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September 30, 2018, and an increase in the book value and tangible book value attributable to our
common shareholders. For the nine months ended September 30, 2018, CIB Marine agreed to
repurchases of approximately 23% of the 60,000 preferred shares originally issued in 2009, with 15%
cash settled as of September 30, 2018, and 8% to settle in the future, subject to certain purchase
conditions. The repurchases have been in proportionate amounts of Series A and Series B shares as
originally issued and are the result of both the modified Dutch auction held earlier in 2018 and direct
negotiations with individual shareholders. All purchases that settled prior to September 30, 2018, were
paid with cash on hand and the Company did not raise new capital or issue debt to fund the purchases.
A liability of $3.5 million has been established for the repurchases of preferred shares that have not yet

If you receive the company's periodic press releases with unaudited financial data, there is something
unsual about the book value numbers that they disclose: their tangible book value per share is higher
than book value per share. Normally the only difference between the two metrics would be that
tangible book value excludes goodwill and intangible assets. However, here is how the company
explained this:

At the time of the exchange of our Trust Preferred Securities for Preferred Stock in 2009, the Preferred
Stock was recorded with a carrying value of $51,000,000, or $850 per share, and a liquidation
preference of $60,000,000, or $1,000 per share. The calculation for the book values in our shareholder
letter and our earnings releases is as follows (also noted in the footnote):

Tangible book value per share is the shareholder equity less the carry value of the preferred stock and
less the goodwill and intangible assets, divided by the total shares of common outstanding. Book value
per share is the shareholder equity less the liquidation preference of the preferred stock, divided by the
total shares of common outstanding.

We are keeping an eye on this mainly as a long term study into what happens if you buy a terrible
security like the trust preferred securities that CIBH issued between 2000 and 2002. If those buyers had
been doing “punch card investing,” would they have said that participating in the TruPS investment
contraption (which is deliberately structurally weak) in a mediocre bank was one of their twenty
lifetime investments that they wanted to load up on?

Conrad Industries, Inc.

In the August Issue we wrote about the Conrad Industries (OTC: CNRD) annual shareholder meeting in
Morgan City, Louisiana on August 9 th. Just after we published that Newsletter, the company disclosed
on August 20th that they finally completed and delivered the liquefied natural gas bunker barge project:
the Clean Jacksonville.

As we reported in the previous issue, the customer for this vessel is TOTE, which is going to use it to
fuel their two container ships that run from Jacksonville to San Juan, Puerto Rico. (We are very sour on
TOTE after both the Conrad barge debacle and having read a book – Run the Storm – about the sinking
of the SS El Faro, a 40 year old bulk carrier owned by TOTE that sank with all hands after its master
felt time pressure to sail into a Category 3 hurricane.)

Copyright Oddball Media, LLC 2018


Conrad published their results for the second quarter ending June 30th, showing net income for the first
half of the year was $5.3 million, which was up substantially from only $1.5 million for the first six
months of 2017. As a result, shareholder equity was up to $117 million versus $112 million at the start
of the year. By comparison, the current market capitalization (at $17.95 per share) is $90 million,
putting the price to book ratio at 0.77x.

During the first half of the year, the company spent only $420,000 on capital expenditures. In
comparison, depreciation for the first six months of 2018 was $3.6 million. The company had been on
something of a capex binge when times were good after the recession and before the oil crash.

One important thing to remember about the year-to-date results is the settlement from the BP oil spill,
which we mentioned last Issue: the company received $7.5 million which was all reflected as income
during the second quarter even though it is going to be paid in installments over the next year and a
half. In fact, if you back out that one time gain, Conrad actually had a loss from operations during the
second quarter. Here is the all-important backlog section of the quarterly results:

During the first six months of 2018, we added $39.8 million of backlog, as compared to $13.3 million
added in the first six months of 2017, which includes four spud barges, two anchor barges, four 30,000
bbl. barges, two LPG barges, three 24,000 bbl., two deck barges and a hopper barge. Our backlog was
$74.5 million at June 30, 2018, $111.3 million at December 31, 2017 and $152.0 million at June 30,

As of June 30, 2018, approximately 70.7% of our backlog related to contracts for three commercial
customers and an energy customer. As of December 31, 2017, approximately 66.0% of our backlog
related to contracts for three commercial customers. The Company has signed $60.8 million of new
contracts since June 30, 2018.

As we mentioned in Issue 21, unless Conrad can make a serious business out of the LNG bunker barges
(which seems like a tall order) or unless drilling for oil returns to the Gulf of Mexico (someday...)
things might get worse for the company before they get better.

It is worth remembering that Conrad had net income of $55 million for the crisis years 2007 through
2009 (combined) and EBITDA less capex of $80 million combined for that same period, yet in 2010 it
was trading at $10 per share with $7 in net current assets, for an enterprise value of only $29 million.

The Baker Hughes offshore rig count data set that we look at only goes back to 1990 – drilling activity
there is at multi-decade lows. Conrad pulled a rabbit out of the hat with the tank barge work, but
without the all-important Gulf of Mexico activity, how are they going to earn a profit? This could
definitely get worse before it gets better.

Copyright Oddball Media, LLC 2018

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