UNITEDTable STATESof Contents

~~SECURITIES~~UNITED ~~AND~~STATES ~~EXCHANGE COMMISSION~~

~~Washington,~~SECURITIES ~~D.C.~~AND ~~20549~~EXCHANGE COMMISSION

~~FORM~~Washington, ~~10-Q~~D.C. 20549

xFORM ~~QUARTERLY~~10-Q ~~REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~x ~~the~~QUARTERLY ~~period~~REPORT ~~ended~~PURSUANT ~~June~~TO ~~30,~~SECTION ~~2003~~13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ORFor the period ended September 30, 2003

~~¨ TRANSITION REPORT PURSUANT TO SECTION 13~~ OR ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~¨ ~~the~~TRANSITION ~~transition~~REPORT ~~period~~PURSUANT ~~from to~~ TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission~~For ~~File~~the ~~Number~~transition ~~000-24263~~period from to

~~CONRAD~~Commission ~~INDUSTRIES,~~File ~~INC.~~Number 000-24263

~~(Exact~~CONRAD ~~name~~INDUSTRIES, ofINC. ~~registrant as specified in its charter)~~

Delaware		72-1416999
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

(Exact name of registrant as specified in its charter)

1100 Brashear Ave., Suite 200
Delaware		72-1416999
P.O. Box 790
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Morgan City, Louisiana		70381
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (985) 702-0195

1100 Brashear Ave., Suite 200
P.O. Box 790
Morgan City, Louisiana		70381
(Address of principal executive offices)		(Zip Code)

~~Indicate by check mark whether the~~ Registrant ~~(1) has filed all reports required to be filed by Section 13 or 15(d) of the~~’s ~~Securities~~telephone ~~Exchange~~number, ~~Act~~including ofarea ~~1934~~code: ~~during the preceding 12 months~~ (~~or for such shorter period that the Registrant was required to file such reports~~985), ~~and~~702-0195 ~~(2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨~~

Indicate by check mark whether the Registrant is(1) anhas ~~accelerated~~filed ~~filer~~all ~~(as~~reports ~~defined~~required into ~~Rule~~be ~~12b-2~~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 ¨ þ No þ ¨

Indicate ~~the~~by ~~number~~check ofmark ~~shares~~whether ~~outstanding~~the ofRegistrant ~~each~~is ofan ~~the~~accelerated ~~registrant’s~~filer ~~classes~~(as ofdefined ~~common~~in ~~stock,~~Rule as12b-2 of the ~~latest~~Securities ~~practicable~~Exchange Act ~~date~~of 1934). Yes ¨ No þ

AsIndicate ofthe ~~August~~number ~~12,~~of ~~2003,~~shares ~~7,235,954~~outstanding ~~shares~~of each of the registrant’s ~~Common~~classes ~~Stock~~of common stock, as of the latest ~~were~~practicable ~~outstanding~~date.

1As of November 12, 2003, 7,235,954 shares of the registrant’s Common Stock were outstanding.

FORMTable 10-Qof Contents

~~CONRAD~~FORM ~~INDUSTRIES,~~10-Q ~~INC. AND SUBSIDIARIES~~

~~Table~~CONRAD ofINDUSTRIES, ~~Contents~~INC. AND SUBSIDIARIES

		Page
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets, June 30, 2003 and December 31, 2002	3
	Consolidated Statements of Operations, Three and Six Months Ended June 30, 2003 and 2002	4
	Consolidated Statements of Cash Flows, Six Months Ended June 30, 2003 and 2002	5
	Notes to the Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22
Part II. Other Information
Item 1.	Legal Proceedings	23
Item 4.	Submissions of Matters to a Vote of Securities Holders	23
Item 6.	Exhibits and Reports on Form 8-K	23
Signature		25

Table of Contents

FORWARD-LOOKING-STATEMENTS

		Page
Part I. Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets, September 30, 2003 and December 31, 2002	3

	Consolidated Statements of Operations, Three and Nine Months Ended September 30, 2003 and 2002	4

	Consolidated Statements of Cash Flows, Nine Months Ended September 30, 2003 and 2002	5

	Notes to the Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

Part II. Other Information

Item 1.	Legal Proceedings	27

Item 6.	Exhibits and Reports on Form 8-K	27

Signature		29

~~This Form 10~~FORWARD-~~Q includes “forward~~LOOKING-~~looking~~STATEMENTS statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements contained herein other than statements of historical fact are forward-looking statements. When used in this Form 10-Q, the words “anticipate”, “believe”, “estimate” and “expect” and similar expressions are intended to identify forward-looking statements. Such statements reflect the Company’s current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including the Company’s reliance on cyclical industries, the Company’s reliance on principal customers and government contracts, the Company’s ability to perform contracts at costs consistent with estimated costs utilized in bidding for the projects covered by such contracts, variations in quarterly revenues and earnings resulting from the percentage of completion accounting method, the possible termination of contracts included in the Company’s backlog at the option of customers, operating risks, competition for marine vessel contracts, the Company’s ability to retain key management personnel and to continue to attract and retain skilled workers, state and federal regulations, the availability and cost of capital, and general industry and economic conditions. These and other risks and assumptions are discussed in more detail in the Company’s Form 10-K. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct.

2This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements contained herein other than statements of historical fact are forward-looking statements. When used in this Form 10-Q, the words “anticipate”, “believe”, “estimate” and “expect” and similar expressions are intended to identify forward-looking statements. Such statements reflect the Company’s current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including the Company’s reliance on cyclical industries, the Company’s reliance on principal customers and government contracts, the Company’s ability to perform contracts at costs consistent with estimated costs utilized in bidding for the projects covered by such contracts, variations in quarterly revenues and earnings resulting from the percentage of completion accounting method, the possible termination of contracts included in the Company’s backlog at the option of customers, operating risks, competition for marine vessel contracts, the Company’s ability to retain key management personnel and to continue to attract and retain skilled workers, state and federal regulations, the availability and cost of capital, and general industry and economic conditions. These and other risks and assumptions are discussed in more detail in the Company’s Form 10-K. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct.

~~PART~~2 ~~I. FINANCIAL INFORMATION~~

ItemTable 1: Financialof Statements (Unaudited) Contents

~~CONRAD~~PART ~~INDUSTRIES, INC~~I. ~~AND~~FINANCIAL ~~SUBSIDIARIES~~INFORMATION

~~CONSOLIDATED~~Item ~~BALANCE~~1: Financial ~~SHEETS~~Statements (Unaudited)

~~(In~~CONRAD ~~thousands~~INDUSTRIES, ~~except~~INC. ~~share~~AND ~~data)~~SUBSIDIARIES

~~(Unaudited)~~ CONSOLIDATED BALANCE SHEETS

	June 30,2003			December 31,2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,994		$	6,427
Accounts receivable, net		3,462			3,650
Costs and estimated earnings, net in excess of billings on uncompleted contracts		2,187			4,360
Inventories		441			214
Other current assets		2,367			1,641
Total current assets		13,451			16,292
PROPERTY, PLANT AND EQUIPMENT, net		30,944			29,430
GOODWILL		8,101			8,101
OTHER ASSETS		13			18
TOTAL ASSETS	$	52,509		$	53,841
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,136		$	3,278
Accrued employee costs		695			760
Accrued expenses		1,084			362
Current maturities of long-term debt		1,980			1,806
Billings in excess of costs and estimated earnings, net on uncompleted contracts		518			639
Total current liabilities		6,413			6,845
LONG-TERM DEBT, less current maturities		11,627			11,417
DEFERRED INCOME TAXES		3,297			3,364
Total liabilities		21,337			21,626
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued		—			—
Common stock, $0.01 par value 20,000,000 shares authorized, 7,276,437 issued in 2003 and 2002		73			73
Additional paid-in capital		29,000			29,000
Unearned stock compensation		(2	)		(6	)
Treasury stock at cost, 40,483 shares in 2003 and 2002		(211	)		(211	)
Retained earnings		2,312			3,359
Total shareholders’ equity		31,172			32,215
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	52,509		$	53,841

(In thousands, except share data)

~~See~~(Unaudited) ~~notes to unaudited consolidated financial statements.~~

	September 30, 2003			December 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,316		$	6,427
Accounts receivable, net		1,129			3,650
Costs and estimated earnings, net in excess of billings on uncompleted contracts		3,052			4,360
Inventories		765			214
Other receivables		1,832			600
Other current assets		2,233			1,041

Total current assets		13,327			16,292
PROPERTY, PLANT AND EQUIPMENT, net		33,008			29,430
GOODWILL		8,101			8,101
OTHER ASSETS		2,744			18

TOTAL ASSETS	$	57,180		$	53,841


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,352		$	3,278
Accrued employee costs		621			760
Accrued expenses		919			362
Current maturities of long-term debt		2,247			1,806
Billings in excess of costs and estimated earnings, net on uncompleted contracts		442			639

Total current liabilities		7,581			6,845
LONG-TERM DEBT, less current maturities		14,843			11,417
DEFERRED INCOME TAXES		3,280			3,364
OTHER NON-CURRENT LIABILITIES		1,129			—

Total liabilities		26,833			21,626

COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued		—			—
Common stock, $0.01 par value 20,000,000 shares authorized, 7,276,437 issued in 2003 and 2002		73			73
Additional paid-in capital		29,000			29,000
Unearned stock compensation		—			(6	)
Treasury stock at cost, 40,483 shares in 2003 and 2002		(211	)		(211	)
Retained earnings		1,485			3,359

Total shareholders’ equity		30,347			32,215

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	57,180		$	53,841

~~CONRAD~~See ~~INDUSTRIES,~~notes ~~INC.~~to ~~AND~~unaudited ~~SUBSIDIARIES~~consolidated financial statements.

~~CONSOLIDATED~~3 ~~STATEMENTS OF OPERATIONS~~

(InTable thousands,of except per share data) Contents

~~(Unaudited)~~CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

	Three Months EndedJune 30,						Six Months EndedJune 30,
	2003			2002			2003			2002
REVENUE	$	9,338		$	10,427		$	19,812		$	21,012
COST OF REVENUE		9,405			8,712			19,064			17,202
GROSS (LOSS) PROFIT		(67	)		1,715			748			3,810
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		944			1,165			2,187			2,467
(LOSS) INCOME FROM OPERATIONS		(1,011	)		550			(1,439	)		1,343
INTEREST EXPENSE		(107	)		(81	)		(173	)		(162	)
OTHER INCOME, NET		8			5			12			15
(LOSS) INCOME BEFORE INCOME TAXES		(1,110	)		474			(1,600	)		1,196
(BENEFIT) PROVISION FOR INCOME TAXES		(384	)		174			(553	)		438
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(726	)		300			(1,047	)		758
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		—			—			—			(4,500	)
NET (LOSS) INCOME	$	(726	)	$	300		$	(1,047	)	$	(3,742	)
Basic and diluted (loss) income per share:
(Loss) income before cumulative effect of change in accounting principle	$	(0.10	)	$	0.04		$	(0.14	)	$	0.10
Cumulative effect of change in accounting principle		—			—			—			(0.62	)
Net (loss) income	$	(0.10	)	$	0.04		$	(0.14	)	$	(0.52	)
Weighted average common shares outstanding:
Basic		7,233			7,228			7,233			7,228
Diluted		7,233			7,239			7,233			7,228

CONSOLIDATED STATEMENTS OF OPERATIONS

~~See~~(In ~~notes~~thousands, toexcept ~~unaudited~~per ~~consolidated~~share ~~financial~~data) ~~statements.~~

4(Unaudited)

CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002

REVENUE	$	6,722		$	9,379		$	26,534		$	30,391

COST OF REVENUE		6,729			8,280			25,793			25,482


GROSS (LOSS) PROFIT		(7	)		1,099			741			4,909

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		1,157			1,150			3,344			3,617

TERMINATED ACQUISITION COSTS		—			350			—			350


(LOSS) INCOME FROM OPERATIONS		(1,164	)		(401	)		(2,603	)		942

INTEREST EXPENSE		(132	)		(38	)		(305	)		(200	)

OTHER INCOME, NET		22			9			34			24


(LOSS) INCOME BEFORE INCOME TAXES		(1,274	)		(430	)		(2,874	)		766

(BENEFIT) PROVISION FOR INCOME TAXES		(447	)		(167	)		(1,000	)		271


(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(827	)		(263	)		(1,874	)		495

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		—			—			—			(4,500	)


NET LOSS	$	(827	)	$	(263	)	$	(1,874	)	$	(4,005	)


Basic and diluted (loss) income per share:

(Loss) income before cumulative effect of change in accounting principle	$	(0.11	)	$	(0.04	)	$	(0.26	)	$	0.07

Cumulative effect of change in accounting principle		—			—			—			(0.62	)


Net loss	$	(0.11	)	$	(0.04	)	$	(0.26	)	$	(0.55	)


Weighted average common shares outstanding:

Basic		7,233			7,230			7,233			7,229


Diluted		7,233			7,230			7,233			7,229

~~CONSOLIDATED~~See ~~STATEMENTS~~notes OFto ~~CASH~~unaudited ~~FLOWS~~consolidated financial statements.

~~(In~~4 ~~thousands)~~

(Unaudited) Table of Contents

	Six Months EndedJune 30,
	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,047	)	$	(3,742	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cumulative effect of change in accounting principle		—			4,500
Depreciation and amortization		1,060			961
Deferred income tax benefit		(67	)		(228	)
Changes in assets and liabilities:
Accounts receivable		188			(3,373	)
Net change in billings related to cost and estimated earnings on uncompleted contracts		2,052			2,813
Inventory and other assets		(953	)		(340	)
Accounts payable and accrued expenses		(485	)		936
Net cash provided by operating activities		748			1,527
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment		(2,565	)		(2,971	)
Payment of executive notes receivable		—			456
Net cash used in investing activities		(2,565	)		(2,515	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of debt		(816	)		(642	)
Proceeds from issuance of debt		1,200			—
Net cash provided by (used in) financing activities		384			(642	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,433	)		(1,630	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		6,427			6,909
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	4,994		$	5,279
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION:
Interest paid, net of capitalized interest	$	173		$	162
Taxes paid	$	—		$	—

CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

~~See~~ CONSOLIDATED ~~notes~~STATEMENTS toOF ~~unaudited~~CASH ~~consolidated~~FLOWS ~~financial statements.~~

5(In thousands)

~~CONRAD~~(Unaudited) ~~INDUSTRIES, INC. AND SUBSIDIARIES~~

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	Nine Months Ended September 30,
	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,874	)	$	(4,005	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cumulative effect of change in accounting principle		—			4,500
Depreciation and amortization		1,613			1,419
Deferred income tax benefit		(84	)		(174	)
Gain on sale of assets		(23	)		—
Changes in assets and liabilities:
Accounts receivable		2,521			(77	)
Net change in billings related to cost and estimated earnings on uncompleted contracts		1,111			2,424
Inventory and other assets		(1,844	)		(365	)
Accounts payable, accrued expenses and other liabilities		492			318

Net cash provided by operating activities		1,912			4,040

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment		(5,181	)		(4,009	)
Increase in project funds, net		(2,658	)		—
Proceeds from sale of assets		25			—
Issuance of notes receivable—Swiftships		—			(500	)
Payment of executive notes receivable		—			456

Net cash used in investing activities		(7,814	)		(4,053	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of debt		(1,333	)		(963	)
Proceeds from issuance of debt		5,200			—
Financing costs		(76	)		—

Net cash provided by (used in) financing activities		3,791			(963	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,111	)		(976	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		6,427			6,909

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	4,316		$	5,933

SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION:
Interest paid, net of capitalized interest	$	295		$	200

Taxes paid	$	—		$	—

NON-CASH ACTIVITIES:
Issuance of restricted stock to executive	$	—		$	9

Grant from State of Louisiana	$	1,129		$	—

~~1. ORGANIZATION~~See ~~AND~~notes ~~SIGNIFICANT~~to ~~ACCOUNTING~~unaudited consolidated ~~POLICIES~~financial statements.

~~The~~5 accompanying unaudited consolidated financial statements include the accounts of Conrad Industries, Inc. and its wholly-owned subsidiaries (the “Company”) which are primarily engaged in the construction, conversion and repair of a variety of marine vessels for commercial and government customers. The Company was incorporated in March 1998 to serve as the holding company for Conrad Shipyard, L.L.C. (“Conrad”) and Orange Shipbuilding Company, Inc. (“Orange Shipbuilding”). In addition, during the second quarter of 2003, Conrad Aluminum, L.L.C., a wholly owned subsidiary of Conrad, was organized as a vehicle to accommodate the Company’s expansion into aluminum marine fabrication, repair and conversion services. New construction work and some repair work is performed on a fixed-price basis. The Company performs the majority of repair work under cost-plus-fee agreements. All significant intercompany transactions have been eliminated. In the opinion of the management of the Company, the interim consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (such adjustments consisting only of a normal recurring nature) considered necessary for a fair presentation have been included in the interim consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the Company’s audited 2002 consolidated financial statements and related notes filed on Form 10-K for the year ended December 31, 2002.

TheTable results of operations for the three-month and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Contents

2CONRAD INDUSTRIES, INC. ~~RECEIVABLES~~ AND SUBSIDIARIES

~~Receivables~~ NOTES ~~consisted~~TO ofUNAUDITED ~~the~~CONSOLIDATED ~~following~~FINANCIAL atSTATEMENTS ~~June 30, 2003 and December 31, 2002 (in thousands):~~

	2003		2002
U.S. Government:
Amounts billed	$	630	$	424
Unbilled costs and estimated earnings on uncompleted contracts		1,493		423
		2,123		847
Commercial:
Amounts billed		2,832		3,226
Unbilled costs and estimated earnings on uncompleted contracts		694		3,937
Total	$	5,649	$	8,010

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

~~Included~~The ~~above~~accompanying unaudited consolidated financial statements include the accounts of Conrad Industries, Inc. and its wholly-owned subsidiaries (the “Company”) which are primarily engaged in the construction, ~~amounts~~conversion ~~billed~~and isrepair anof ~~allowance~~a variety of marine vessels for ~~doubtful~~commercial ~~accounts~~and ofgovernment ~~$16,000~~customers. atThe ~~June~~Company 30was incorporated in March 1998 to serve as the holding company for Conrad Shipyard, ~~2003~~L.L.C. (“Conrad”) and ~~December~~Orange 31Shipbuilding Company, ~~2002~~Inc. ~~During~~(“Orange Shipbuilding”). In addition, during the second quarter of 2003, ~~there~~Conrad ~~were~~Aluminum, noL.L.C., a wholly owned subsidiary of Conrad, was organized as a vehicle to accommodate the Company’s expansion into aluminum marine fabrication, repair and conversion services. New construction work and some repair work is performed on a fixed-price basis. The Company performs the majority of repair work under cost-plus-fee agreements. All significant intercompany transactions ~~recorded~~have inbeen eliminated. In the ~~allowance~~opinion ~~for~~of ~~doubtful~~the ~~accounts.~~management ~~During~~of ~~2002~~the Company, the ~~Company~~interim ~~reserved~~consolidated ~~for~~financial statements included herein have been prepared in accordance with generally accepted accounting principles and Rule 10-01 of ~~approximately~~Regulation ~~$65~~S-X. Accordingly,~~000~~ ~~related~~they todo anot ~~receivable~~include ~~deemed~~all ~~uncollectible~~of asthe ainformation ~~result~~and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (such adjustments consisting only of a ~~settlement~~normal ~~reached~~recurring ~~with~~nature) considered necessary for a ~~vessel~~fair ~~construction~~presentation ~~customer~~have been included in the interim consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the Company’s audited 2002 consolidated financial statements and related notes filed on Form 10-K for the year ended December 31, 2002.

~~Unbilled~~The ~~costs~~results ~~and~~of ~~estimated~~operations ~~earnings~~for onthe ~~uncompleted~~three-month ~~contracts~~and ~~were~~nine ~~not~~month ~~billable~~periods toended ~~customers~~September at30, ~~the~~2003 ~~balance~~are ~~sheet~~not ~~dates~~necessarily ~~under~~indicative ~~terms~~ of the ~~respective contracts.~~results Ofthat ~~the~~may ~~unbilled~~be expected ~~costs~~for ~~and~~the ~~estimated~~year ~~earnings~~ending atDecember ~~June 30~~31, 2003~~, substantially all is expected to be collected within the next twelve months~~.

6Certain amounts previously reported have been reclassified to conform with the presentation at September 30, 2003.

~~CONRAD INDUSTRIES, INC~~2. TRADE ~~AND~~RECEIVABLES ~~SUBSIDIARIES~~

~~NOTES~~Receivables TOconsisted ~~UNAUDITED~~of ~~CONSOLIDATED~~the ~~FINANCIAL~~following ~~STATEMENTS—~~at September 30, 2003 and December 31, 2002 (~~Continued~~in thousands) :

Information with respect to uncompleted contracts as of June 30, 2003 and December 31, 2002 is as follows (in thousands):

	2003		2002
U.S. Government:
Amounts billed	$	415	$	424
Unbilled costs and estimated earnings on uncompleted contracts		1,759		423

		2,174		847
Commercial:
Amounts billed		714		3,226
Unbilled costs and estimated earnings on uncompleted contracts		1,293		3,937

Total	$	4,181	$	8,010

	2003			2002
Costs incurred on uncompleted contracts	$	32,776		$	28,684
Estimated earnings, net		3,331			4,698
		36,107			33,382
Less billings to date		(34,438	)		(29,661	)
	$	1,669		$	3,721

Included above in amounts billed is an allowance for doubtful accounts of $16,000 at September 30, 2003 and December 31, 2002. During 2003, there were no significant transactions recorded in the allowance for doubtful accounts. During 2002, the Company reserved for approximately $65,000 related to a receivable deemed uncollectible as a result of a settlement reached with a vessel construction customer.

~~The~~Unbilled ~~above~~costs ~~amounts~~and ~~are included~~estimated inearnings ~~the~~on ~~accompanying~~uncompleted contracts were not billable to customers at the balance ~~sheets~~sheet dates under terms of the ~~following~~respective contracts. ~~captions~~Of ~~(in~~the ~~thousands):~~unbilled costs and estimated earnings at September 30, 2003, substantially all is expected to be collected within the next twelve months.

	2003			2002
Costs and estimated earnings, net in excess of billings
on uncompleted contracts	$	2,187		$	4,360
Billings in excess of cost and estimated earnings, net
on uncompleted contracts		(518	)		(639	)
Total	$	1,669		$	3,721

TheTable Company recorded a charge of approximately $140,000 in the second quarter of 2003, and charges of $50,000 and $150,000 in the first quarter of 2003 and the fourth quarter of 2002, respectively, to reflect revised estimates related to anticipated losses on certain uncompleted vessels in progress. As of June 30, 2003 and December 31, 2002, approximately $160,000 and $150,000, respectively, of this provision is included in costs and estimated earnings, net in excess of billings on uncompleted contracts. Contents

3CONRAD INDUSTRIES, INC. ~~INVENTORIES~~ AND SUBSIDIARIES

~~Inventories~~NOTES ~~consist~~TO ~~primarily~~UNAUDITED ofCONSOLIDATED ~~costs~~FINANCIAL related to vessels in progress not under customer contract. As of June 30, 2003, amounts related to these vessels totaled $217,000. No such amounts were outstanding as of December 31, 2002. Remaining inventories consist of excess job related materials and supplies. They are stated at the lower of cost STATEMENTS—(~~first-in, first-out basis~~Continued) ~~or market.~~

~~4. GOODWILL~~Information with respect to uncompleted contracts as of September 30, 2003 and December 31, 2002 is as follows (in thousands):

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill upon the adoption of this statement on January 1, 2002.

	2003			2002
Costs incurred on uncompleted contracts	$	14,855		$	28,684
Estimated earnings, net		1,345			4,698

		16,200			33,382
Less billings to date		(13,590	)		(29,661	)

	$	2,610		$	3,721

~~During 2002, the Company completed the two-step process of the transitional goodwill impairment test prescribed in SFAS No. 142 with respect to existing goodwill.~~ The ~~first~~above ~~step~~amounts ~~of the transitional goodwill impairment~~are ~~test~~included ~~involved~~in ~~a comparison of~~ the ~~fair~~accompanying ~~value~~balance ofsheets ~~each of the Company’s reporting units, as defined~~ under ~~SFAS No. 142, with its carrying amount. If~~ the ~~carrying~~following ~~amount~~captions ~~exceeded~~(in ~~the~~thousands): ~~fair value of a reporting unit, the Company was required to perform the second step of the transitional goodwill impairment test. As a result of~~

	2003			2002
Costs and estimated earnings, net in excess of billings on uncompleted contracts	$	3,052		$	4,360
Billings in excess of cost and estimated earnings, net on uncompleted contracts		(442	)		(639	)

Total	$	2,610		$	3,721

~~CONRAD~~The ~~INDUSTRIES~~Company recorded a charge of approximately $97,000 ~~INC~~in the third quarter of 2003 and charges of $140,000, $50,000 and $150,000 in the second quarter of 2003, first quarter of 2003 and the fourth quarter of 2002, respectively, to reflect revised estimates related to anticipated losses on certain uncompleted vessels in progress. ~~AND~~As ~~SUBSIDIARIES~~of September 30, 2003 and December 31, 2002, approximately $69,000 and $150,000, respectively, of this provision is included in costs and estimated earnings, net in excess of billings on uncompleted contracts.

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~3. INVENTORIES

~~the~~Inventories ~~outcome~~consist primarily of ~~the~~costs ~~first~~related ~~step relative~~ to ~~the Orange Shipbuilding reporting unit, the Company was required to perform the second step of the transitional~~vessels ~~goodwill~~in ~~impairment~~progress ~~test~~not ~~for~~under ~~this~~customer ~~reporting unit~~contract. ~~The~~As ~~second step involved comparing the implied fair value~~ of ~~this~~September ~~reporting~~30, ~~unit’s~~2003, ~~goodwill~~amounts torelated ~~its carrying value~~ to ~~measure~~these ~~the~~vessels ~~amount~~totaled ~~of impairment. The transitional goodwill impairment test resulted in the Company recognizing a non-cash transitional goodwill impairment charge of~~ $4539,000.5 ~~million related entirely to the Orange Shipbuilding reporting unit. As required by SFAS~~ No. ~~142,~~such ~~the~~amounts ~~$4.5~~were ~~million~~outstanding ~~charge is reflected~~ as ~~a cumulative effect~~ of aDecember ~~change in accounting principle in the Company’s Consolidated Statement of Operations for the six months ended June 30~~31, 2002. ~~There~~Remaining ~~was~~inventories noconsist ~~income tax effect on the impairment charge as the charge related to non-deductible goodwill. The fair value~~ of ~~the Orange Shipbuilding reporting unit was determined based on the~~ excess ~~earnings~~job ~~return~~related onmaterials ~~assets (treasury) valuation method~~and supplies. ~~The~~They ~~circumstance~~are ~~leading~~stated toat the ~~goodwill~~lower ~~impairment~~of ~~was~~cost ~~a decline~~ (first-in, ~~market~~first-out ~~conditions~~basis) ~~since~~or ~~the acquisition of this reporting unit~~market. ~~This circumstance caused lower than expected operating profits and cash flows.~~

~~During the first quarter of 2003, the Company completed its annual update of the impairment test as prescribed in SFAS No~~4. OTHER ~~142~~RECEIVABLES with respect to existing goodwill. The first step of the goodwill impairment test indicated that the fair value of each of the Company’s reporting units exceeded its respective carrying amount. As no impairment was indicated, the second step of the test, as defined under SFAS No. 142, was not required to be performed.

~~The carrying~~Other ~~amount~~receivables ofconsisted ~~goodwill~~ of ~~$8.1~~the ~~million~~following asat ofSeptember ~~June~~ 30, 2003 and December 31, 2002, ~~relates~~(in tothousands): ~~the Company’s vessel construction segment.~~

5. LONG-TERM DEBT

	2003		2002
Grants receivable from State of Louisiana	$	1,129	$	—
Income tax receivable		679		571
Other		24		29

Total	$	1,832	$	600

~~The~~Subsequent ~~Company~~to September ~~has a Loan Agreement with a commercial bank~~30, ~~which specifies the terms of the Term Loan~~2003, ~~the~~approximately ~~Development Loan and the Revolving Credit Facility~~$1.7 ~~The~~million ~~interest rate is variable, and interest accrues at the option~~ of the ~~Company~~other ~~either~~receivables atbalance ~~the~~was ~~JPMorgan Chase prime rate or LIBOR plus 1~~collected.~~75%.~~ ~~The~~Substantially ~~Loan Agreement is secured by substantially~~ all of the ~~Company’s~~remaining ~~assets,~~balance ~~contains customary~~at ~~restrictive~~September ~~covenants and requires the maintenance of certain financial ratios~~30, ~~including a current ratio requirement of 1.25 to 1.0~~2003, ais ~~debt~~expected to ~~tangible~~be ~~net~~collected ~~worth~~within ~~requirement of no greater than 1.50 and a debt service coverage ratio of 1.25 to 1.0 that could limit~~ the ~~Company’s~~next ~~use~~twelve ~~of available capacity under the Revolving Credit Facility~~months. In addition, the Loan Agreement prohibits the Company from paying dividends without the consent of the lender and restricts the ability of the Company to incur additional indebtedness. At June 30, 2003, the Company was in compliance with these covenants.

~~The Term Loan has a maturity date of May 31, 2005 and is payable in 22 remaining monthly principal payments of $107,000 plus interest, with a final payment of $4.~~7 million. Interest accrues at 3.09% until August 30, 2003, and thereafter at the option of the Company either at the JPMorgan Chase prime rate or LIBOR plus 1.75%. At June 30, 2003 and December 31, 2002, the Term Loan balance outstanding was $7.1 million and $7.7 million, respectively.

TheTable Revolving Credit Facility permits the Company to borrow up to $10.0 million for working capital and other general corporate purposes, including the funding of acquisitions and matures on May 31, 2004. As of June 30, 2003 and December 31, 2002, no amounts were outstanding on the Revolving Credit Facility. Contents

OnCONRAD ~~July 18~~INDUSTRIES, ~~2002, the Company entered into The Development Loan which provided financing totaling $6~~INC.7 ~~million~~AND toSUBSIDIARIES fund the development of the Amelia Deepwater facility. The facility included a revolver that converted to a term loan on April 1, 2003. Payments under the revolver included interest only until March 31, 2003, at

8NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~CONRAD INDUSTRIES, INC~~5. GOODWILL ~~AND SUBSIDIARIES~~

~~NOTES~~In TOJune ~~UNAUDITED~~2001, ~~CONSOLIDATED~~the ~~FINANCIAL~~Financial ~~STATEMENTS—~~Accounting Standards Board (~~Continued~~“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill upon the adoption of this statement on January 1, 2002.

~~which~~During ~~time~~2002, itthe ~~converted~~Company tocompleted athe ~~term~~two-step ~~loan~~process toof bethe ~~repaid~~transitional goodwill impairment test prescribed in 49SFAS ~~monthly~~No. ~~principal~~142 ~~payments~~with respect to existing goodwill. The first step of ~~$58,000~~the ~~plus~~transitional ~~interest~~goodwill ~~with~~impairment test involved a ~~final~~comparison ~~payment~~of the fair value of ~~$3.9~~each ~~million~~of ~~due~~the onCompany’s ~~May 31~~reporting units, ~~2007~~as defined under SFAS No. ~~Interest~~142, ~~accrues~~with atits 2carrying amount.~~87%~~ ~~until~~If ~~December~~the ~~30,~~carrying ~~2003~~amount exceeded the fair value of a reporting unit, ~~and~~the ~~thereafter~~Company atwas required to perform the ~~option~~second step of the transitional goodwill impairment test. As a result of the outcome of the first step relative to the Orange Shipbuilding reporting unit, the Company ~~either~~was atrequired to perform the ~~JPMorgan~~second ~~Chase~~step ~~prime~~of ~~rate~~the ortransitional ~~LIBOR~~goodwill ~~plus~~impairment 1test for this reporting unit.~~75%.~~ AtThe ~~June~~second ~~30,~~step ~~2003~~involved ~~and~~comparing ~~December~~the ~~31,~~implied ~~2002,~~fair value of this reporting unit’s goodwill to its carrying value to measure the ~~Development~~amount ~~Loan~~of ~~outstanding~~impairment. ~~was~~The transitional goodwill impairment test resulted in the Company recognizing a non-cash transitional goodwill impairment charge of $64.5 million ~~and~~related entirely to the Orange Shipbuilding reporting unit. As required by SFAS No. 142, the $54.5 million charge is reflected as a cumulative effect of a change in accounting principle in the Company’s Consolidated Statement of Operations for the nine months ended September 30, ~~respectively~~2002. There was no income tax effect on the impairment charge as the charge related to non-deductible goodwill. The fair value of the Orange Shipbuilding reporting unit was determined based on the excess earnings return on assets (treasury) valuation method. The circumstance leading to the goodwill impairment was a decline in market conditions since the acquisition of this reporting unit. This circumstance caused lower than expected operating profits and cash flows.

6During the first quarter of 2003, the Company completed its annual update of the impairment test as prescribed in SFAS No. ~~SHAREHOLDERS~~ 142 with respect to existing goodwill. The first step of the goodwill impairment test indicated that the fair value of each of the Company’s ~~EQUITY~~reporting units exceeded its respective carrying amount. As no impairment was indicated, the second step of the test, as defined under SFAS No. 142, was not required to be performed.

~~Income (Loss)~~The ~~per~~carrying ~~Share~~amount of goodwill of $8.1 million as of September 30, 2003 and December 31, 2002, relates to the Company’s vessel construction segment.

~~The~~8 calculation of basic earnings per share excludes any dilutive effect of stock options, while diluted earnings per share includes the dilutive effect of stock options. The number of weighted average shares outstanding for “basic” income per share was 7,233,454 and 7,228,454 for the three and six months ended June 30, 2003 and 2002, respectively. The number of weighted average shares outstanding for “diluted” income per share was 7,233,454 and 7,239,240 for the three months ended June 30, 2003 and 2002, respectively, and 7,233,454 and 7,228,454 for the six months ended June 30, 2003 and 2002, respectively.

Stock-BasedTable Compensationof Contents

~~The~~CONRAD ~~Company uses the intrinsic value method of accounting for employee-based compensation prescribed by Accounting Principles Board (“APB”) Opinion No. 25 and~~INDUSTRIES, ~~accordingly, follows the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No~~INC. ~~123,~~AND ~~“Accounting~~SUBSIDIARIES for Stock-Based Compensation.” SFAS No. 123 encourages the use of a fair value based method of accounting for compensation expense associated with stock option and similar plans. However, SFAS No. 123 permits the continued use of the intrinsic value based method prescribed by Opinion No. 25 but requires additional disclosures, including pro forma calculations of net earnings and earnings per share as if the fair value method of accounting prescribed by SFAS No. 123 had been applied.

~~Had~~NOTES ~~compensation~~TO ~~cost~~UNAUDITED ~~for~~CONSOLIDATED ~~the~~FINANCIAL Company’s stock plans been determined based on the fair value at the grant dates consistent with the method of SFAS No. 123, net income and net income per share amounts would have approximated the following pro forma amounts STATEMENTS—(~~in thousands, except per share data~~Continued):

	Three MonthsEnded June 30,						Six Months EndedJune 30,
	2003			2002			2003			2002
Net (loss) income, as reported	$	(726	)	$	300		$	(1,047	)	$	(3,742	)
Add: Total stock-based employee compensation expense included in reported net loss net of related tax effects		2			5			3			10
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(28	)		(39	)		(49	)		(72	)
Pro forma, net (loss) income	$	(752	)	$	266		$	(1,093	)	$	(3,804	)
(Loss) income per share:
Basic and diluted—as reported	$	(0.10	)	$	0.04		$	(0.14	)	$	(0.52	)
Basic and diluted—pro forma	$	(0.10	)	$	0.04		$	(0.15	)	$	(0.53	)
Weighted average fair value of grants	$	1.38		$	2.40		$	1.38		$	2.40
Black-Scholes option pricing model assumptions:
Risk-free interest rate		3.07	%		2.72	%		3.07	%		2.72	%
Expected life (years)		3.0			3.0			3.0			3.0
Volatility		77.5	%		79.0	%		77.5	%		79.0	%
Dividend yield		—			—			—			—

6. LONG-TERM DEBT

9Long-term debt consisted of the following at September 30, 2003 and December 31, 2002 (in thousands):

CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

	2003			2002
Term loan—Bank, variable interest rate (2.86% at September 30, 2003), due May 31, 2005	$	6,760		$	7,723
Development loan—Bank, variable interest rate (2.87% at September 30, 2003), due May 31, 2007		6,352			5,500
Industrial revenue bonds—St. Mary Parish, variable interest rate (3.10% at September 30, 2003), due August 1, 2018		3,978			—

		17,090			13,223
Less current maturities		(2,247	)		(1,806	)

	$	14,843		$	11,417

~~NOTES~~The TOCompany ~~UNAUDITED~~has ~~CONSOLIDATED~~a ~~FINANCIAL~~Loan Agreement ~~STATEMENTS—(Continued)~~with a commercial bank, which specifies the terms of the Term Loan, the Development Loan and the Revolving Credit Facility. The interest rate is variable, and interest accrues at the option of the Company either at the JPMorgan Chase prime rate or LIBOR plus 1.75%. The Loan Agreement is secured by substantially all of the Company’s assets, contains customary restrictive covenants and requires the maintenance of certain financial ratios, including a current ratio requirement, a debt to tangible net worth requirement and a debt service coverage ratio that could limit the Company’s use of available capacity under the Revolving Credit Facility. In addition, the Loan Agreement prohibits the Company from paying dividends without the consent of the lender and restricts the ability of the Company to incur additional indebtedness. At September 30, 2003, the Company was in compliance with these covenants.

7Subsequent to September 30, 2003, the Company and the commercial bank amended the Loan Agreement. ~~SEGMENT~~ ~~AND~~The ~~RELATED~~amendment ~~INFORMATION~~changed the interest rate to either the JP Morgan Chase prime rate or LIBOR plus two percent, at the Company’s option, and adjusted the debt service coverage requirement.

The Term Loan has a maturity date of May 31, 2005 and is payable in 19 remaining monthly principal payments of $107,000 plus interest, with a final payment of $4.7 million. Interest accrues at 2.86% until October 30, 2003, 2.91% until January 30, 2004, and thereafter at the option of the Company ~~classifies~~either ~~its~~at ~~business~~the ~~into~~JPMorgan Chase prime rate or LIBOR plus two ~~segments:~~percent. At September 30, 2003 and December 31, 2002, the Term Loan balance outstanding was $6.8 million and $7.7 million, respectively.

~~Vessel~~The ~~Construction~~Revolving Credit Facility permits the Company to borrow up to $10.0 million for working capital and other general corporate purposes, including the funding of acquisitions and matures on May 31, 2004. As of September 30, 2003 and December 31, 2002, no amounts were outstanding on the Revolving Credit Facility.

~~The~~On July 18, 2002, the Company ~~constructs~~entered ainto ~~variety~~The Development Loan which provided financing totaling $6.7 million to fund the development of ~~marine~~the ~~vessels,~~Amelia ~~including~~Deepwater ~~tugboats~~facility. The facility included a revolver that converted to a term loan on April 1, ~~ferries,~~ ~~liftboats~~2003. Payments under the revolver included interest only until March 31, ~~barges~~2003, ~~offshore~~at ~~support~~which ~~vessels~~time it converted to a term loan to be repaid in 49 monthly principal payments of $58,000 ~~large~~plus ~~and~~interest ~~small~~with ~~deck~~a ~~barges~~final ~~and~~payment ~~other~~of ~~steel~~$3.9 ~~and~~million ~~aluminum~~due ~~products~~on ~~for~~May ~~both~~31, ~~commercial~~2007. ~~and~~Interest ~~government~~accrues ~~markets~~at 2.87% ~~The~~until ~~Company~~December ~~also~~30, ~~fabricates~~2003, ~~components~~and thereafter at the option of ~~offshore~~the ~~drilling~~Company ~~rigs~~either ~~and~~at ~~floating~~the JPMorgan Chase ~~production,~~prime ~~storage~~rate ~~and~~or ~~offloading~~LIBOR ~~vessels~~plus ~~including~~two ~~sponsons~~percent. At September 30, ~~stability~~2003 ~~columns~~and December 31, ~~blisters~~2002, ~~pencil~~the ~~columns~~Development Loan outstanding was $6.4 million and ~~other~~$5.5 ~~modular~~million, ~~components~~respectively.

~~Repair~~9 ~~and Conversions~~

TheTable Company’s conversion projects primarily consist of lengthening the midbodies of vessels, modifying vessels to permit their use for a different type of activity and other modifications to increase the capacity or functionality of a vessel. The Company also derives a significant amount of revenue from repairs made as a result of periodic inspections required by the U.S. Coast Guard, the American Bureau of Shipping and other regulatory agencies. Contents

~~The~~CONRAD ~~Company evaluates the performance of its segments based upon gross profit. Selling~~INDUSTRIES, ~~general and administrative expenses, interest expense, other income, net, and income taxes are not allocated to the segments~~INC. ~~Accounting~~AND ~~policies~~SUBSIDIARIES are the same as those described in Note 1, “Summary of Significant Accounting Policies” in the Company’s Form 10-K for the year ended December 31, 2002. Intersegment sales and transfers are not significant.

10NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~CONRAD~~In ~~INDUSTRIES~~July 2003, ~~INC~~the Company completed the financing for its expansion into the aluminum marine fabrication, repair and construction business. ~~AND~~The ~~SUBSIDIARIES~~expansion is part of a $5.5 million investment in the Company’s original facility in Amelia, Louisiana (“Amelia Topside”), through the Company’s subsidiary Conrad Aluminum, L.L.C. The financing of this expansion includes a $1.5 million grant by the State of Louisiana through the Economic Development Award Program (EDAP) and $4.0 million of industrial revenue bonds issued by the St. Mary Parish Industrial Development Board. In connection with the issuance of the bonds, Conrad subsidiary Conrad Aluminum, L.L.C. contributed to the Industrial Development Board the land and buildings at the Amelia Topside yard and is leasing them back along with the items to be purchased with the bond proceeds, with a right to repurchase or extend. The transaction is being accounted for as a financing and thus the original cost of the property less accumulated depreciation remains reflected in the Company’s property, plant and equipment. The lease payments will be used to pay principal and interest on the bonds. Conrad and its subsidiaries have guaranteed the bonds. The bonds have a 15 year term and monthly principal payments of $22,222 plus interest. Interest accrues at 3.10% until October 12, 2003, at 3.12% until December 12, 2003, and thereafter, at the Company’s option, at either a prime rate or the higher of (a) 30, 60 or 90-day LIBOR plus two percent or (b) the JPMorgan Chase prime rate. As of September 30, 2003, remaining industrial revenue bond proceeds of approximately $2.7 million restricted for use on the aluminum facility expansion are included under the caption “Other Assets”.

~~NOTES~~The TO$1.5 ~~UNAUDITED~~million ~~CONSOLIDATED~~EDAP ~~FINANCIAL~~grant ~~STATEMENTS—(Continued)~~requires the Company to create a total of 224 new positions by December 31, 2006 and sustain that level through December 31, 2012. If the Company fails to meet the job creation objectives, the state may recover related portions of the grant. As of September 30, 2003, approximately $1.1 million of equipment had been purchased with grant proceeds. Accordingly, as of September 30, 2003, a $1.1 million liability was included under the caption “Other Non-Current Liabilities”. This amount will be amortized into income in future periods over the estimated useful lives of the related equipment and as the specified performance objectives are achieved. The equipment purchased with the grant proceeds is owned by St. Mary Parish and is being leased by the Company with an option to purchase. The transaction is being accounted for as a financing and thus the assets are included in the Company’s property, plant and equipment.

~~Selected~~7. SHAREHOLDERS’ ~~information~~EQUITY ~~as to the operations of the Company by segment is as follows (in thousands):~~

	Three Months EndedJune 30,						Six Months EndedJune 30,
	2003			2002			2003			2002
Revenue:
Vessel construction	$	6,472		$	7,895		$	13,272		$	14,648
Repair and conversions		2,866			2,532			6,540			6,364
Total revenue		9,338			10,427			19,812			21,012
Cost of revenue:
Vessel construction		6,469			6,678			13,043			12,094
Repair and conversions		2,936			2,034			6,021			5,108
Total cost of revenue		9,405			8,712			19,064			17,202
Gross (loss) profit:
Vessel construction		3			1,217			229			2,554
Repair and conversions		(70	)		498			519			1,256
Total gross (loss) profit		(67	)		1,715			748			3,810
Selling, general and administrative expenses		944			1,165			2,187			2,467
(Loss) income from operations		(1,011	)		550			(1,439	)		1,343
Interest expense		(107	)		(81	)		(173	)		(162	)
Other income, net		8			5			12			15
(Loss) income before income taxes		(1,110	)		474			(1,600	)		1,196
(Benefit) provision for income taxes		(384	)		174			(553	)		438
(Loss) income before cumulative effect of change in accounting principle		(726	)		300			(1,047	)		758
Cumulative effect of change in accounting principle		—			—			—			(4,500	)
Net (loss) income	$	(726	)	$	300		$	(1,047	)	$	(3,742	)

Income (Loss) per Share

11The calculation of basic earnings per share excludes any dilutive effect of stock options, while diluted earnings per share includes the dilutive effect of stock options. The number of weighted average shares outstanding for “basic” and “diluted” income per share was 7,233,481 and 7,230,356 for the three months ended September 30, 2003 and 2002, respectively, and 7,233,463 and 7,229,095 for the nine months ended September 30, 2003 and 2002, respectively.

~~CONRAD~~Stock-Based ~~INDUSTRIES,~~Compensation ~~INC. AND SUBSIDIARIES~~

~~NOTES~~The TOCompany ~~UNAUDITED~~uses ~~CONSOLIDATED~~the intrinsic ~~FINANCIAL~~value ~~STATEMENTS—~~method of accounting for employee-based compensation prescribed by Accounting Principles Board (~~Continued~~“APB”) Opinion No. 25 and, accordingly, follows the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123 encourages the use of a fair value based method of accounting for compensation expense associated with stock option and similar plans. However, SFAS No. 123 permits the continued use of the intrinsic value based method prescribed by Opinion No. 25 but requires additional disclosures, including pro forma calculations of net earnings and earnings per share as if the fair value method of accounting prescribed by SFAS No. 123 had been applied.

~~Certain~~10 ~~other financial information of the Company by segment is as follows (in thousands):~~

	Three MonthsEndedJune 30,				Six Months EndedJune 30,
	2003		2002		2003		2002
Depreciation and amortization expense:
Vessel construction	$	222	$	218	$	443	$	434
Repair and conversions		244		165		422		318
Included in selling, general and administrative expenses		97		84		195		209
Total depreciation and amortization expense	$	563	$	467	$	1,060	$	961
Capital expenditures:
Vessel construction	$	226	$	253	$	265	$	402
Repair and conversions		622		1,802		2,265		2,263
Other		14		218		35		306
Total capital expenditures	$	862	$	2,273	$	2,565	$	2,971

~~Total~~CONRAD ~~assets of the Company by segment is as follows as of June 30~~INDUSTRIES, ~~2003~~INC. ~~and~~AND ~~December~~SUBSIDIARIES ~~31, 2002 (in thousands):~~

	2003		2002
Total assets:
Vessel construction	$	23,426	$	24,799
Repair and conversions		19,531		18,393
Other		9,552		10,649
Total assets	$	52,509	$	53,841

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~Certain~~Had ~~assets,~~compensation cost for the Company’s stock plans been determined based on the fair value at ~~including~~the ~~cash~~grant ~~and~~dates ~~cash~~consistent ~~equivalents~~with the method of SFAS No. 123, net income and ~~capital~~net ~~expenditures~~income ofper ~~the~~share ~~Company~~amounts ~~are~~would ~~allocated~~have toapproximated ~~corporate~~the ~~and~~following ~~are~~pro ~~included~~forma amounts (in ~~the~~thousands, ~~“Other”~~except ~~caption.~~per share data):

Revenues included in the consolidated financial statements of the Company are derived from customers domiciled in the United States. All assets of the Company are located in the United States.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net loss, as reported	$	(827	)	$	(263	)	$	(1,874	)	$	(4,005	)
Add: Total stock-based employee compensation expense included in reported net loss net of related tax effects		1			3			4			13
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(18	)		(26	)		(67	)		(98	)

Pro forma, net loss	$	(844	)	$	(286	)	$	(1,937	)	$	(4,090	)

Loss per share:
Basic and diluted—as reported	$	(0.11	)	$	(0.04	)	$	(0.26	)	$	(0.55	)

Basic and diluted—pro forma	$	(0.12	)	$	(0.04	)	$	(0.27	)	$	(0.57	)

Weighted average fair value of grants		N/A		$	1.79		$	1.38		$	1.99

Black-Scholes option pricing model assumptions:
Risk-free interest rate		3.26	%		2.72	%		3.26	%		2.72	%
Expected life (years)		3.0			3.0			3.0			3.0
Volatility		74.6	%		79.0	%		74.6	%		79.0	%
Dividend yield		—			—			—			—

8. ~~COMMITMENTS AND~~ SEGMENT ~~CONTINGENCIES~~AND RELATED INFORMATION

~~Legal Matters—~~The Company isclassifies a party to various legal proceedings primarily involving commercial claims and workers’ compensation claims. While the outcome of these claims and legal proceedings cannot be predicted with certainty, management believes that theits ~~outcome~~business ofinto ~~such~~two ~~proceedings,~~segments: ~~in the aggregate, even if determined adversely, would not have a material adverse effect on the Company’s consolidated financial statements.~~

~~Employment~~Vessel ~~Agreements—The Company has employment agreements with certain of its executive officers which~~Construction provide for employment of the officers through December 31, 2004, and provide for extensions at the end of the term, subject to the parties’ mutual agreement. The minimum annual total compensation under these agreements is $790,000.

~~Construction~~The ~~Commitments—As~~Company constructs a variety of ~~June~~marine 30vessels, including ~~2003~~tugboats, ~~the Company~~ferries, ~~had~~liftboats, anbarges, ~~outstanding~~offshore ~~commitment~~support ofvessels, ~~$1.5~~large ~~million~~and small deck barges and other steel and aluminum products for ~~the~~both ~~construction~~commercial and government markets. The Company also fabricates components of ~~its~~offshore ~~new~~drilling ~~aluminum~~rigs and ~~marine~~floating ~~fabrication~~production, ~~repair~~storage and ~~conversion~~offloading ~~facility~~vessels inincluding ~~Amelia~~sponsons, ~~Louisiana~~stability columns, blisters, pencil columns and other modular components.

12Repair and Conversions

~~CONRAD~~The ~~INDUSTRIES~~Company’s conversion projects primarily consist of lengthening the midbodies of vessels, ~~INC~~modifying vessels to permit their use for a different type of activity and other modifications to increase the capacity or functionality of a vessel. ~~AND~~The ~~SUBSIDIARIES~~Company also derives a significant amount of revenue from repairs made as a result of periodic inspections required by the U.S. Coast Guard, the American Bureau of Shipping and other regulatory agencies.

~~NOTES~~The Company TOevaluates ~~UNAUDITED~~the ~~CONSOLIDATED~~performance ~~FINANCIAL~~of ~~STATEMENTS—(Continued)~~its segments based upon gross profit. Selling, general and administrative expenses, interest expense, other income, net, and income taxes are not allocated to the segments.

~~Letters~~11 of Credit and Bonds—In the normal course of its business, the Company is required to provide letters of credit to secure the payment of workers’ compensation obligations. Additionally, under certain contracts the Company may be required to provide letters of credit and bonds to secure certain performance and payment obligations of the Company thereunder. Outstanding letters of credit and bonds relating to these business activities amounted to $31.3 million and $28.1 million at June 30, 2003 and December 31, 2002, respectively.

9. NEWTable ACCOUNTINGof PRONOUNCEMENTS Contents

InCONRAD ~~June 2001~~INDUSTRIES, ~~FASB issued SFAS No~~INC. ~~143,~~AND ~~“Accounting~~SUBSIDIARIES for Asset Retirement Obligations.” SFAS No. 143 requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are required to be recorded at their fair values (which are likely to be the present values of the estimated future cash flows) in the period in which they are incurred. SFAS No. 143 requires the associated asset retirement costs to be capitalized as part of the carrying amount of the long-lived asset. The asset retirement obligation will be accreted each year through a charge to expense. The amounts added to the carrying amounts of the assets will be depreciated over the useful lives of the assets. The Company implemented SFAS No. 143 on January 1, 2003, as required, and it did not have a material effect on the Company’s consolidated financial position or results of operations.

InNOTES ~~April~~TO ~~2002,~~UNAUDITED ~~the~~CONSOLIDATED ~~FASB~~FINANCIAL ~~issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB~~STATEMENTS—(Continued) Statement No. 13, and Technical Corrections.” SFAS No. 145 eliminates SFAS No. 4 and as a result, gains and losses from extinguishments of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30. SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also updates and amends existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company implemented SFAS No. 145 on January 1, 2003, and it did not have a material impact on the Company’s consolidated financial position or results of operations.

In Accounting ~~July~~policies ~~2002,~~are ~~FASB~~the ~~issued~~same ~~SFAS~~as ~~No.~~those ~~146~~described in Note 1, “~~Accounting~~Summary ~~for~~of ~~Cost~~Significant ~~Associated~~Accounting ~~with~~Policies” ~~Exit~~in orthe ~~Disposal~~Company’s ~~Activities,”~~Form ~~which is~~10-K ~~effective~~ for ~~fiscal~~the year ~~periods~~ended ~~after~~ December 31, 2002. ~~SFAS~~Intersegment ~~No.~~sales 146 requires companies to recognize costs associated with restructuring, discontinued operations, plant closing, or other exit or disposal activities, when incurred rather than at the date a plan is committed to. The Company adopted the standard as of the effective date and ~~will~~transfers ~~implement~~are ~~its~~not ~~provisions on a prospective basis~~significant.

InSelected ~~November~~information ~~2002,~~as FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 elaborates on the disclosures to ~~be made by a guarantor about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at~~ the ~~inception~~ ofoperations ~~a guarantee, a liability for the fair value~~ of the ~~obligation undertaken in issuing the guarantee. As required, the~~ Company ~~adopted~~by ~~the~~segment ~~disclosure~~is ~~requirements of FIN 45~~ as offollows ~~December~~(in ~~31,~~thousands): ~~2002. On January 1, 2003, the Company adopted the initial recognition and measurement provisions on a prospective basis for guarantees that may be issued or modified after December 31, 2002.~~

In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest in after that date. The Company implemented FIN 46 and it did not have a material impact on its consolidated financial position or results of operations.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Revenue:
Vessel construction	$	4,493		$	7,618		$	17,765		$	22,266
Repair and conversions		2,229			1,761			8,769			8,125

Total revenue		6,722			9,379			26,534			30,391

Cost of revenue:
Vessel construction		4,597			6,383			17,640			18,477
Repair and conversions		2,132			1,897			8,153			7,005

Total cost of revenue		6,729			8,280			25,793			25,482

Gross (loss) profit:
Vessel construction		(104	)		1,235			125			3,789
Repair and conversions		97			(136	)		616			1,120

Total gross (loss) profit		(7	)		1,099			741			4,909
Selling, general and administrative expenses		1,157			1,150			3,344			3,617
Terminated acquisition costs		—			350			—			350

(Loss) income from operations		(1,164	)		(401	)		(2,603	)		942
Interest expense		(132	)		(38	)		(305	)		(200	)
Other income, net		22			9			34			24

(Loss) income before income taxes		(1,274	)		(430	)		(2,874	)		766
(Benefit) provision for income taxes		(447	)		(167	)		(1,000	)		271

(Loss) income before cumulative effect
of change in accounting principle		(827	)		(263	)		(1,874	)		495
Cumulative effect of change in
accounting principle		—			—			—			(4,500	)

Net loss	$	(827	)	$	(263	)	$	(1,874	)	$	(4,005	)

1312

CONRADTable INDUSTRIES,of INC. AND SUBSIDIARIES Contents

~~NOTES~~CONRAD TOINDUSTRIES, ~~UNAUDITED~~INC. ~~CONSOLIDATED~~AND ~~FINANCIAL~~SUBSIDIARIES ~~STATEMENTS—(Continued)~~

~~10. SUBSEQUENT~~NOTES ~~EVENTS~~TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

InCertain ~~June~~other ~~2003,~~financial ~~the~~information ~~Company announced its intention to expand its services into the aluminum marine fabrication, repair and conversion market for both commercial and government customers. The expansion is part~~ of ~~a $5.5 million investment in~~ the Company’s ~~original facility in Amelia, Louisiana (“Amelia Topside”), through the Company’s subsidiary Conrad Aluminum, L.L.C. The financing of this expansion includes a $1.5 million grant~~ by ~~the~~segment ~~State~~is ofas ~~Louisiana~~follows ~~through the Economic Development Award Program~~ (EDAP) and $4.0 million of industrial revenue bonds issued by the St. Mary Parish Industrial Development Board. The investment includes a 37,500 square foot two-bay building, a 300 ton travel lift and six overhead cranes. The Company anticipates completion of the expansion and commencement of operations in ~~the fourth quarter of~~thousands): ~~2003.~~

In July 2003, the Company completed the financing for its expansion into the aluminum marine fabrication, repair and construction business. In connection with the issuance of the bonds, Conrad subsidiary Conrad Aluminum, L.L.C. donated to the Industrial Development Board the land and buildings at the Amelia Topside yard and is leasing them back along with the items to be purchased with the bond proceeds, with a right to repurchase or extend. The lease payments will be used to pay principal and interest on the bonds. Conrad and its subsidiaries have guaranteed the bonds. The bonds have a 15 year term, monthly principal payments of $22,222.22 plus interest and bear interest, at the Company’s option, at either a prime rate or the higher of (a) 30, 60 or 90-day LIBOR plus two percent or (b) a prime rate minus one percent. The $1.5 million EDAP grant requires the Company to meet specified job creation objectives.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Depreciation and amortization expense:
Vessel construction	$	224	$	194	$	667	$	628
Repair and conversions		235		147		657		465
Included in selling, general and administrative expenses		94		117		289		326

Total depreciation and amortization expense	$	553	$	458	$	1,613	$	1,419

Capital expenditures:
Vessel construction	$	746	$	575	$	1,011	$	977
Repair and conversions		1,597		405		3,862		2,668
Other		273		58		308		364

Total capital expenditures	$	2,616	$	1,038	$	5,181	$	4,009

~~******~~Total assets of the Company by segment is as follows as of September 30, 2003 and December 31, 2002 (in thousands):

	2003		2002
Total assets:
Vessel construction	$	24,387	$	24,799
Repair and conversions		20,810		18,393
Other		11,983		10,649

Total assets	$	57,180	$	53,841

~~Item~~Certain ~~2: Management’s~~assets, including ~~Discussion~~cash and ~~Analysis~~cash equivalents, and capital expenditures of ~~Financial~~the ~~Condition~~Company are allocated to corporate and ~~Results~~are ~~of Operations~~included in the “Other” caption.

~~The~~Revenues ~~following~~included ~~discussion and analysis should be read~~ in ~~conjunction with~~ the ~~Unaudited~~consolidated ~~Consolidated~~financial ~~Financial~~statements ~~Statements~~of ~~and~~ the ~~Notes~~Company toare ~~Unaudited~~derived ~~Consolidated~~from ~~Financial~~customers ~~Statements~~domiciled ~~included elsewhere~~ in ~~this~~the ~~Form~~United ~~10-Q~~States. asAll ~~well~~assets asof the Company’s ~~annual~~are ~~report~~located onin ~~Form 10-K for~~ the ~~year~~United ~~ended December 31, 2002~~States.

~~Overview~~9. COMMITMENTS AND CONTINGENCIES

Legal Matters—The Company ~~was~~is ~~incorporated~~a inparty ~~March 1998~~ to ~~serve~~various aslegal ~~the~~proceedings ~~holding~~primarily ~~company for~~involving ~~Conrad~~commercial ~~Shipyard,~~claims ~~Inc. (“Conrad”)~~ and ~~Orange~~workers’ ~~Shipbuilding~~compensation ~~Company, Inc~~claims. ~~(“Orange~~While ~~Shipbuilding”).~~the ~~The~~outcome ~~Company completed an initial public offering in June 1998 by issuing 2.1 million shares~~ of ~~common~~these ~~stock.~~claims ~~Conrad has operated since 1948 at its shipyard in Morgan City, Louisiana. The Company designs, builds~~ and ~~overhauls~~legal ~~tugboats, ferries, liftboats, barges, offshore support vessels and other steel and aluminum products for both commercial and government markets. In~~proceedings ~~December~~cannot ~~1997,~~be ~~Conrad~~predicted ~~acquired~~with ~~Orange Shipbuilding to increase its capacity to serve Conrad’s existing markets and to expand its product capability into the construction of additional types of marine vessels~~certainty, ~~including~~management ~~tug~~believes ~~boats~~that ~~for~~ the ~~U.S. Army,~~outcome ~~offshore tug boats, push boats and double hull barges, and the fabrication~~ of ~~modular~~such ~~components for offshore drilling rigs and FPSOs. In February 1998~~proceedings, ~~Conrad commenced operations at a repair and conversion facility~~ in Amelia, Louisiana, thereby expanding its capacity to provide repair and conversion services for marine vessels. In 2000, Conrad Shipyard, Inc. was converted into a Louisiana limited liability company named Conrad Shipyard, L.L.C. In February 2003, the ~~Company commenced operations at a second repair and conversion facility in Amelia~~aggregate, ~~Louisiana,~~even ~~thereby~~if ~~further~~determined ~~expanding its capacity to provide repair and conversion services for marine vessels with deeper drafts than the Company has been able to service at its other facilities. In June 2003~~adversely, ~~the~~would ~~original~~not ~~facility~~have ~~in Amelia was transferred to~~ a ~~newly~~material ~~organized~~adverse ~~subsidiary,~~effect ~~Conrad~~on ~~Aluminum L.L.C., in order to accommodate~~ the Company’s ~~expansion~~consolidated ~~into~~financial ~~the aluminum marine fabrication, repair and conversion services~~statements.

~~Demand~~Employment ~~for~~Agreements—The ~~the~~ Company’s ~~products~~has ~~and~~employment ~~services~~agreements iswith ~~dependent~~certain ~~upon a number~~ of ~~factors,~~its ~~including~~executive ~~the~~officers ~~economic~~which ~~condition~~provide offor ~~the~~employment ~~Company’s customers and markets, the age and state~~ of ~~repair of~~ the ~~vessels~~officers ~~operated~~through byDecember ~~the Company’s customers and the relative cost to construct a new vessel as compared with repairing an older vessel. Over the last ten years~~31, ~~the Company’s customers have been primarily (1) companies serving the offshore Gulf of Mexico oil and gas industry~~2004, ~~(2) federal, state~~ and ~~local~~provide ~~governments,~~for ~~and (3)~~extensions ~~other~~at ~~commercial customers. Since late 1998 and particularly since~~ the ~~fourth~~end ~~quarter~~ of ~~2001, weakness in~~ the ~~economy in general~~term, ~~and~~subject ~~the~~to offshore Gulf of Mexico oil and gas industry in particular, has resulted in decreased demand from these customers. Because much of our repair and conversion work has been performed for customers in this industry, our financial results for this segment of our business have been adversely affected. We did experience an increase in demand for repair and conversion services in the ~~first~~parties’ ~~quarter~~mutual ~~of 2003 as a result of seasonal workload patters, but this increased demand was not sustained in the second quarter~~agreement. WeThe ~~have~~minimum ~~been successful in securing backlog in our vessel construction segment primarily~~annual ~~from~~total ~~government~~compensation ~~customers.~~under ~~Government~~these ~~contracts~~agreements ~~accounted~~is ~~for approximately 24.9% of our backlog at December 31~~$751, ~~2000 and 97~~000.4% ~~at June 30, 2003.~~

~~The~~Construction ~~Company’s~~Commitments—As ~~firm~~of ~~backlog~~September ~~was $34.8 million at June~~ 30, 2003 ~~as compared to $36.2 million at December 31~~, ~~2002 and $22.6 million at June 30, 2002. The increase in backlog from~~ the ~~same~~Company ~~period~~had ofan ~~the~~outstanding ~~prior~~commitment ~~year is primarily attributable to the award~~ of a $161.65 million ~~contract~~ for the construction of ~~three~~its ~~towboats~~new asaluminum ~~well~~marine asfabrication ~~the~~repair ~~exercise~~and ofconversion afacility ~~$6.1 million option for an additional towboat by the Corps of Engineers. As a result of the extended design phase of a number of contracts~~ in ~~the Company’s backlog~~Amelia, ~~the Company anticipates the impact of these new contracts to become more evident in late 2003 and 2004 operating results~~Louisiana.

~~The~~13 Company is engaged in various types of construction under contracts that generally range from one month to 36 months in duration. The Company uses the percentage-of-completion method of accounting and therefore takes into account the estimated costs, estimated earnings and revenue to date on fixed-price contracts not yet completed. The amount of revenue recognized is equal to the portion of the total contract price that the labor hours incurred to date bears to the estimated total labor hours, based on current estimates to complete. This

15Table of Contents

~~method~~CONRAD isINDUSTRIES, ~~used because management considers expended labor hours to be the best available measure of progress on these contracts~~INC. ~~Revenues~~AND ~~from~~SUBSIDIARIES ~~cost-plus-fee contracts are recognized on the basis of cost incurred during the period plus the fee earned.~~

~~Most~~NOTES ofTO ~~the~~UNAUDITED ~~contracts~~CONSOLIDATED ~~entered~~FINANCIAL ~~into by the Company for new vessel construction, whether commercial or governmental, are fixed-price contracts under which the Company retains all cost savings on completed contracts but~~STATEMENTS—(Continued) is liable for all cost overruns. The Company develops its bids for a fixed price project by estimating the amount of labor hours and the cost of materials necessary to complete the project and then bids such projects in order to achieve a sufficient profit margin to justify the allocation of its resources to such project. The Company’s revenues therefore may fluctuate from period to period based on, among other things, the aggregate amount of materials used in projects during a period and whether the customer provides materials and equipment. The Company generally performs conversion and repair services on the basis of cost-plus-fee arrangements pursuant to which the customer pays a negotiated labor rate for labor hours spent on the project as well as the cost of materials plus a margin on materials purchased.

~~Recent~~Letters ~~Events~~of Credit and Bonds—In the normal course of its business, the Company is required to provide letters of credit to secure the payment of workers’ compensation obligations. Additionally, under certain contracts the Company may be required to provide letters of credit and bonds to secure certain performance and payment obligations of the Company thereunder. Outstanding letters of credit and bonds relating to these business activities amounted to $37.5 million and $28.1 million at September 30, 2003 and December 31, 2002, respectively.

~~Expansion~~10. TERMINATED ~~Into~~ACQUISITION ~~Aluminum Marine~~COSTS ~~Fabrication, Repair and Conversion~~

InOn ~~June~~October ~~2003~~9, 2002, the Company announced ~~its~~that ~~intention~~it tohad ~~expand~~terminated negotiations ~~its~~under ~~services~~a ~~into~~non-binding ~~the~~letter ~~aluminum~~of ~~marine~~intent ~~fabrication,~~executed ~~repair~~August ~~and~~12, ~~conversion~~2002, ~~market~~regarding ~~for~~the ~~both~~purchase ~~commercial~~of ~~and~~substantially ~~government~~all ~~customers. The expansion is part~~ of ~~a $5.5 million investment in~~ the ~~Company’s original~~assets ~~facility~~of inSwiftships ~~Amelia~~Shipbuilders, ~~Louisiana,~~LLC ~~through~~and ~~the~~Swiftships ~~Company’s subsidiary Conrad Aluminum~~Technologies, LLLC.~~L.C.~~ ~~The~~Approximately ~~financing of this expansion includes a~~ $~~1.5~~350,000 ~~million grant by the State~~ of ~~Louisiana~~deferred ~~through the Economic Development Award Program (EDAP) and~~acquisition ~~$4.0~~costs ~~million~~were ofcharged ~~industrial~~to ~~revenue~~operations ~~bonds~~for ~~issued by~~ the ~~St.~~three ~~Mary~~and ~~Parish~~nine ~~Industrial~~months ~~Development~~ended ~~Board.~~September ~~The investment includes a 37~~30,~~500~~ ~~square foot two-bay building~~2002, aas ~~300 ton travel lift and six overhead cranes. Conrad has donated the facility to the St. Mary Parish Industrial Development Board and has entered into~~ a ~~fifteen~~result ~~year lease with an option to extend or repurchase. The Company anticipates completion~~ of the ~~expansion~~termination ~~and commencement~~ of ~~operations~~this inproposed ~~the fourth quarter of 2003~~acquisition.

~~Internal~~In ~~Expansion~~connection with the letter of intent, Conrad entered into an agreement pursuant to which it loaned approximately $500,000, secured by real estate, to Swiftships Shipbuilders, LLC. The loan and related interest were collected in full during the fourth quarter of 2002.

~~On October 23, 2000, the Company purchased 52 acres of land in Amelia, Louisiana for $1~~11.3 NEW ~~million.~~ACCOUNTING ~~The~~PRONOUNCEMENTS land is strategically located on the Bayou Boeuf/Intracoastal Waterway approximately 30 miles from the Gulf of Mexico and is within one mile of the other existing Amelia facility. Approximately 14 acres of the property have been developed as a repair and conversion facility. The development includes clearing land, grubbing, dredging, installation of a steel sheet-pile bulkhead system, dry excavation, construction of a 5,400 square foot building, other infrastructure improvements and outfitting with tools and equipment at an anticipated total cost of approximately $7.6 million. As of June 30, 2003, the Company had incurred $7.0 million developing the facility. In the first quarter of 2003, the Company moved its three largest drydocks to the facility and commenced operations. The Company moved an additional drydock to the facility during the second quarter of 2003. The facility allows the Company to handle vessels with deeper drafts than the Company has historically been able to service at its other facilities. In addition, the infrastructure improvements also allow for the potential future development of the facility to accommodate vessel construction should the market so dictate.

16In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are required to be recorded at their fair values (which are likely to be the present values of the estimated future cash flows) in the period in which they are incurred. SFAS No. 143 requires the associated asset retirement costs to be capitalized as part of the carrying amount of the long-lived asset. The asset retirement obligation will be accreted each year through a charge to expense. The amounts added to the carrying amounts of the assets will be depreciated over the useful lives of the assets. The Company implemented SFAS No. 143 on January 1, 2003, as required, and it did not have a material effect on the Company’s consolidated financial position or results of operations.

~~Results~~In April 2002, the FASB issued SFAS No. 145, “Rescission of ~~Operations~~FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 eliminates SFAS No. 4 and as a result, gains and losses from extinguishments of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30. SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also updates and amends existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company implemented SFAS No. 145 on January 1, 2003, and it did not have a material impact on the Company’s consolidated financial position or results of operations.

~~The~~In ~~following~~July ~~table~~2002, ~~sets~~FASB ~~forth~~issued ~~certain~~SFAS ~~historical~~No. ~~data~~146, of“Accounting for Cost Associated with Exit or Disposal Activities,” which is effective for fiscal periods after December 31, 2002. SFAS No. 146 requires companies to recognize costs associated with restructuring, discontinued operations, plant closing, or other exit or disposal activities, when incurred rather than at the date a plan is committed to. The Company ~~and~~adopted ~~percentage~~the ofstandard ~~revenues~~as ~~for~~of the ~~periods~~effective ~~presented~~date ~~(in~~and ~~thousands):~~will implement its provisions on a prospective basis.

~~Conrad~~14 ~~Industries, Inc. Summary Results of Operations~~

(InTable thousands)of Contents

	Three Months Ended June 30,										Six Months Ended June 30,
	2003					2002					2003					2002
Financial Data:
Revenue
Vessel construction	$	6,472		69.3	%	$	7,895		75.7	%	$	13,272		67.0	%	$	14,648			69.7	%
Repair and conversions		2,866		30.7	%		2,532		24.3	%		6,540		33.0	%		6,364			30.3	%
Total revenue		9,338		100.0	%		10,427		100.0	%		19,812		100.0	%		21,012			100.0	%
Cost of revenue
Vessel construction		6,469		100.0	%		6,678		84.6	%		13,043		98.3	%		12,094			82.6	%
Repair and conversions		2,936		102.4	%		2,034		80.3	%		6,021		92.1	%		5,108			80.3	%
Total cost of revenue		9,405		100.7	%		8,712		83.6	%		19,064		96.2	%		17,202			81.9	%
Gross (loss) profit
Vessel construction		3		0.0	%		1,217		15.4	%		229		1.7	%		2,554			17.4	%
Repair and conversions		(70	)	-2.4	%		498		19.7	%		519		7.9	%		1,256			19.7	%
Total gross (loss) profit		(67	)	-0.7	%		1,715		16.4	%		748		3.8	%		3,810			18.1	%
S G & A expenses		944		10.1	%		1,165		11.2	%		2,187		11.0	%		2,467			11.7	%
(Loss) income from operations		(1,011	)	-10.8	%		550		5.3	%		(1,439	)	-7.3	%		1,343			6.4	%
Interest expense		107		1.1	%		81		0.8	%		173		0.9	%		162			0.8	%
Other expenses (income), net		(8	)	-0.1	%		(5	)	0.0	%		(12	)	-0.1	%		(15	)		-0.1	%
(Loss) income before income taxes		(1,110	)	-11.9	%		474		4.5	%		(1,600	)	-8.1	%		1,196			5.7	%
Income tax (benefit) provision		(384	)	-4.1	%		174		1.7	%		(553	)	-2.8	%		438			2.1	%
(Loss) income before cumulative effect of change in accounting principle		(726	)	-7.8	%		300		2.9	%		(1,047	)	-5.3	%		758			3.6	%
Cumulative effect of change in accounting principle (1)		—		0.0	%		—		0.0	%		—		0.0	%		(4,500	)	-	21.4	%
Net (loss) income	$	(726	)	-7.8	%	$	300		2.9	%	$	(1,047	)	-5.3	%	$	(3,742	)	-	17.8	%
EBITDA (2)	$	(440	)	-4.7	%	$	1,022		9.8	%	$	(367	)	-1.9	%	$	2,319			11.0	%
Net cash provided by operating activities	$	514				$	4,025				$	748				$	1,527
Operating Data: Labor hours		123					108					255					250

CONRAD INDUSTRIES, INC. AND SUBSIDIARIES

17NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In November 2002, FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (1“FIN 45”). ~~The~~FIN ~~Company~~45 ~~recorded~~elaborates on the disclosures to be made by a $4guarantor about its obligations under certain guarantees.5 ~~million~~It ~~non-cash~~also ~~charge~~clarifies ~~for~~that a guarantor is required to recognize, at the ~~impairment~~inception of ~~goodwill~~a ~~resulting~~guarantee, ~~from~~a liability for the ~~adoption~~fair value of ~~Statement~~the ofobligation ~~Financial~~undertaken ~~Accounting~~in ~~Standards~~issuing ~~Board~~the Noguarantee. ~~142~~As required, ~~“Goodwill~~the ~~and~~Company ~~Other~~adopted ~~Intangible~~the ~~Assets”~~disclosure requirements of FIN 45 as ~~detailed~~of inDecember 31, 2002. On January 1, 2003, the ~~notes~~Company toadopted the ~~financial~~initial ~~statements~~recognition and measurement provisions on a prospective basis for guarantees that may be issued or modified after December 31, 2002.

~~(2)~~In ~~Represents~~January ~~earnings~~2003, ~~before~~FASB ~~deduction~~issued ofInterpretation ~~interest,~~No. ~~taxes~~46, ~~depreciation~~“Consolidation ~~and~~of Variable ~~amortization~~Interest Entities” (“FIN46”). ~~EBITDA~~FIN is46 ~~not~~requires athat ~~measure~~companies ofthat ~~cash~~control ~~flow,~~another ~~operating~~entity ~~results~~through orinterests ~~liquidity~~other asthan ~~determined~~voting byinterests ~~generally~~should ~~accepted~~consolidate ~~accounting~~the ~~principles~~controlled entity. ~~The~~FIN ~~Company~~46 ~~has~~became ~~included~~effective ~~information~~immediately ~~concerning~~for ~~EBITDA~~variable interest asentities ~~supplemental~~created ~~disclosure~~after ~~because~~January ~~management~~31, ~~believes~~2003. ~~that~~For ~~EBITDA~~entities ~~provides~~created ~~meaningful~~before ~~information~~January ~~regarding~~31, a2003, ~~company’s~~the ~~historical~~provisions ~~ability~~of toFIN ~~incur~~46 ~~and~~have ~~service~~been ~~debt.~~delayed ~~EBITDA~~until asDecember ~~defined~~31, ~~and~~2003. ~~measured~~Presently, by the Company ~~may~~does not bebelieve ~~comparable~~that toit ~~similarly~~has ~~titled~~interests ~~measures~~that ~~reported~~would ~~by other companies. EBITDA should not~~ be considered invariable ~~isolation~~interest orentities asunder anFIN ~~alternative~~46. ~~to,~~A orfinal ~~more~~determination ~~meaningful~~regarding ~~than,~~the ~~net~~provisions ~~income~~of orFIN ~~cash~~46 ~~flow~~will ~~provided~~be byreflected ~~operations as determined~~ in ~~accordance~~the ~~with~~Company’s ~~generally~~financial ~~accepted~~statements ~~accounting principles~~ as ~~an indicator~~ of ~~the~~December ~~Company’s~~31, ~~profitability or liquidity~~2003.

~~The~~****** ~~following table sets forth a reconciliation of net cash provided by operating activities to EBITDA for the periods presented (in thousands):~~

	Three months ended						Six months ended
	June 30,						June 30,
	2003			2002			2003			2002
Net cash provided by operating activities	$	514		$	4,025		$	748		$	1,527
Interest expense		107			81			173			162
(Benefit) provision for income taxes		(384	)		174			(553	)		438
Deferred income tax provision		29			154			67			228
Changes in operating assets and liabilities		(706	)		(3,412	)		(802	)		(36	)
EBITDA	$	(440	)	$	1,022		$	(367	)	$	2,319

RevenueTable for the second quarter of 2003 decreased $1.1 million, or 10.4%, to $9.3 million compared to $10.4 million for the second quarter of 2002 while revenue for the first six months of 2003 reflected a decrease of $1.2 million, or 5.7%, compared to the same period in the prior year. Vessel construction revenue decreased $1.4 million, or 18.0%, and $1.4 million, or 9.4% for the second quarter and first six months of 2003 compared to the same periods in 2002. Repair and conversion revenue increased $334,000 for the second quarter of 2003, or 13.2%, compared to the same period of the prior year, while repair and conversion revenue increased $176,000, or 2.8%, for the first six months of 2003 compared to the same period in 2002. The decrease in revenue in the current periods is primarily a result of changes in the estimates at completion associated with increased production hours encountered during the delivery phase of various contracts in the vessel construction segment of the Company’s business. Vessel construction hours for the second quarter and first six months of 2003 decreased 1.3% and 0.8%, respectively, when compared to the same periods in 2002, while repair and conversion hours increased 41.1% and 5.5% for the three and six months ended June 30, 2003, respectively, when compared to the year earlier periods. Contents

Gross profit for the second quarter and first six months of 2003 decreased $1.8 million, or 103.9%, and $3.1 million or 80.4%, compared to the same periods of the prior year. Vessel construction gross profit decreased ~~$1.2~~Item ~~million, or 99.8%, for the second quarter of 2003 compared to the second quarter of 2002, while vessel construction gross profit decreased $~~2.3: Management’s ~~million,~~Discussion ~~or 91.0%, for the first six months of 2003 compared to the same period in 2002. Repair~~ and ~~conversion~~ ~~gross~~Analysis ~~profit decreased $568,000, or 114.1%, and $737,000 or 58.7% for the second quarter and first six months~~ of ~~2003,~~Financial ~~respectively,~~Condition compared to the same periods of 2002. Vessel construction gross profit was depressed as a result of an additional charge recorded in the second quarter of 2003 of approximately $139,000 related to anticipated losses on a commercial contract in progress for four vessels. The Company had previously recorded charges of $50,000 and ~~$150,000~~Results ~~during the first quarter~~ of ~~2003~~Operations and the fourth quarter of 2002, respectively, related to this contract. In addition, the margins were negatively impacted by increases in the estimated costs of completion on separate projects for other motorized vessels awarded in the second quarter of 2002 as a result of the disruptive effects caused by this commercial contract. Complexities experienced in the hull structures of the commercial contract discussed above caused a significant compression of the schedule. As a result, the Company focused key project resources in order to prioritize and control the increases in costs at completion on this commercial contract. However, the compression of the schedule forced

18The following discussion and analysis should be read in conjunction with the Unaudited Consolidated Financial Statements and the Notes to Unaudited Consolidated Financial Statements included elsewhere in this Form 10-Q as well as the Company’s annual report on Form 10-K for the year ended December 31, 2002.

~~the~~Overview Company to deliver three separate vessels concurrently. This resulted in a significant disruption to the previously planned orderly sequence of work on other contracts thereby precluding the labor efficiencies and productivity gains previously forecast based on the Company’s historical experience. The first three vessels of the commercial contract have been delivered; however, gross profit and net income will continue to be negatively impacted until the final vessel’s scheduled completion in the middle of the third quarter of 2003. Repair and conversion gross profit was negatively impacted as a result of the disruptive impact associated with the transition and relocation of the Company’s core repair and conversion operations to a new location. In addition, the gross margins were depressed as a result of increases in the estimated costs at completion on a single significant fixed price repair and conversion contract that was scheduled for delivery during this transition period.

~~Gross~~The ~~profit~~Company ~~margins~~was ~~decreased~~incorporated in March 1998 to -0serve as the holding company for Conrad Shipyard, Inc.7% (“Conrad”) and ~~3.8%,~~Orange ~~respectively~~Shipbuilding Company, Inc. ~~for~~(“Orange ~~the~~Shipbuilding”). ~~three~~The ~~and~~Company ~~six~~completed ~~months~~an ~~ended~~initial public offering in June ~~30,~~1998 ~~2003.~~by Asissuing a2.1 ~~result~~million shares of ~~the~~common ~~charges~~stock. ~~discussed above,~~Conrad ~~vessel~~has ~~construction~~operated ~~gross~~since ~~profit~~1948 ~~margins~~at ~~decreased~~its toshipyard ~~essentially~~in ~~break~~Morgan ~~even~~City, ~~for~~Louisiana. ~~the~~The ~~three~~Company ~~months~~designs, builds ~~ended~~and ~~June~~overhauls 30tugboats, ~~2003~~ferries, ~~compared~~liftboats, tobarges, ~~gross~~offshore ~~profit~~support ~~margins~~vessels ofand ~~15.4%~~other steel and aluminum products for ~~the~~both ~~three~~commercial ~~months~~and ~~ended~~government ~~June~~markets. 30In December 1997, ~~2002~~Conrad ~~while~~acquired ~~gross~~Orange ~~profit~~Shipbuilding ~~margins~~to ~~for~~increase ~~vessel~~its capacity to serve Conrad’s existing markets and to expand its product capability into the construction of additional types of marine vessels, including tug boats for the ~~six~~U.S. ~~months~~Army, ~~ended~~offshore ~~June~~tug 30boats, ~~2003~~push boats and double hull barges, ~~decreased~~and tothe ~~1.7%~~fabrication of ~~compared~~modular tocomponents 17for offshore drilling rigs and FPSOs.4% ~~for~~In ~~the~~February ~~same~~1998, ~~period~~Conrad ofcommenced ~~the~~operations ~~prior~~at ~~year.~~a ~~Repair~~repair and conversion ~~gross~~facility ~~profit~~in ~~margins~~Amelia, ~~decreased~~Louisiana, thereby expanding its capacity to ~~-2.4%~~provide ~~for~~repair ~~the~~and ~~three~~conversion ~~months~~services ~~ended~~for ~~June~~marine vessels. 30In 2000, ~~2003~~Conrad Shipyard, ~~compared~~Inc. towas ~~gross profit~~converted ~~margins~~into ofa 19Louisiana limited liability company named Conrad Shipyard, L.7%L.C. ~~for~~In February 2003, the ~~same~~Company ~~period~~commenced ofoperations ~~2002~~at ~~while~~a second repair and conversion ~~gross~~facility ~~profit~~in ~~margins~~Amelia, ~~decreased~~Louisiana, thereby further expanding its capacity to ~~7.9%~~provide repair and conversion services for marine vessels with deeper drafts than the ~~six~~Company ~~months~~has ~~ended~~been able to service at its other facilities. In June 302003, ~~2003~~the ~~when~~original ~~compared~~facility in Amelia was transferred to 19a newly organized subsidiary, Conrad Aluminum L.7%L.C., ~~for~~in order to accommodate the ~~first~~Company’s ~~six~~expansion ~~months~~into ofthe ~~2002~~aluminum marine fabrication, repair and conversion services.

~~Selling,~~Demand ~~general~~for the Company’s products and ~~administrative~~services ~~expenses~~is ~~(“SG&A”)~~dependent ~~decreased~~upon a number of factors, including the economic condition ~~$221~~of the Company’s customers and markets,~~000,~~ orthe 19age and state of repair of the vessels operated by the Company’s customers and the relative cost to construct a new vessel as compared with repairing an older vessel.0% Over the last ten years, the Company’s customers have been primarily (1) companies serving the offshore Gulf of Mexico oil and ~~$280~~gas industry,~~000~~ (2) federal, orstate ~~11.3%~~and local governments, ~~for~~and ~~the~~(3) ~~second~~other ~~quarter~~commercial customers. Since late 1998 and ~~first~~particularly ~~six~~since ~~months~~the fourth quarter of ~~2003~~2001, ~~respectively,~~weakness ~~compared~~in tothe economy in general, and the ~~same~~offshore ~~periods~~Gulf of Mexico oil and gas industry in ~~2002.~~particular, ~~The~~has ~~decrease~~resulted in ~~SG&A~~decreased ~~was~~demand ~~primarily~~from aour ~~result~~traditional energy and other commercial customers. Because much of ~~decreases~~our repair and conversion work has been performed for customers in ~~legal~~the offshore oil and ~~accounting~~gas ~~expenses~~service industry, our financial results for this segment of our business have been adversely affected. We often experience an increase in demand for repair and conversion services from our offshore oil and gas service customers later in the ~~elimination~~fourth quarter and during the first quarter, when vessels are taken out of ~~employee~~service ~~bonuses~~during ~~compared~~the towinter months for repairs. We did experience an increase in demand for repair and conversion services in the ~~same~~first ~~periods~~quarter of ~~2002~~2003 as ~~well as~~ a ~~write-off~~result of ~~bad~~seasonal ~~debts~~workload patterns, but this increased demand was not sustained in the ~~year~~second ~~earlier period~~or third quarters. We have also experienced decreased demand for new construction services from our traditional energy and other commercial customers. We have been successful in securing backlog in our vessel construction segment primarily from government customers. Government contracts accounted for approximately 24.9% of our backlog at December 31, 2000 and 99.5 % at September 30, 2003.

~~Interest~~The ~~expense~~Company’s firm ~~increased~~backlog ~~$26,000,~~was ~~or 32~~$36.~~1%,~~3 ~~for~~million ~~the~~at ~~second~~September ~~quarter~~30, of 2003, as compared to ~~the~~$36.2 ~~same~~million ~~period~~at inDecember ~~2002~~31, ~~while~~2002 ~~interest~~and ~~expense increased~~ $~~11,000~~32.7 ~~for~~million ~~the~~at ~~first~~September ~~six~~30, ~~months~~2002. ofThe ~~2003~~increase ~~compared~~in tobacklog from the same period inof the prior year. ~~The increase~~ is primarily attributable to the ~~result~~award of a ~~the~~$5.5 ~~increased~~million ~~interest~~contract ~~expense~~for ~~associated~~the ~~with~~construction anof ~~increase~~a in255-foot ~~the~~crane ~~average~~barge ~~outstanding~~for ~~loan~~the ~~balance~~U.S. ~~partially~~Army ~~offset~~Corps ~~by the~~of ~~capitalization~~Engineers. ofThe ~~interest~~Company ~~related~~has torecently ~~the~~transitioned ~~development~~from ofdesign ~~the~~to 52production ~~acres~~on ofseveral ~~land~~major incontracts. ~~Amelia,~~As ~~Louisiana~~a ~~during~~result, the ~~first~~Company ~~quarter.~~expects ~~The~~vessel construction ~~Company~~revenues ~~expects~~and ~~interest~~gross ~~expense~~profits to ~~increase~~improve in the ~~remainder~~fourth ofquarter, ~~2003~~although asmost ~~a result~~ of ~~an increase in~~ the ~~average outstanding~~impact ~~loan~~is ~~balance~~expected ~~compared~~ to ~~2002~~occur ~~and~~in the ~~lack~~first ofquarter ~~future capitalization~~ of ~~interest~~2004 ~~with~~and ~~the~~thereafter. ~~commencement~~Subsequent ofto ~~operations~~September at30, 2003, the ~~second~~Company ~~facility~~was inawarded ~~Amelia,~~contracts ~~Louisiana~~totaling $11.6

~~The~~16 Company had an income tax benefit of $384,000 for the second quarter of 2003 compared to an income tax expense of $174,000 in the same period of 2002. For the six months ended June 30, 2003, the Company had an income tax benefit of $553,000 compared to income taxes of $438,000 for the same period of the prior year. The decrease in income tax expense is primarily attributable to the 2003 losses from operations as discussed above.

DuringTable 2002, the Company completed the two-step process of the transitional goodwill impairment test prescribed in SFAS No. 142 with respect to existing goodwill. The first step of the transitional goodwill impairment test involved a comparison of the fair value of each of the Company’s reporting units, as defined under SFAS No. 142, with its carrying amount. If the carrying amount exceeded the fair value of a reporting unit, the Company was required to perform the second step of the transitional goodwill impairment test. As a result of the outcome of the first step relative to the Orange Shipbuilding reporting unit, the Company was required to perform the second step of the transitional goodwill impairment test for this reporting unit. The second step involved comparing the implied fair value of this reporting unit’s goodwill to its carrying value to measure the amount of impairment. The transitional goodwill impairment test resulted in the Company recognizing a non-cash transitional goodwill impairment charge of $4.5 million related entirely to the Orange Shipbuilding reporting unit. As required by SFAS No. 142, the $4.5 million charge is reflected as a cumulative effect of a change in accounting principle in the Company’s Consolidated Statement of Operations for the six months ended Contents

19 million for the construction of two 5,000 cubic yard dump scows and an aluminum crew/supply vessel for commercial customers. In addition, the Company has seen increased bid activity in the vessel construction segment of our business and remains cautiously optimistic that ongoing discussions with various customers will result in additional projects that will further add to our backlog in the near future.

~~June~~The ~~30,~~Company ~~2002.~~is ~~There~~engaged ~~was~~in novarious ~~income~~types ~~tax~~of construction ~~effect~~under oncontracts ~~the~~that ~~impairment~~generally ~~charge~~range asfrom ~~the~~one ~~charge~~month ~~related~~ to ~~non-deductible~~36 ~~goodwill~~months in duration. The ~~fair~~Company ~~value~~uses the percentage-of-completion ~~the~~method ~~Orange Shipbuilding~~of ~~reporting~~accounting ~~unit~~and ~~was~~therefore ~~determined~~takes ~~based~~into onaccount the ~~excess~~estimated costs, estimated earnings ~~return~~and revenue to date on ~~assets~~fixed- ~~(treasury)~~price ~~valuation~~contracts ~~method~~not yet completed. The ~~circumstance~~amount ~~leading~~of revenue recognized is equal to the ~~goodwill~~portion ~~impairment~~of ~~was~~the atotal ~~decline~~contract inprice ~~market~~that ~~conditions~~the ~~since~~labor hours incurred to date bears to the ~~acquisition~~estimated oftotal ~~this~~labor ~~reporting~~hours, based on current estimates to ~~unit~~complete. This ~~circumstance~~method ~~caused~~is ~~lower~~used ~~than~~because ~~expected~~management ~~operating~~considers ~~profits~~expended ~~and~~labor ~~cash~~hours ~~flows~~to be the best available measure of progress on these contracts. Revenues from cost-plus-fee contracts are recognized on the basis of cost incurred during the period plus the fee earned.

~~During~~Most of the ~~first~~contracts ~~quarter~~entered ofinto ~~2003~~by the Company for new vessel construction, whether commercial or governmental, are fixed-price contracts under which the Company retains all cost savings on completed contracts but is liable for all cost overruns. The Company develops its ~~annual~~bids ~~update~~for a fixed price project by estimating the amount of labor hours and the ~~impairment~~cost ~~test~~of asmaterials ~~prescribed~~necessary to complete the project and then bids such projects in ~~SFAS~~order ~~No.~~to ~~142~~achieve ~~with~~a ~~respect~~sufficient profit margin to ~~existing~~justify ~~goodwill.~~the allocation of its resources to such project. The ~~first~~Company’s ~~step~~revenues ofand gross margin therefore may fluctuate from period to period based on, among other things, changes in management’s estimates at completion for projects in the ~~goodwill~~backlog. ~~impairment~~In ~~test indicated~~addition, ~~that~~revenues can fluctuate based on the ~~fair~~aggregate ~~value~~amount of ~~each~~materials ofused in projects during a period and whether the customer provides materials and equipment, in which case they are not reflected in the Company’s ~~reporting~~revenues. ~~units~~The ~~exceeded~~Company ~~its~~generally ~~respective~~performs ~~carrying~~conversion ~~amount.~~and Asrepair services noon ~~impairment~~the ~~was~~basis ~~indicated,~~of cost-plus-fee arrangements pursuant to which the ~~second~~customer ~~step~~pays ofa negotiated labor rate for labor hours spent on the ~~test,~~project as ~~defined~~well ~~under~~as ~~SFAS~~the ~~No.~~cost ~~142,~~of ~~was~~materials ~~not~~plus ~~required~~a tomargin beon ~~performed~~materials purchased.

~~Liquidity~~Recent ~~and~~Events ~~Capital Resources~~

~~Net~~Cost ~~cash~~Reduction ~~provided~~Plan byImplementation operations was $748,000 for the first six months of 2003 compared to $1.5 million for the prior year period due to decreases in accounts receivable and billings related to costs and estimated earnings on uncompleted contracts offset by a decrease in accounts payable, and an increase in inventory. The Company’s working capital position was $7.0 million at June 30, 2003 compared to $9.4 million at December 31, 2002. The decrease in the working capital position was primarily due to approximately $2.6 million in capital expenditures for plant and equipment predominantly associated with the completion of the new facility in Amelia, Louisiana.

~~The~~In ~~Company’s~~September ~~capital~~2003, ~~requirements~~as ~~historically~~a ~~have~~result ~~been~~of ~~primarily~~the ~~for~~recent ~~improvements~~financial toperformance ~~its~~and ~~facilities~~continuing ~~and~~depressed ~~equipment.~~economic ~~The~~market conditions, the Company’s ~~net~~implemented ~~cash used~~an inaggressive ~~investing~~cost ~~activities~~reduction ofplan, designed to achieve approximately $~~2.6~~1 million ~~for~~in ~~the~~savings ~~six~~on ~~months~~an ~~ended~~annualized ~~June~~basis. ~~30,~~This ~~2003~~plan ~~reflected~~includes ~~approximately~~among ~~$2.0~~other ~~million~~items ~~for~~a ~~improvements~~5% tosalary ~~the~~reduction 52for ~~acres~~management and an increase in ~~Amelia~~employee contributions ~~and~~for ~~approximately~~health ~~$600~~insurance. In addition,~~000~~ ~~for~~the ~~improvements~~Company was able to ~~facilities~~obtain ~~and~~better ~~equipment.~~rates Ason some of ~~June 30,~~its ~~2003~~insurance programs, and has also increased the ~~Company~~deductible ~~had~~on anits ~~outstanding~~workers’ ~~commitment~~compensation program to take advantage of $1the Company’s excellent safety performance.5 ~~million~~The ~~for~~Company ~~the~~will ~~construction~~continue ofto ~~its~~seek ~~new~~out ~~aluminum~~other ~~marine~~opportunities ~~fabrication~~to ~~repair~~reduce costs and ~~conversion~~may ~~facility~~seek infurther ~~Amelia,~~cost ~~Louisiana~~reductions should the financial performance and economic conditions not improve.

~~Net~~Expansion ~~cash~~Into ~~provided~~Aluminum byMarine ~~financing activities was $384~~Fabrication,~~000~~ ~~for~~Repair ~~the six months ended June 30, 2003 which included borrowings of $1.2 million~~ and ~~the repayment of $816,000 of debt.~~ Conversion

~~The Company~~In ~~has~~June a2003, ~~Loan~~the ~~Agreement~~Company ~~with~~announced aits ~~commercial~~intention ~~bank,~~to expand ~~which~~its ~~specifies~~services into the ~~terms~~aluminum ofmarine ~~the~~fabrication, ~~Term~~repair ~~Loan,~~and ~~the~~conversion ~~Development~~market ~~Loan~~for ~~and~~both ~~the~~commercial ~~Revolving~~and ~~Credit~~government ~~Facility~~customers. The ~~interest~~expansion ~~rate~~ is ~~variable,~~part ~~and~~of ~~interest~~a ~~accrues~~$5.5 atmillion ~~the~~investment ~~option~~in of the Company’s ~~either~~original atfacility ~~the JPMorgan~~in ~~Chase~~Amelia, ~~prime~~Louisiana, through ~~rate~~the orCompany’s ~~LIBOR~~subsidiary ~~plus~~Conrad 1Aluminum, L.~~75%~~L.C. The ~~Loan~~financing ~~Agreement~~of isthis ~~secured~~expansion byincludes ~~substantially~~a ~~all~~$1.5 ofmillion grant by the ~~Company’s~~State ~~assets,~~of ~~contains~~Louisiana ~~customary~~through ~~restrictive~~the ~~covenants~~Economic ~~and~~Development ~~requires~~Award ~~the~~Program ~~maintenance~~(EDAP) ofand ~~certain~~$4.0 ~~financial~~million ~~ratios,~~of ~~including~~industrial arevenue ~~current~~bonds ~~ratio~~issued ~~requirement~~by ofthe 1St.25 toMary 1Parish Industrial Development Board.0, aThe ~~debt~~investment toincludes ~~tangible~~a ~~net~~37,500 ~~worth~~square ~~requirement~~foot oftwo-bay atbuilding, ~~least~~a ~~1.5~~300 toton ~~1.0~~travel lift and asix ~~debt~~overhead ~~service~~cranes. ~~coverage~~Conrad ~~ratio~~has ofcontributed ~~1.25~~the facility to 1the St.0 ~~that~~Mary ~~could~~Parish ~~limit~~Industrial Development ~~the~~Board ~~Company’s~~and ~~use~~has ofentered ~~available~~into ~~capacity~~a ~~under~~fifteen ~~the~~year ~~Revolving~~lease ~~Credit~~with ~~Facility.~~an ~~In addition,~~option ~~the~~to ~~Loan~~extend ~~Agreement~~or ~~prohibits~~repurchase. ~~the~~The Company ~~from~~expects ~~paying~~to ~~dividends~~be ~~without~~ready ~~the~~to ~~consent~~perform ofrepair ~~the~~and ~~lender~~conversion ~~and~~work ~~restricts~~at the ~~ability~~facility in the middle of the ~~Company~~fourth toquarter ~~incur~~of ~~additional~~2003 ~~indebtedness.~~and Atnew construction ~~June~~projects ~~30,~~by ~~2003,~~the end of the ~~Company~~year. ~~was~~The inCompany ~~compliance~~has ~~with~~received ~~these covenants.~~a

~~The~~17 Term Loan is payable in 22 monthly principal payments of $107,000 plus interest, with a final payment of $4.7 million due on May 31, 2005. At June 30, 2003, the Term Loan balance outstanding was $7.1 million and the interest rate was 3.09%.

TheTable Revolving Credit Facility permits the Company to borrow up to $10.0 million for working capital and other general corporate purposes, including the funding of acquisitions, and matures on May 31, 2004. No draws were outstanding as of June 30, 2003. Contents

On number ~~July~~of ~~18,~~indications ~~2002~~of ~~the~~interest ~~Company~~in ~~entered~~its ~~into~~expanded ~~The~~aluminum ~~Development~~repair ~~Loan~~capabilities ~~which~~and ~~provided~~is ~~financing~~in ~~totaling~~discussions ~~$6.7~~with ~~million~~potential customers for new aluminum construction. Subsequent to ~~fund~~September 30, 2003, Conrad Aluminum was awarded a contract for the ~~development~~ construction of ~~the~~an ~~Amelia~~aluminum ~~Deepwater~~crew/supply ~~facility~~vessel for a commercial customer. The ~~Development~~Company ~~Loan~~does ~~included~~not expect the aluminum operations to have a ~~revolver~~significant impact on revenues in the fourth quarter of 2003.

20Expanded Steel Repair and Conversion Capabilities

On October 23, 2000, the Company ~~that~~purchased ~~converted~~52 toacres aof ~~term~~land ~~loan~~in Amelia, Louisiana for $1.3 ~~Payments~~million. ~~under~~The land is strategically located on the ~~revolver~~Bayou ~~included~~Boeuf/Intracoastal ~~interest~~Waterway ~~only~~approximately ~~payments~~30 ~~until~~miles ~~March~~from ~~31,~~the ~~2003,~~Gulf atof ~~which~~Mexico ~~time~~and itis ~~converted~~within toone amile ~~term~~of ~~loan~~the toother existing Amelia facility. beApproximately ~~repaid~~14 inacres 49of ~~monthly~~the ~~principal~~property ~~payments~~have ofbeen ~~$58~~developed as a repair and conversion facility. The development included clearing land,~~000~~ ~~plus~~grubbing, ~~interest~~dredging, ~~with~~installation of a ~~final~~steel ~~balloon~~sheet-pile ~~payment~~bulkhead ~~due~~system, ondry ~~May 31~~excavation, ~~2007.~~construction Atof ~~June~~a 305,400 square ~~2003~~foot building, ~~the~~other ~~Development~~infrastructure ~~Loan~~improvements ~~balance~~and ~~outstanding~~outfitting ~~was~~with tools and equipment at a total cost of approximately $67.50 million. In the first quarter of 2003, the Company moved its three largest drydocks to the facility and commenced operations. The Company moved an additional drydock to the ~~interest~~facility ~~rate~~during ~~was~~the 2second quarter of 2003.~~87%~~ The facility allows the Company to handle vessels with deeper drafts than the Company has historically been able to service at its other facilities. In addition, the infrastructure improvements also allow for the potential future development of the facility to accommodate vessel construction should the market so dictate.

In18 July 2003, the Company completed the financing for its expansion into the aluminum marine fabrication, repair and construction business. The $5.5 million financing consists of a $1.5 million grant by the State of Louisiana through the Economic Development Award Program (EDAP) and $4.0 million of industrial revenue bonds issued by the St. Mary Parish Industrial Development Board.

In connectionTable with the issuance of the bonds, Conrad subsidiary Conrad Aluminum, L.L.C. donated to the Industrial Development Board the land and buildings at the Amelia Topside yard and is leasing them back along with the items to be purchased with the bond proceeds, with a right to repurchase or extend. The lease payments will be used to pay amounts outstanding on the bonds. Conrad and its subsidiaries have guaranteed the bonds. The bonds have a 15 year term, monthly principal payments of $22,222.22 plus interest and bear interest, at the Company’s option, at either a prime rate or the higher of (a) 30, 60 or 90-day LIBOR plus two percent or (b) a prime rate minus one percent. The $1.5 million EDAP grant requires the Company to meet specified job creation objectives. Contents

InResults ~~the normal course~~ of ~~its~~Operations business, the Company is required to provide letters of credit to secure the payment of workers’ compensation obligations. Additionally, under certain contracts the Company may be required to provide letters of credit and bonds to secure certain performance and payment obligations of the Company thereunder. At June 30, 2003, outstanding letters of credit and bonds amounted to $31.3 million. The Company believes that general industry conditions have led customers to require performance bonds more often than in the past. The Company believes that it has secured adequate bonding for potential future job prospects. Although the Company believes that it will be able to obtain contract bid and performance bonds, letters of credit, and similar obligations on terms it regards as acceptable, there can be no assurance it 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.

The ~~Company’s~~following ~~firm~~table ~~backlog~~sets ~~was~~forth ~~$34.8~~certain ~~million at~~historical ~~June~~data ~~30, 2003 as compared to $36.2 million at December 31, 2002 and $22.6 million at June 30, 2002. The increase in backlog from the same period~~ of the ~~prior~~Company ~~year~~and ispercentage ~~primarily attributable to the award~~ of arevenues ~~$16.6 million contract~~ for the ~~construction~~ ofperiods ~~three~~presented ~~towboats~~(in asthousands): ~~well as the exercise of a $6.1 million option for an additional towboat by the Corps of Engineers.~~

Management believes that the Company’s existing working capital, cash flows from operations and bank commitments will be adequate to meet its working capital needs for operations and capital expenditures for the next twelve months. The Company may pursue acquisition and internal expansion opportunities if deemed attractive if and when such opportunities arise. The timing, size or success of any acquisition or internal expansion effort and the associated potential capital commitments cannot be predicted.

	Three Months Ended September 30,										Nine Months Ended September 30,
	2003					2002					2003					2002
Financial Data:
Revenue
Vessel construction	$	4,493		66.8	%	$	7,618		81.2	%	$	17,765		67.0	%	$	22,266		73.3	%
Repair and conversions		2,229		33.2	%		1,761		18.8	%		8,769		33.0	%		8,125		26.7	%

Total revenue		6,722		100.0	%		9,379		100.0	%		26,534		100.0	%		30,391		100.0	%

Cost of revenue
Vessel construction		4,597		102.3	%		6,383		83.8	%		17,640		99.3	%		18,477		83.0	%
Repair and conversions		2,132		95.6	%		1,897		107.7	%		8,153		93.0	%		7,005		86.2	%

Total cost of revenue		6,729		100.1	%		8,280		88.3	%		25,793		97.2	%		25,482		83.8	%

Gross (loss) profit
Vessel construction		(104	)	–2.3	%		1,235		16.2	%		125		0.7	%		3,789		17.0	%
Repair and conversions		97		4.4	%		(136	)	–7.7	%		616		7.0	%		1,120		13.8	%

Total gross (loss) profit		(7	)	–0.1	%		1,099		11.7	%		741		2.8	%		4,909		16.2	%
S G & A expenses		1,157		17.2	%		1,150		12.3	%		3,344		12.6	%		3,617		11.9	%
Terminated acquisition costs (1)		—		0.0	%		350		3.7	%		—		0.0	%		350		1.2	%

(Loss) income from operations		(1,164	)	–17.3	%		(401	)	–4.3	%		(2,603	)	-9.8	%		942		3.1	%
Interest expense		132		2.0	%		38		0.4	%		305		1.1	%		200		0.7	%
Other expenses (income), net		(22	)	–0.3	%		(9	)	–0.1	%		(34	)	–0.1	%		(24	)	–0.1	%

(Loss) income before income taxes		(1,274	)	–19.0	%		(430	)	–4.6	%		(2,874	)	–10.8	%		766		2.5	%
Income tax (benefit) provision		(447	)	–6.6	%		(167	)	–1.8	%		(1,000	)	–3.8	%		271		0.9	%

(Loss) income before cumulative effect of change in accounting principle		(827	)	–12.3	%		(263	)	–2.8	%		(1,874	)	–7.1	%		495		1.6	%
Cumulative effect of change in accounting principle (2)		—		0.0	%		—		0.0	%		—		0.0	%		(4,500	)	–14.8	%

Net loss	$	(827	)	–12.3	%	$	(263	)	–2.8	%	$	(1,874	)	–7.1	%	$	(4,005	)	–13.2	%

EBITDA (3)	$	(589	)	–8.8	%	$	66		0.7	%	$	(956	)	–3.6	%	$	2,385		7.8	%

Net cash provided by operating activities	$	1,164				$	2,513				$	1,912				$	4,040

Operating Data: Labor hours		82					97					337					348

~~New~~(1) ~~Accounting~~Represents ~~Pronouncements~~deferred acquisition costs related to the terminated proposed acquisition of Swiftships Shipbuilders, LLC and Swiftships Technologies, LLC as detailed in the notes to the financial statements.

In(2) ~~June~~The ~~2001,~~Company ~~FASB~~recorded ~~issued~~a ~~SFAS No~~$4.5 ~~143,~~million ~~“Accounting~~non-cash ~~for~~charge ~~Asset Retirement Obligations.” SFAS No. 143 requires the recording of liabilities~~ for ~~all legal obligations associated with~~ the ~~retirement~~impairment of ~~long-lived~~goodwill ~~assets~~resulting ~~that result~~ from the ~~normal~~adoption ~~operation~~ of ~~those~~Statement ~~assets. These liabilities are required to be recorded at their fair values (which are likely to be the present values~~ of ~~the~~Financial ~~estimated~~Accounting ~~future~~Standards ~~cash~~Board ~~flows) in the period in which they are incurred. SFAS~~ No. ~~143 requires~~142, ~~the~~“Goodwill ~~associated~~and ~~asset~~Other ~~retirement~~Intangible ~~costs~~Assets” ~~to be capitalized~~ as ~~part~~detailed ofin the ~~carrying~~notes ~~amount of the long-lived asset. The asset retirement obligation will be accreted each year through a charge~~ to ~~expense. The amounts added to~~ the carrying amounts of the assets will be depreciated over the useful lives of the assets. The Company implemented SFAS No. 143 on January 1, 2003, as required, and it did not have a material effect on the Company’s consolidated financial ~~position or results of operations~~statements.

21(3) Represents earnings before deduction of interest, taxes, depreciation and amortization. EBITDA is not a measure of cash flow, operating results or liquidity as determined by generally accepted accounting principles. The Company has included information concerning EBITDA as supplemental disclosure because management believes that EBITDA provides meaningful information regarding a company’s historical ability to incur and service debt. EBITDA as defined and measured by the Company may not be comparable to similarly titled measures reported by other companies. EBITDA should not be considered in isolation or as an alternative to, or more meaningful than, net income or cash flow provided by operations as determined in accordance with generally accepted accounting principles as an indicator of the Company’s profitability or liquidity.

In19 April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 eliminates SFAS No. 4 and as a result, gains and losses from extinguishments of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30. SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also updates and amends existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company implemented SFAS No. 145 on January 1, 2003, and it did not have a material impact on the Company’s consolidated financial position or results of operations.

InTable July 2002, FASB issued SFAS No. 146, “Accounting for Cost Associated with Exit or Disposal Activities,” which is effective for fiscal periods after December 31, 2002. SFAS No. 146 requires companies to recognize costs associated with restructuring, discontinued operations, plant closing, or other exit or disposal activities, when incurred rather than at the date a plan is committed to. The Company adopted the standard as of the effective date and will implement its provisions on a prospective basis. Contents

InThe ~~November~~following ~~2002,~~table ~~FASB~~sets ~~issued~~forth ~~Interpretation~~a ~~No.~~reconciliation ~~45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees~~ of ~~Indebtedness~~net ofcash ~~Others”~~provided ~~(“FIN 45”). FIN 45 elaborates on the disclosures to be made~~ by aoperating ~~guarantor~~activities ~~about its obligations under certain guarantees. It also clarifies that a guarantor is required~~ to ~~recognize, at the~~EBITDA ~~inception of a guarantee, a liability~~ for the ~~fair~~periods ~~value~~presented ~~of the obligation undertaken~~ (in ~~issuing~~thousands): the guarantee. As required, the Company adopted the disclosure requirements of FIN 45 as of December 31, 2002. On January 1, 2003, the Company adopted the initial recognition and measurement provisions on a prospective basis for guarantees that may be issued or modified after December 31, 2002.

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002
Net cash provided by operating activities	$	1,164		$	2,513		$	1,912		$	4,040
Interest expense		132			38			305			200
(Benefit) provision for income taxes		(447	)		(167	)		(1,000	)		271
Deferred income tax benefit (provision)		17			(54	)		84			174
Gain on sale of assets		23			—			23			—
Changes in operating assets and liabilities		(1,478	)		(2,264	)		(2,280	)		(2,300	)

EBITDA	$	(589	)	$	66		$	(956	)	$	2,385

~~Item~~Revenue for the third quarter of 2003 decreased $2.7 million, or 28.3~~: Quantitative~~%, to $6.7 million compared to $9.4 million for the third quarter of 2002 while revenue for the first nine months of 2003 reflected a decrease of $3.9 million, or 12.7%, compared to the same period in the prior year. Vessel construction revenue decreased $3.1 million, or 41.0%, and ~~Qualitative~~$4.5 ~~Disclosures~~million, ~~About~~or ~~Market~~20.2% ~~Risk~~for the third quarter and first nine months of 2003 compared to the same periods in 2002. Repair and conversion revenue increased $468,000 for the third quarter of 2003, or 26.6%, compared to the same period of the prior year, while repair and conversion revenue increased $644,000, or 7.9%, for the first nine months of 2003 compared to the same period in 2002. The decrease in revenue in the nine month period is primarily a result of changes in the estimates at completion encountered during the delivery phase of various contracts in the vessel construction segment of the Company’s business as well as an overall decrease in production hours attributable to decreased oil and gas activity. The decrease in revenue in the three month period is primarily a result of the overall decrease in production hours. Vessel construction hours for the third quarter and first nine months of 2003 decreased 26.9% and 8.6%, respectively, when compared to the same periods in 2002, while repair and conversion hours increased 3.6% and 5.0% for the three and nine months ended September 30, 2003, respectively, when compared to the year earlier periods.

~~The~~Gross ~~Company~~profit isfor ~~exposed~~the third quarter and first nine months of 2003 decreased $1.1 million, or 100.6%, and $4.2 million or 84.9%, compared to the ~~risk~~same periods of ~~changing~~the ~~interest~~prior ~~rates~~year. ~~Interest~~Vessel on construction gross profit decreased $131.64 million, or 108.4%, for the third quarter of 2003 compared to the third ~~Company’s~~quarter ~~long-term~~of ~~debt~~2002, ~~with~~while avessel ~~weighted~~construction ~~average~~gross ~~interest~~profit ~~rate~~decreased of$3.7 2million, or 96.987%, atfor ~~June~~the ~~30,~~first nine months of 2003 ~~was~~compared ~~variable~~to ~~based~~the onsame ~~short-term~~period ~~market~~in ~~rates~~2002. ~~Thus~~Repair aand ~~general~~conversion ~~increase~~gross profit increased $233,000, or 171.3% for the third quarter of 12003 compared to the same period of prior year, while repair and conversion gross profit for the first nine months of 2003 decreased $504,000, or 45.0%, incompared ~~short-term~~to ~~market~~the ~~interest~~same ~~rates~~period ~~would~~of ~~result~~2002. inVessel construction gross profit was depressed as a result of an additional ~~interest~~charge ~~cost~~recorded in the third quarter of 2003 of approximately $~~136~~97,000 ~~per~~related ~~year~~to ifanticipated losses on a commercial contract for four vessels that was completed during the quarter. As previously disclosed, the Company recorded charges of $140,000, $50,000 and $150,000 during the second quarter of 2003, the first quarter of 2003 and the fourth quarter of 2002, respectively, related to this contract. In addition, the margins were negatively impacted by increases in the estimated costs of completion on separate projects for other motorized vessels awarded in the second quarter of 2002 as a result of the disruptive effects caused by this commercial contract. Complexities experienced in the hull structures of the commercial contract discussed above caused a significant compression of the schedule. As a result, the Company focused key project resources in order to ~~maintain~~prioritize and control the ~~same~~increases ~~debt~~in ~~level~~costs at completion on this commercial contract. However, the compression of the schedule forced the Company to deliver three separate vessels concurrently. This resulted in a significant disruption to the previously planned orderly sequence of work on other contracts thereby precluding the labor efficiencies and ~~structure~~productivity gains previously forecast based on the Company’s historical experience. All four vessels of the commercial contract have now been delivered. In addition, the vessel construction segment was negatively impacted as a result of a significant decrease in production hours associated with less demand for commercial vessel construction jobs. During the fourth quarter of 2003, the Company transitioned from to design to production on several major contracts in the backlog. Although the

~~Item~~20 ~~4: Controls and Procedures~~

TheTable Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. The evaluation was carried out under the supervision of and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in reports the Company files with or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934. There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. Contents

22 Company expects vessel construction revenues and gross profits to improve in the fourth quarter, it expects most of the impact to occur in the first quarter of 2004 and thereafter. Repair and conversion gross profit for the nine month period was negatively impacted as a result of the disruptive impact associated with the transition and relocation of the Company’s core repair and conversion operations to a new location. In addition, the gross margins were depressed as a result of increases in the estimated costs at completion on a single significant fixed price repair and conversion contract that was scheduled for delivery during this transition period.

~~PART~~Gross IIprofit margins decreased to -0.1% ~~OTHER~~and 2.8%, ~~INFORMATION~~respectively, for the three and nine months ended September 30, 2003. As a result of the charges discussed above and the significant decrease in production manhours, the vessel construction segment recorded a gross profit margin of -2.3% for the three months ended September 30, 2003, compared to gross profit margins of 16.2% for the three months ended September 30, 2002 while gross profit margins for vessel construction for the nine months ended September 30, 2003, decreased to 0.7% compared to 17.0% for the same period of the prior year. Repair and conversion gross profit margins increased to 4.4% for the three months ended September 30, 2003, compared to gross profit margins of -7.7% for the same period of 2002 while repair and conversion gross profit margins decreased to 7.0% for the nine months ended September 30, 2003 when compared to 13.8% for the first nine months of 2002. The repair and conversion gross profit margin for the nine month period ended September 30, 2003 was negatively impacted as a result of the factors discussed above.

~~Item~~Selling, 1general and administrative expenses (“SG&A”) increased $7,000, or 0. ~~Legal~~6%, ~~Proceedings~~for the third quarter of 2003 and decreased $273,000, or 7.5%, for the first nine months of 2003, respectively, compared to the same periods in 2002. The decrease in SG&A for the nine month period was primarily a result of decreases in legal and accounting expenses and the elimination of employee bonuses compared to the same periods of 2002 as well as a write-off of bad debts in the year earlier period.

Interest expense increased $94,000, or 247.4%, for the third quarter of 2003, compared to the same period in 2002, while interest expense increased $105,000 for the first nine months of 2003 compared to the same period in the prior year. The ~~Company~~increase is aprimarily the ~~party~~result of the increased interest expense associated with an increase in the average outstanding loan balance partially offset by the capitalization of interest related to ~~various~~the ~~routine~~development ~~legal~~of ~~proceedings~~the ~~primarily~~52 ~~involving~~acres ~~commercial~~of ~~claims~~land ~~and~~in ~~workers’~~Amelia, Louisiana during the ~~compensation~~first ~~claims~~quarter. ~~While~~The Company expects interest expense to increase in the ~~outcome~~remainder of ~~these~~2003 ~~claims~~as a result of an increase in the average outstanding loan balance compared to 2002 and ~~legal~~the ~~proceedings~~lack ~~cannot~~of befuture ~~predicted~~capitalization of interest with ~~certainty,~~the ~~management~~commencement ~~believes~~of operations ~~that~~at the ~~outcome~~second facility in Amelia, Louisiana. The Company expects interest expense to increase in 2004 compared to 2003 as a result of ~~such~~an ~~proceedings~~increase in the ~~aggregate,~~average ~~even~~outstanding ifloan ~~determined~~balance ~~adversely,~~and ~~would~~an ~~not~~increase ~~have~~in athe ~~material adverse~~interest ~~effect~~rate onresulting from the ~~Company’s~~amendment ~~consolidated~~to ~~financial~~its ~~statements~~loan agreement subsequent to September 30, 2003.

~~Item~~The 4Company had an income tax benefit of $447,000 for the third quarter of 2003 compared to an income tax benefit of $167,000 in the same period of 2002. ~~Submission~~ For the nine months ended September 30, 2003, the Company had an income tax benefit of $1.0 ~~Matters~~million compared to aincome ~~Vote~~tax expense of ~~Security~~$271,000 ~~Holders~~for the same period of the prior year. The decrease in income tax expense is primarily attributable to the 2003 losses from operations as discussed above.

~~The~~During 2002, the Company’s ~~2003~~completed ~~annual~~the ~~meeting~~two-step process of ~~stockholders~~the ~~was~~transitional goodwill ~~held~~impairment ontest ~~May~~prescribed ~~22,~~in ~~2003~~SFAS No. ~~All~~142 ~~director~~with ~~nominees~~respect ~~were~~to ~~elected~~existing goodwill. The ~~voting~~first ~~tabulation~~step ~~was~~of asthe ~~follows: Michael~~transitional J.goodwill ~~Harris:~~impairment ~~5,801,632~~test ~~votes~~involved ~~for,~~a ~~733~~comparison of the fair value of each of the Company’s reporting units,~~025~~ ~~votes~~as ~~withheld~~defined under SFAS No. 142, ~~Kenneth~~with Gits carrying amount. ~~Myers~~If the carrying amount exceeded the fair value of a reporting unit, Jrthe Company was required to perform the second step of the transitional goodwill impairment test.: 5As a result of the outcome of the first step relative to the Orange Shipbuilding reporting unit,~~801,632~~ ~~votes~~the Company was required to perform the second step of the transitional goodwill impairment test for, ~~733,025~~this ~~votes~~reporting ~~withheld~~unit. The second step involved comparing the implied fair value of this reporting unit’s goodwill to its carrying value to measure the amount of impairment. The transitional goodwill impairment test resulted in the Company recognizing a non-cash transitional goodwill impairment charge of $4.5 million related entirely to the Orange Shipbuilding

~~Item~~21 ~~6. Exhibits and Reports on Form 8-K.~~

(a)Table Exhibitsof Contents

3.1		—Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for year ended December 31, 1998 and incorporated by reference herein).
3.2		—Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for year ended December 31, 1998 and incorporated by reference herein).
4.1		—Specimen Common Stock Certificate (filed as Exhibit 4 to the Company’s Registration Statement on Form 8-A and incorporated by reference herein).
4.2		—Registration Rights Agreement by and among Conrad Industries, Inc., J. Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glen Alan Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court Trust, The James P. Conrad Trust, William H. Hidalgo, and Cecil A. Hernandez (filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-K for year ended December 31, 1998 and incorporated by reference herein).
4.3		—Registration Rights Agreement between Conrad Industries, Inc. and Morgan Keegan & Company, Inc. (filed as Exhibit 4.3 to the Company’s Annual Report on Form 10-K for year ended December 31, 1998 and incorporated by reference herein).
4.4		—Rights Agreement dated May 23, 2002 between Conrad Industries, Inc. and American Stock Transfer & Trust Company (filed as Exhibits 1, 2, 3 and 4 to the Company’s Registration Statement on Form 8-A filed May 29, 2002 and incorporated by reference herein).
10.1		—Third Amendment to the Third Amended and Restated Loan Agreement by and among Whitney National Bank, Conrad Shipyard, L.L.C., Orange Shipbuilding Company, Inc. and Conrad Industries dated July 11, 2003.
10.2		—Economic Development Award Contract / Agreement by and among the Louisiana Economic Development Corporation, acting through the Louisiana Department of Economic Development, Conrad Aluminum, L.L.C., and St. Mary Parish Government dated April 11, 2003 (without exhibits).
10.3		—Lease Agreement between The Industrial Development Board of the Parish of St. Mary, Louisiana, Inc. and Conrad Aluminum, L.L.C. dated June 1, 2003.
10.4		—Trust Indenture between The Industrial Development Board of the Parish of St. Mary, Louisiana, Inc. and The Bank of New York Trust Company of Florida, N.A. dated June 1, 2003.

reporting unit. As required by SFAS No. 142, the $4.5 million charge is reflected as a cumulative effect of a change in accounting principle in the Company’s Consolidated Statement of Operations for the nine months ended September 30, 2002. There was no income tax effect on the impairment charge as the charge related to non-deductible goodwill. The fair value of the Orange Shipbuilding reporting unit was determined based on the excess earnings return on assets (treasury) valuation method. The circumstance leading to the goodwill impairment was a decline in market conditions since the acquisition of this reporting unit. This circumstance caused lower than expected operating profits and cash flows.

23During the first quarter of 2003, the Company completed its annual update of the impairment test as prescribed in SFAS No. 142 with respect to existing goodwill. The first step of the goodwill impairment test indicated that the fair value of each of the Company’s reporting units exceeded its respective carrying amount. As no impairment was indicated, the second step of the test, as defined under SFAS No. 142, was not required to be performed.

10.5		—Guaranty Agreement by and between Conrad Industries, Inc., Conrad Shipyard, L.L.C., Orange Shipbuilding Company, Inc., Conrad Aluminum, L.L.C., and The Bank of New York Trust Company of Florida, N. A. dated June 1, 2003.
10.6		—Lease Agreement between the Parish of St. Mary, State of Louisiana and Conrad Aluminum, L.L.C. dated July 23, 2003.
31.1		—Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		—Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		—Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Liquidity and Capital Resources

~~(b)~~Net ~~Reports~~cash provided by operating activities was $1.9 million for the first nine months of 2003 compared to cash provided by operating activities of $4.0 million for the prior year period due to decreases in accounts receivable and billings related to costs and estimated earnings on ~~Form~~uncompleted contracts and increases in ~~8-K~~accounts payable offset by an increase in inventory and other assets. The Company’s working capital position was $5.7 million at September 30, 2003 compared to $9.4 million at December 31, 2002. The decrease in working capital was primarily a result of the loss from operations and the approximately $5.2 million in capital expenditures for plant and equipment predominantly associated with the completion of the new steel repair and conversion facility and the expansion of the Company’s operations into the aluminum marine fabrication and repair business.

OnThe ~~May~~Company’s capital requirements historically have been primarily for improvements to its facilities and equipment. The Company’s net cash used in investing activities of $7.8 million for the nine months ended September 30, 2003 reflected capital expenditures of approximately $2.8 million for the ~~Company~~development ~~filed~~of athe ~~report~~aluminum onfacility ~~Form~~in ~~8-K~~Amelia, $2.0 million for completion of the improvements to the 52 acres in Amelia for the new repair and conversion ~~report~~facility and approximately $300,000 for improvements to facilities and equipment. Also included in investing activities are the ~~Company’s~~remaining ~~first~~industrial ~~quarter~~revenue bond proceeds restricted to the development of the aluminum facility in Amelia of $2.7 million. As of September 30, 2003, ~~results~~the ~~and~~Company ~~announce~~had an outstanding commitment of $1.5 million for the construction of its new ~~contract~~aluminum ~~awards~~marine fabrication repair and conversion facility in Amelia, Louisiana.

24Net cash provided by financing activities was $3.8 million for the nine months ended September 30, 2003 which included borrowings of $5.2 million, the repayment of $1.3 million of debt and capitalized financing costs of approximately $76,000.

~~SIGNATURE~~The Company has a Loan Agreement with a commercial bank, which specifies the terms of the Term Loan, the Development Loan and the Revolving Credit Facility. The interest rate is variable, and interest accrues at the option of the Company either at the JPMorgan Chase prime rate or LIBOR plus 1.75%. The Loan Agreement is secured by substantially all of the Company’s assets, contains customary restrictive covenants and requires the maintenance of certain financial ratios, including a current ratio requirement, a debt to tangible net worth requirement and a debt service coverage ratio that could limit the Company’s use of available capacity under the Revolving Credit Facility. In addition, the Loan Agreement prohibits the Company from paying dividends without the consent of the lender and restricts the ability of the Company to incur additional indebtedness. At September 30, 2003, the Company was in compliance with these covenants.

~~Pursuant~~Subsequent to ~~the~~September ~~requirements~~30, of2003, the ~~Securities~~Company ~~Exchange~~and ~~Act~~the ofcommercial ~~1934,~~bank amended the ~~registrant~~Loan ~~has~~Agreement. ~~duly~~The ~~caused~~amendment ~~this~~changed ~~report~~the interest rate to beeither ~~signed~~the onJP ~~its~~Morgan ~~behalf~~Chase byprime rate or LIBOR plus two percent, at the ~~undersigned~~Company’s ~~thereunto~~option, ~~duly~~and ~~authorized~~adjusted the debt service coverage requirement.

~~Date:~~22 ~~August 12, 2003~~

CONRADTable INDUSTRIES,of INC. By: /S/ LEWIS J. DERBES, JR. Lewis J. Derbes, Jr. Vice President and Chief Financial OfficerContents

25The Term Loan is payable in 19 remaining monthly principal payments of $107,000 plus interest, with a final payment of $4.7 million due on May 31, 2005. At September 30, 2003, the Term Loan balance outstanding was $6.8 million and the interest rate was 2.86%.

The Revolving Credit Facility permits the Company to borrow up to $10.0 million for working capital and other general corporate purposes, including the funding of acquisitions, and matures on May 31, 2004. No draws were outstanding as of September 30, 2003.

On July 18, 2002 the Company entered into The Development Loan which provided financing totaling $6.7 million to fund the development of the Amelia Deepwater facility. The Development Loan included a revolver that converted to a term loan. Payments under the revolver included interest only payments until March 31, 2003, at which time it converted to a term loan to be repaid in 49 monthly principal payments of $58,000 plus interest, with a final balloon payment due on May 31, 2007. At September 30, 2003, the Development Loan balance outstanding was $6.4 million and the interest rate was 2.87%.

In July 2003, the Company completed the financing for its expansion into the aluminum marine fabrication, repair and construction business. The expansion is part of a $5.5 million investment in the Company’s original facility in Amelia, Louisiana (“Amelia Topside”), through the Company’s subsidiary Conrad Aluminum, L.L.C. The financing of this expansion includes a $1.5 million grant by the State of Louisiana through the Economic Development Award Program (EDAP) and $4.0 million of industrial revenue bonds issued by the St. Mary Parish Industrial Development Board. In connection with the issuance of the bonds, Conrad subsidiary Conrad Aluminum, L.L.C. contributed to the Industrial Development Board the land and buildings at the Amelia Topside yard and is leasing them back along with the items to be purchased with the bond proceeds, with a right to repurchase or extend. The transaction is being accounted for as a financing and thus the original cost of the property less accumulated depreciation remains reflected in the Company’s property, plant and equipment. The lease payments will be used to pay principal and interest on the bonds. Conrad and its subsidiaries have guaranteed the bonds. The bonds have a 15 year term and monthly principal payments of $22,222 plus interest. Interest accrues at 3.10% until October 12, 2003, at 3.12% until December 12, 2003, and thereafter, at the Company’s option, at either a prime rate or the higher of (a) 30, 60 or 90-day LIBOR plus two percent or (b) the JPMorgan Chase prime rate. As of September 30, 2003, remaining industrial revenue bond proceeds of approximately $2.7 million restricted for use on the aluminum facility expansion are included under the caption “Other Assets”.

The $1.5 million EDAP grant requires the Company to create a total of 224 new positions by December 31, 2006 and sustain that level through December 31, 2012. If the Company fails to meet the job creation objectives, the state may recover related portions of the grant. As of September 30, 2003, approximately $1.1 million of equipment had been purchased with grant proceeds. Accordingly, as of September 30, 2003, a $1.1 million liability was included under the caption “Other Non-Current Liabilities”. This amount will be amortized into income in future periods over the estimated useful lives of the related equipment and as the specified performance objectives are achieved. The equipment purchased with the grant proceeds is owned by St. Mary Parish and is being leased by the Company with an option to purchase. The transaction is being accounted for as a financing and thus the assets are included in the Company’s property, plant and equipment.

In the normal course of its business, the Company is required to provide letters of credit to secure the payment of workers’ compensation obligations. Additionally, under certain contracts the Company may be required to provide letters of credit and bonds to secure certain performance and payment obligations of the Company thereunder. At September 30, 2003, outstanding letters of credit and bonds amounted to $37.5 million. The Company believes that general industry conditions have led customers to require performance bonds more often than in the past. The Company believes that it has secured adequate bonding for potential future job prospects. Although the Company believes that it will be able to obtain contract bid and performance bonds, letters of credit, and similar obligations on terms it regards as acceptable, there can be no assurance it 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.

The Company’s firm backlog was $36.3 million at September 30, 2003 as compared to $36.2 million at December 31, 2002 and $32.7 million at September 30, 2002. The increase in backlog from the same period of the prior year is primarily attributable to the award of a $5.5 million contract for the construction of a 255-foot crane barge for the U.S. Army Corps of Engineers. Subsequent to September 30, 2003, the Company was awarded contracts totaling $11.6 million for the construction of two 5,000 cubic yard dump scows and an aluminum crew/supply vessel for commercial customers. In addition, the Company has seen increased bid activity in the vessel construction segment of our business and remains cautiously optimistic that ongoing discussions with various customers will result in additional projects that will further add to our backlog in the near future.

Management believes that the Company’s existing working capital, cash flows from operations and bank commitments will be adequate to meet its working capital needs for operations, scheduled maturities of long-term debt, and capital expenditures for the next twelve months. The Company may pursue acquisition and internal expansion opportunities if deemed attractive if and when such opportunities arise. The timing, size or success of any acquisition or internal expansion effort and the associated potential capital commitments cannot be predicted.

New Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. These liabilities are required to be recorded at their fair values (which are likely to be the present values of the estimated future cash flows) in the period in which they are incurred. SFAS No. 143 requires the associated asset retirement costs to be capitalized as part of the carrying amount of the long-lived asset. The asset retirement obligation will be accreted each year through a charge to expense. The amounts added to the carrying amounts of the assets will be depreciated over the useful lives of the assets. The Company implemented SFAS No. 143 on January 1, 2003, as required, and it did not have a material effect on the Company’s consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 eliminates SFAS No. 4 and as a result, gains and losses from extinguishments of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30. SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also updates and amends existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company implemented SFAS No. 145 on January 1, 2003, and it did not have a material impact on the Company’s consolidated financial position or results of operations.

In July 2002, FASB issued SFAS No. 146, “Accounting for Cost Associated with Exit or Disposal Activities,” which is effective for fiscal periods after December 31, 2002. SFAS No. 146 requires companies to recognize costs associated with restructuring, discontinued operations, plant closing, or other exit or disposal activities, when incurred rather than at the date a plan is committed to. The Company adopted the standard as of the effective date and will implement its provisions on a prospective basis.

recognition and measurement provisions on a prospective basis for guarantees that may be issued or modified after December 31, 2002.

In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN46”). FIN 46 requires that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 became effective immediately for variable interest entities created after January 31, 2003. For entities created before January 31, 2003, the provisions of FIN 46 have been delayed until December 31, 2003. Presently, the Company does not believe that it has interests that would be considered variable interest entities under FIN 46. A final determination regarding the provisions of FIN 46 will be reflected in the Company’s financial statements as of December 31, 2003.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the risk of changing interest rates. Interest on $17.1 million of the Company’s long-term debt with a weighted average interest rate of 2.92% at September 30, 2003 was variable based on short-term market rates. Thus a general increase of 1.0% in short-term market interest rates would result in additional interest cost of $171,000 per year if the Company were to maintain the same debt level and structure.

Item 4: Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. The evaluation was carried out under the supervision of and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in reports the Company files with or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934. There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is a party to various routine legal proceedings primarily involving commercial claims and workers’ compensation claims. While the outcome of these claims and legal proceedings cannot be predicted with certainty, management believes that the outcome of such proceedings in the aggregate, even if determined adversely, would not have a material adverse effect on the Company’s consolidated financial statements.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits


3.1		—Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for year ended December 31, 1998 and incorporated by reference herein).

3.2		—Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for year ended December 31, 1998 and incorporated by reference herein).

4.1		—Specimen Common Stock Certificate (filed as Exhibit 4 to the Company’s Registration Statement on Form 8-A and incorporated by reference herein).

4.2		—Registration Rights Agreement by and among Conrad Industries, Inc., J. Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glen Alan Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court Trust, The James P. Conrad Trust, William H. Hidalgo, and Cecil A. Hernandez (filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-K for year ended December 31, 1998 and incorporated by reference herein).

4.3		—Rights Agreement dated May 23, 2002 between Conrad Industries, Inc. and American Stock Transfer & Trust Company (filed as Exhibits 1, 2, 3 and 4 to the Company’s Registration Statement on Form 8-A filed May 29, 2002 and incorporated by reference herein).

10.1		—Amendment No. 3 to Employment Agreement by and among Conrad Industries, Inc., Conrad Shipyard, L.L.C. and J. Parker Conrad effective September 15, 2003.

10.2		—Amendment No. 3 to Employment Agreement by and among Conrad Industries, Inc., Conrad Shipyard, L.L.C. and John P. Conrad, Jr. effective September 15, 2003.

10.3		—Amendment No. 1 to Employment Agreement by and between Conrad Industries, Inc. and Kenneth G. Myers, Jr. effective September 15, 2003.

10.4		—Amendment No. 1 to Employment Agreement by and between Conrad Industries, Inc. and Lewis J. Derbes, Jr. effective September 15, 2003.

10.5		—Fourth Amendment to Third Amended and Restated Loan Agreement by and among Whitney National Bank, Conrad Shipyard, L.L.C., Orange Shipbuilding Company, Inc., and Conrad Industries, Inc. dated November 10, 2003.

31.1		—Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		—Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		—Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On August 6, 2003 the Company filed a report on Form 8-K to report the Company’s second quarter 2003 results.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 12, 2003

CONRAD INDUSTRIES, INC.

By:		/s/ LEWIS J. DERBES, JR.

		Lewis J. Derbes, Jr. Vice President and Chief Financial Officer

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