general increase of 1.0% in short-term market interest rates would result in additional interest cost of $165,000 per year if we were to maintain the same debt level and structure.

Our principal stockholders may control the outcome of stockholder voting.

J. Parker Conrad, John P. Conrad, Jr. and Katherine Conrad Court own or control through trusts 3,680,651 shares of our common stock, or 50.9% of the outstanding shares of our common stock. In addition, our executive

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officers and directors and their affiliates as a group, which includes J. Parker Conrad and John P. Conrad, beneficially own approximately 2,329,675 shares or 31.9% of our common stock. If they act in concert, these holders will be able to exercise control over our affairs, elect our entire board of directors, and control substantially all matters submitted to a vote of our stockholders. The interests of these holders may differ from the interests of our minority stockholders, and they may vote their shares in a manner adverse to our minority stockholders.

Sales, or the availability for sale, of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock.

Of the 7,235,954 shares of our common stock currently outstanding, approximately 3.4 million shares are freely tradable. The remaining outstanding shares may be resold publicly only following their registration under the Securities Act of 1933, as amended, or under an available exemption. We provided registration rights to each of our stockholders prior to our initial public offering, including three demand registration rights and specified piggyback registration rights, which currently apply to approximately 4.4 million shares.

As of December 31, 2003, we also have outstanding options to purchase up to a total of 355,175 shares of our common stock that we granted to some of our directors, executive officers and key employees. We have registered all the shares subject to these options under the Securities Act. These shares generally are freely tradable after their issuance to persons who are not our affiliates unless we contractually restrict their resale.

In addition, the average daily trading volume in our common stock for 2003 was 3,418 shares. The availability of a large block of stock for sale in relation to our normal trading volume can result in a decline in the market price of our common stock.

Among other things, a decline in the price of our common stock can adversely affect our ability to raise equity capital in the future and to complete acquisitions using our common stock.

Some provisions of our corporate documents and Delaware law may discourage a takeover.

Our Amended and Restated Certificate of Incorporation (the “Charter”) and Delaware law could make it more difficult for a third party to acquire us, even if a change in control would be beneficial to our stockholders. Specifically, our Charter:

In addition, Delaware law restricts specified mergers and other business combinations between us and any holder of 15% or more of our common stock. Delaware law also permits the adoption of a shareholder rights plan without stockholder approval, and during May 2002, we adopted a rights plan. The rights plan is intended to protect stockholder interests in the event we become the subject of a takeover initiative that our board of directors believes could deny our stockholders the full value of their investment. The adoption of the rights plan is intended as a means to guard against abusive takeover tactics and is not in response to any particular proposal. The plan does not prohibit the board from considering any offer that it considers advantageous to stockholders.

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We also have employment agreements with our executive officers that provide for benefits in specified circumstances if there is a change of control of our company. These provisions might hinder, delay or prevent a change of control of our company. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, our outstanding stock options vest and become exercisable upon a change of control.

We do not intend to pay dividends in the near future.

We currently intend to retain any earnings to meet our working capital needs and to finance the growth of our business. In addition, our loan agreement prohibits us from paying dividends. Accordingly, an investor in our common stock should not expect to receive periodic income from an investment in our common stock.

Risks Related to our Industry

Our business is highly competitive. As a result, we may lose business and employees to our competitors or may experience lower profit margins than we would in the absence of competition. In addition, we may lose acquisition opportunities to competitors or may pay more for an acquisition than we would in the absence of competition.

The marine vessel construction, conversion and repair business is highly competitive. We compete with a large number of shipbuilders on a national, regional and local basis. Some of our competitors have substantially greater financial resources than we do, and some are public companies or divisions of public companies. We continue to experience significant competitive pressure on pricing and profit margins. We also face competition for acquisition candidates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview” and “Business—Competition.”

Excess capacity in our industry has placed downward pressure on pricing and profit margins.

Since approximately the mid 1980s, the U.S. shipbuilding and repair industry has been characterized generally by substantial excess capacity, which is partly due to the following factors:

These factors have caused competition by U.S. shipyards for domestic commercial projects to increase significantly, resulting in substantial pressure on pricing and profit margins.

The price of steel has increased substantially, which could adversely affect our profits or could cause potential customers to delay projects.

In late 2003, the price of steel began to rise substantially. Sustained higher or further increased steel prices could materially increase our costs and adversely affect our margins and profits or cause potential customers to defer projects. We have not engaged, and currently do not intend to engage, in hedging transactions with respect to these purchase requirements for materials.

Our customers may require us to post bid bonds and performance bonds, which may be difficult to obtain for reasons primarily related to industry conditions or our financial condition.

We believe that general industry conditions have led customers to require performance bonds more often than in the past. Our ability to obtain these bonds from surety companies or other providers depends in part on the bond companies’ assessment of our ability to perform the contracts, our creditworthiness and the economic

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position of our industry in general. We may not be able to obtain bonds necessary to allow us to bid on contracts for which we would like to submit bids. If we are successful in obtaining bonds, we may not be able to pass through all of the cost of the bonds to our customers.

Federal law favoring U.S. shipyards over foreign shipyards may be modified or rescinded, resulting in greater competition from foreign shipyards that operate with lower costs.

Our commercial shipbuilding opportunities are materially dependent on U.S. laws and regulations, such as:

The U.S. Congress may reduce or eliminate funding for the Title XI guarantee program. In fact, Congress did not appropriate new funding to the Title XI program during its 2003 session, although there are currently limited funds in the Title XI program with which to provide new subsidies and benefits. We do not know whether Congress will appropriate new funding to the program in the future.

Moreover, legislation seeking to rescind or substantially modify provisions of the Jones Act is also introduced from time to time. We believe that Congress is unlikely to rescind or materially modify the Jones Act in the foreseeable future. However, we can provide no assurance that the Jones Act or other legislation that benefits U.S. shipbuilders will not be modified or rescinded. Many foreign shipbuilders are heavily subsidized by their governments and thus may have significant cost advantages over U.S. shipbuilders. As a result, the elimination or modification of legislation that benefits U.S. shipbuilders may reduce our ability to effectively compete with foreign shipbuilders, causing downward pressure on prices and profit margins and decreased revenues and earnings.

New regulations or modifications to existing regulations affecting our significant customers could decrease demand for our products and services and result in significantly lower revenues and earnings.

New legislation or changes to existing legislation affecting our significant customers could decrease demand for our products and services. For example, the adoption of any laws or regulations curtailing the exploration, development and production activities of oil and gas companies in the Gulf of Mexico would likely limit the demand for our products and services. In addition, Coast Guard regulations specify maintenance requirements for vessels used in the offshore oil and gas business, and a reduction in these requirements could have a materially adverse impact on revenues and earnings in our repair business.

Compliance with environmental laws and other government regulations may increase our cost of doing business.

We are subject to various federal, state and local environmental laws and regulations. These laws and regulations impose limitations on the discharge of pollutants into the environment and establish standards for the transportation, storage and disposal of hazardous waste. The government may impose significant fines or penalties for violations of these environmental laws and regulations. Some environmental laws impose joint and several “strict liability” for remediation of spills and releases of oil and hazardous substances. Under these laws and regulations, a person may be liable for environmental damages without regard to negligence or fault on the part of that person. As a result, these laws may expose us to liability for the conduct of or conditions caused by others. We may also be liable for our own acts that are or were in compliance with all applicable laws at the time such acts were performed. Environmental laws have historically been subject to frequent change. We are unable to predict the future costs or other future effects of environmental laws on our operations. In addition, any changes in environmental or other laws affecting our business may further increase our costs.

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Our business involves operating hazards and risks of liability and lawsuits, and our insurance coverage may be insufficient to cover all losses that we experience.

Our activities involve the fabrication and refurbishment of large steel and aluminum structures, the operation of cranes and other heavy machinery and other operating hazards. These activities can cause personal injury or loss of life, severe damage to and destruction of property and equipment and suspension of operations. The failure of a vessel structure after it leaves our shipyard can result in similar injuries and damages. Litigation arising from these occurrences may result in us being named as a defendant in lawsuits asserting significant damages. In addition, our facilities are located in close proximity to the Gulf of Mexico and rivers in flood plains. As a result, our facilities are subject to the possibility of significant physical damage caused by hurricanes or flooding. Although we maintain insurance protection from these events, our insurance coverage may not be sufficient in coverage or effective under all circumstances to protect us against all hazards to which we are subject. In addition, we are named as defendants in litigation from time to time. Litigation against us may have negative outcomes, which we may not anticipate. A successful claim against us for which we are not fully covered by insurance could result in substantial losses to us. In addition, we may not be able to maintain adequate insurance in the future at rates that we consider economically prudent.

The terrorist attacks that took place on September 11, 2001 in the U.S. were unprecedented, and we cannot predict the long-term effect of those attacks on our business.

The September 11, 2001 terrorist attacks in the U.S. and related weakness in the economy in general, and the Gulf of Mexico oil and gas industry in particular, decreased demand for our products and services and had an adverse effect on our financial performance, in the fourth quarter of 2001 and thereafter. Those attacks have resulted, among other things, in increased concern regarding the potential for future attacks and other political and economic uncertainties. The attacks were unprecedented, and we cannot predict their long-term effects on our business.

Item 2: Properties

We conduct our operations at four shipyards, one in Morgan City, Louisiana, two in Amelia, Louisiana, and one in Orange, Texas. All of our new vessel construction is done indoors in well-lighted space specifically designed to accommodate construction of marine vessels up to 350 feet in length. During the past five years, we have made, in the aggregate, approximately $24.4 million of capital expenditures to add capacity and improve the efficiency of our shipyards.

In June 2002, we moved our principal executive offices to approximately 8,700 square feet of leased office space in Morgan City, Louisiana. The current lease term extends through May 2007.

Morgan City Shipyard

We have owned and operated our Morgan City, Louisiana shipyard since 1948. The yard is located on the Atchafalaya River approximately 30 miles from the Gulf of Mexico on approximately 11 acres. The shipyard has 14 buildings containing approximately 125,000 square feet of enclosed building area and ten overhead cranes. In addition, the shipyard has two drydocks, one submersible launch barge, 1,700 linear feet of steel bulkhead, five rolling cranes and two slips. The buildings include offices for management and support personnel as well as three large fabrication warehouses specifically designed to accommodate marine vessel construction. The drydocks consist of two 120-foot by 52- foot drydocks with lifting capacities of 900 tons. During 2002, we completed an extension of one of our fabrication buildings at our Morgan City shipyard at a cost of approximately $800,000. The extension increased our enclosed building space by approximately 15,000 square feet and increased our efficiencies in making pre-fabricated components and in using modular construction techniques.

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Amelia Shipyards

We have two facilities in Amelia, Louisiana, which is approximately five miles from Morgan City, Louisiana: Conrad Aluminum and Conrad Deepwater. Conrad Aluminum is located on the Bayou Boeuf/Intracoastal Waterway approximately 30 miles from the Gulf of Mexico on approximately 16 acres. We purchased the yard for approximately $1.0 million in 1996 and commenced marine steel repair and conversion operations there during February 1998. In 2003, we obtained approximately $5.5 million in financing to convert the yard into an aluminum marine fabrication and repair facility capable of serving both commercial and government customers, and commenced our aluminum operations at the facility in the fourth quarter of 2003. The funding was primarily used to construct a 37,500 square foot two-bay building, to purchase a 300 ton travel lift, six overhead cranes and other tools and equipment, and to make improvements to the docks. The facility has a total of seven buildings containing approximately 67,500 square feet of enclosed building area. The site has 2,100 linear feet of bulkhead and two slips. As part of the financing of the expansion, we contributed the facility to the St. Mary Parish Industrial Development Board and have entered into a 15-year lease with an option to extend or repurchase.

Conrad Deepwater is located on the Bayou Boeuf/Intracoastal Waterway approximately 30 miles from the Gulf of Mexico and is within one mile of Conrad Aluminum. The facility is located on a 52-acre previously undeveloped site that we purchased in 2000 for $1.3 million. During 2002 and 2003, we invested approximately $7.0 million developing approximately 14 acres of the site into the new facility. We commenced steel repair and conversion operations at the facility in February 2003. This facility has one building containing approximately 5,400 square feet comprising a stock room and maintenance shop. The site also has 1,100 linear feet of bulkhead and one slip. The facility allows us to handle vessels with deeper drafts than we have historically been able to service at our other facilities. In addition, the infrastructure improvements allow for the potential future additional development of the facility to accommodate vessel construction should the market so dictate.

We currently have the four largest of our six drydocks at Conrad Deepwater. The drydocks consist of two 200-foot by 70-foot drydocks with lifting capacities of 2,400 tons, one 200-foot by 95-foot drydock with a lifting capacity of 3,000 tons and one 280-foot by 160-foot drydock with a lifting capacity of 10,000 tons. We constructed the largest drydock ourselves in 2000 and 2001 for approximately $5.7 million. This allowed us to (1) increase our repair and conversion capacity; (2) lift and compete to repair larger vessels such as derrick and pipe laying barges and the large offshore service vessels recently built for the deep water drilling activities in the Gulf of Mexico; and (3) launch larger new vessel construction projects more competitively.

Orange Shipyard

Our Orange, Texas shipyard is located on the Sabine River approximately 37 miles from the Gulf of Mexico on approximately 12 acres. The shipyard has six construction bays under approximately 110,000 square feet of enclosed building area with 14 overhead cranes. The site also has 150 feet of steel bulkhead and one slip. Our Orange shipyard equipment includes a Wheelabrator, a “gantry” type NC (“Numerical Control”) plasma burner with a 21-foot by 90-foot table, over 60 automatic and semi-automatic welding machines, two rolling cranes, 600, 800 and 1,600-ton transfer/load-out systems and a marine railway with side transfer system. We acquired our Orange shipyard in 1997. See Item 1: Business—Overview—History.