UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended July 31, 2002
Commission File No. 0-8190
Williams Industries, Incorporated
(Exact name of Registrant as specified in its charter)
Virginia 54-0899518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8624 J.D. Reading Drive, Post Office Box 1770
Manassas, Virginia 20109 Manassas, Virginia 20108
(Address of principal (Zip Code) (Mailing address)
executive offices)
Registrant's telephone number, including area code: (703) 335-7800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $0.10 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
Aggregate market value of voting and non-voting common equity held by non-
affiliates of the Registrant, based on last sale price as reported on
September 13, 2002
$14,199,901
Shares outstanding at September 13, 2002 3,614,126
DOCUMENTS INCORPRATED BY REFERENCE
The following document is incorporated herein by reference thereto in response
to the information required by Part III of this report (information about
officers and directors): Proxy Statement Relating to Annual Meeting to be held
November 9, 2002.
PART 1
Item 1. Business
A. General Development of Business
Williams Industries, Incorporated (the Company) is a leader in the
construction services market, providing specialized services to customers in
the commercial, industrial, institutional, and governmental markets. These
services are provided by operating subsidiaries whose main lines of business
include: steel, precast concrete and miscellaneous metals erection and
installation; crane rental, heavy and specialized hauling and rigging;
fabrication of welded steel plate girders, rolled steel beams, metal bridge
decking, and light structural and other metal products.
The Company has three manufacturing subsidiaries, Williams Bridge
Company, Piedmont Metal Products, Inc., and S.I.P. Inc. of Delaware. During
Fiscal 2002, the Company expanded its operations, particularly in the
manufacturing segment, to serve more of the southeast region of the country.
This expansion included the lease of a 300,000 square foot manufacturing
facility in Bessemer, Alabama to serve steel bridge girder fabrication needs
in the region. Demand for the majority of the Company's products and
services continues to be strong, due in part to continued governmental
spending on infrastructure.
The Company's Sales and Services' segment, which includes Williams
Equipment Corporation and Greenway Corporation, specializes in the rental of
construction equipment and the rigging and installation of equipment or
components for diverse customers. This segment experienced declining revenues
throughout the fiscal year, due in part to increased competition in the
segment's traditional market areas.
Williams Steel Erection Company, Inc. is the other subsidiary in the
Company's operating nucleus. Williams Steel provides erection and
installation services for structural steel, precast and prestressed concrete,
and miscellaneous metals.
During Fiscal 2002, the Company sold its entire interest in Construction
Insurance Agency, Inc. in order to concentrate on its core lines of business.
The sales price was $300,000 and the Company recorded a gain of $83,000, which
is included in "Other Income" on the Consolidated Statement of Earnings. Also
during the year, the Company, consistent with its long-range plan, acquired
the remaining two percent of stock outstanding in S.I.P., Inc. of Delaware.
The six subsidiaries mentioned above are responsible for the vast
majority of the Company's revenues. However, their efforts are augmented by
other Company operations, including Insurance Risk Management Group, Inc. and
WII Realty Management. These companies provide support services not only for
Company operations but also for outside customers or tenants. The parent
company, Williams Industries, Inc. provides a number of services for all of
the subsidiaries as well as dealing with outside audiences such as financial
institutions, shareholders, and governmental regulatory agencies.
In keeping with the Company's comprehensive long-range plan, the Company
may expand geographically, either by means of additional acquisition or
expansion of its existing businesses.
B. Financial Information About Industry Segments
The Company's activities are divided into four broad categories: (1)
Construction, which includes industrial, commercial and governmental
construction, and the construction, repair and rehabilitation of bridges (2)
Manufacturing, which includes the fabrication of metal products; (3) Sales and
Services, which includes the rental, sale and service of heavy construction
equipment as well as construction services such as rigging; and (4) Other,
which includes insurance operations and parent company transactions with
unaffiliated parties. Financial information about these segments is contained
in Note 10 of the Notes to Consolidated Financial Statements. The following
table sets forth the percentage of total revenue attributable to these
categories for the years ended July 31, 2002, 2001, and 2000:
Fiscal Year Ended July 31,
--------------------------
2002 2001 2000
---- ---- ----
Construction . . . . . . . . . . . . . 26% 25% 30%
Manufacturing. . . . . . . . . . . . . 60% 54% 50%
Sales and Services . . . . . . . . . . 13% 19% 19%
Other. . . . . . . . . . . . . . . . . 1% 2% 1%
The percentages of total revenue will continue to change as market
conditions or new business opportunities warrant.
C. Narrative Description of Business
1. Construction
The Company specializes in structural steel erection, the installation of
architectural, ornamental and miscellaneous metal products, and the
installation of precast and prestressed concrete products.
The Company owns a wide variety of construction equipment, which is used
to perform its contracts in a timely fashion. Labor generally is obtained in
the area where the particular project is located; however, labor in the
construction segment has been in tremendous demand in recent years and
shortages have occurred. The Company has developed a number of outreach
programs, including an apprenticeship program as well as language training
opportunities, to make employment with the Company more attractive.
In the construction segment, the Company requires few raw materials, such
as steel or concrete, since these are generally furnished by and are the
responsibility of the firm that hires the Company to provide the construction
services.
The primary basis on which the Company is awarded construction contracts
is price, since most projects are awarded on the basis of competitive bidding.
While there are numerous competitors for commercial and industrial
construction in the Company's geographic areas, the Company remains as one of
the larger and more diversified companies in its areas of operations.
No single customer accounted for more than 10% of consolidated revenue in
Fiscal Years 2002, 2001, and 2000.
A portion of the Company's work is subject to termination for convenience
clauses in favor of the local, state, or federal government entities who
contracted for the work in which the Company is involved. The law generally
gives government entities the right to terminate contracts, for a variety of
reasons, and such rights are made applicable to government purchasing by
operation of law. While the Company rarely contracts directly with such
government entities, such termination for convenience clauses are incorporated
in the Company's contracts by "flow down" clauses whereby the Company stands
in the shoes of its customers. The Company has not experienced any such
terminations in recent years, and because the Company is not dependent upon
any one customer or project, management feels that any risk associated with
performing work for governmental entities are minimal.
a. Steel Construction
The Company engages in the installation of structural and other steel
products for a variety of buildings, bridges, highways, industrial facilities,
power generating plants and other structures.
Steel construction revenue generally is received on projects where the
Company is a subcontractor to a material supplier (generally a steel
fabricator) or another contractor. When the Company acts as the steel
erection subcontractor, it is invited to bid by the firm that needs the steel
construction services. Consequently, customer relations are important.
The Company operates its steel erection business primarily in the Mid-
Atlantic region, with emphasis on the corridor between Baltimore, Maryland and
Norfolk, Virginia.
b. Concrete Construction
The Company erects structural precast and prestressed concrete for
various structures, such as multi-storied parking facilities and processing
facilities, and erects the concrete architectural facades for buildings. The
concrete erection service generates its revenue from contracts with both
affiliated and non-affiliated customers. The business is not dependent upon
any particular customer.
2. Manufacturing
The Company's fabricated products include steel plate girders used in the
construction of bridges and other projects, "Stay-In-Place" metal bridge deck
forms used in bridge construction, and light structural metal products. In
its manufacturing segment, the Company obtains raw materials from a variety of
sources on a competitive basis and is not dependent on any one source of
supply.
Facilities in this segment are predominately open shop; however, on April
2, 2002, the shop employees of Williams Bridge Company's Bessemer, Alabama
plant voted to have the United Steel Workers of America represent them as a
collective bargaining agent. Contract negotiations are in progress.
Management believes that its labor relations in this segment are good.
Competition in this segment, based on price, quality and service, is
intense. Revenue derived from any particular customer fluctuates
significantly from year to year. In Fiscal 2002 or 2001, no single customer
accounted for more than 10% of consolidated revenue. In Fiscal 2000, one
customer accounted for about 25% of manufacturing revenue.
a. Steel Manufacturing
The Company, through its subsidiary, Williams Bridge Company, has three
plants for the fabrication of steel plate girders and other components used in
the construction, repair and rehabilitation of highway bridges and grade
separations.
One of these plants, located in Manassas, Virginia, is a large heavy
plate girder fabrication facility and contains a main fabrication shop,
ancillary shops and offices totaling approximately 46,000 square feet,
together with rail siding.
The second plant, located on 27 acres in Richmond, Virginia, is a full
service fabrication facility and contains a main fabrication shop, ancillary
shops and offices totaling approximately 128,000 square feet.
The third facility, located in Bessemer, Alabama, is a leased facility
with 300,000 square feet of manufacturing space, ancillary shops and offices.
The Bessemer shop has immediate rail access and is located next to an
interstate highway.
All of the facilities have internal and external handling equipment,
modern fabrication equipment, large storage and assembly areas and are
American Institute of Steel Construction, Category III, Fracture Critical
Bridge Shops.
All facilities are in good repair and designed for the uses to which they
are applied. Since virtually all production at these facilities is for
specific contracts rather than for inventory or general sales, utilization can
vary from time to time.
b. Stay-In-Place Decking
During Fiscal 2002, S.I.P. Inc. of Delaware had one manufacturing
facility, located in Wilmington, Delaware. During Fiscal 2003, the company
is expanding with a leased facility in Gadsden, Alabama. S.I.P. is a steel
specialty manufacturer, well known in the construction industry for
fabrication of its sole product, "stay-in-place" steel decking used in the
construction of highway bridges.
S.I.P., the leading manufacturer of this type of product in the Mid-
Atlantic and Northeastern United States, has an extensive market area,
including the entire East Coast of the United States from New England through
Florida. Management expects the new Gadsden facility will allow S.I.P. to
increase its market area.
c. Light Structural Metal Products
The Company's subsidiary, Piedmont Metal Products, fabricates light
structural metal products at its facility in Bedford, Virginia. For the past
several years, Piedmont has made major improvements and expansion to its
facilities to enhance its manufacturing capabilities, as well as its ability
to finish product in inclement weather. The subsidiary maintains its American
Institute of Steel Construction, Category I certification, which enables the
subsidiary to bid to a wide range of customers.
3. Sales and Services
The rental and sale of construction equipment and the rigging and
installation of equipment for utility and industrial facilities is the final
component of the Company. The Company owns or leases a wide variety of
construction equipment, used not only by "in-house" companies for steel and
precast concrete erection and the transportation of manufactured materials,
but also by outside customers for a number of diverse applications.
a. Rigging and Installation of Equipment
Much of the equipment and machinery used by utilities and other
industrial concerns is so cumbersome that its installation and preparation for
use, and, to some extent, its maintenance, requires installation equipment and
skills not economically feasible for those users to acquire and maintain. The
Company's construction equipment, personnel and experience are well suited for
such tasks, and the Company contracts for and performs those services. The
demand for these services, particularly by utilities, is relatively stable
throughout business cycles.
b. Equipment Rental and Sales
The Company requires a wide range of heavy construction equipment in its
construction business, but not all of the equipment is in use at all times.
To maximize its return on investment in equipment, the Company rents equipment
to unaffiliated parties to the extent possible.
The Company's equipment rental subsidiaries maintain extensive fleets of
heavy equipment, including cranes, tractors and trailers. Because of
operational, maintenance and safety issues, the Company routinely reviews its
fleets to determine whether or not components need to be updated or replaced.
4. Other
a. General
All segments of the Company are influenced by adverse weather conditions,
although the manufacturing subsidiaries are less subject to delays for
inclement weather than are the construction components. The ability to
acquire raw materials and to ship finished product is, nevertheless, impacted
by extreme weather. It is also possible that the manufacturing segment may
have product ready to ship, but inclement weather could have caused delays in
construction timetables that require adjustments by the manufacturing
companies. Because of the cyclicality and seasonality prevalent in the
Company's business, higher revenue typically is recorded in the first (August
through October) and fourth (May through July) fiscal quarters when the
weather conditions are generally more favorable.
Management is not aware of any environmental regulations that materially
impact the Company's capital expenditures, earnings or competitive position.
Compliance with Occupational Safety and Health Administration (OSHA)
requirements may, on occasion, increase short-term costs (although in the
long-term, compliance may actually reduce costs through workers' compensation
savings); however, since compliance is required industry wide, the Company is
not at a competitive disadvantage, and the expected costs are built into the
Company's normal bidding procedures.
The Company employs between 250 and 500 employees, many employed on an
hourly basis for specific projects, the actual number varying with the seasons
and timing of contracts. At July 31, 2002 the Company had 434 employees, as
compared to July 31, 2001 when there were 417.
b. Insurance
Liability Coverage
Primary liability coverage for the Company and its subsidiaries is
provided by a policy of insurance with limits of $1,000,000 per incident and a
$2,000,000 aggregate. The Company also carries an "umbrella" policy that, for
the year ended July 31, 2002, provided limits of $5,000,000 in excess of the
primary. This primary policy had a $10,000 deductible. Effective September
9, 2002, the Company changed its "umbrella" coverage to $2,000,000 in excess
of the primary with a $15,000 deductible. If additional coverage is required
on a specific project, the Company makes those purchases.
Management routinely evaluates these coverages and expenditures for such
and makes modifications as necessary. The changes indicated above were made
in response to escalating costs and market conditions.
Workers' Compensation Coverage
The Company has a "loss sensitive" workers' compensation insurance
program, the terms of which are negotiated by the Company on a year-to-year
basis. The Company accrues workers' compensation insurance expense based on
estimates of its costs under the program. A substantial portion of the
Company's "Prepaid" expenses relate to the workers' compensation program and
the timing of yearly payments into the Company's account.
Because of the dangerous nature of its business, the Company maintains an
aggressive safety inspection and training program, designed not only to
provide a safe work place for employees but also to minimize difficulties for
employees, their families and the Company should an accident occur.
5. Backlog Disclosure
As of July 31, 2002, the Company's backlog was approximately $48 million,
compared to $46 million at July 31, 2001 and $35 million at July 31, 2000.
The increases in the Company's backlog are due in large measure to the demand
for manufactured products.
Item 2. Properties
During Fiscal 2002, the Company acquired approximately 10 acres from the
City of Richmond for $55,000. The unimproved property is contiguous to
Williams Bridge Company's Richmond, Virginia manufacturing facility. At July
31, 2002, the Company owned approximately 90 acres of industrial property,
some of which is not developed but may be used for future expansion.
Approximately 39 acres are near Manassas, in Prince William County, Virginia;
27 acres are in Richmond, Virginia; and 24 acres in Bedford, in Virginia's
Piedmont section between Lynchburg and Roanoke.
The Company owns numerous large cranes, tractors and trailers and other
equipment. During fiscal year 2002, the Company acquired manufacturing
equipment valued at $689,000. Also during Fiscal Year 2002, the Company
determined that market conditions in the Sales and Services segment had
changed from prior years and therefore, several pieces of equipment have been
listed for sale. Proceeds from sales in fiscal year 2002 were not material.
Item 3. Legal Proceedings
General
The Company is party to various claims arising in the ordinary course of
its business. Generally, claims exposure in the construction services
industry consists of employment claims of various types of workers
compensation, personal injury, products' liability and property damage. The
Company believes that its insurance accruals, coupled with its liability
coverage, is adequate coverage for such claims.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The Company's Common Stock trades on the NASDAQ National Market System
under the symbol (WMSI). The following table sets forth the high and low
sales prices for the periods indicated, as obtained from market makers in the
Company's stock.
8/1/00 11/1/00 2/1/01 5/1/01 8/1/01 11/1/01 2/2/02 5/1/02
10/31/00 1/31/01 4/30/01 7/31/01 10/31/01 1/31/02 4/30/02 7/31/02
-------- ------- ------- ------- -------- ------- ------- -------
$2.93 $3.13 $3.85 $4.38 $5.75 $5.66 $9.00 $8.91
$2.25 $2.38 $2.75 $3.60 $3.55 $4.01 $4.25 $4.10
The prices shown reflect published prices, without retail mark-up,
markdown, or commissions and may not necessarily reflect actual transactions.
The Company paid no cash dividends during the years ended July 31, 2002
or 2001. The Company's board believes that the current best utilization for
cash is in the further development of its business units and strategic
expansion. Further, there are certain covenants in the Company's current
credit agreements that prohibit cash dividends without the lenders'
permission.
At July 31, 2002, there were 481 holders of record of the Common Stock.
Equity Compensation Plan Information
=============================================================================
Number of securities Weighted average Number of
to be issued upon exercise price securities
exercise of outstanding of outstanding remaining available
options, warrants options, warrants for future
and rights. and rights issuance
=============================================================================
(a) (b) (c)
Equity compensation plans
approved by security holders 200,000 $3.83 98,000 (1)
=============================================================================
Equity compensation plans
not approved by security 67,000 $3.68 0 (2)(3)
holders
=============================================================================
Total 267,000 $3.77 98,000
=============================================================================
(1) Plan approved by shareholders in November 1996
(2) The options granted to non-employee directors are issued under the
terms and conditions of those of the shareholder approved plan. The
shares issued upon exercise of these options are issued pursuant to
Rule 144 of the 1933 Securities Act.
(3) The Company's non-employee directors receive a stock grant of
restricted stock equal to $600 per month to be calculated monthly,
using the current share price at the end of the month, with the
shares to be accumulated and transferred once a year in January.
Item 6. Selected Financial Data
The following table sets forth selected financial data for the Company
and is qualified in its entirety by the more detailed financial statements,
related notes thereto, and other statistical information appearing elsewhere
in this report.
SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except per share data)
YEAR ENDED JULY 31,
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
Statements of Earnings Data:
Revenue:
Construction . . . . . $14.4 $12.4 $12.8 $ 9.4 $10.8
Manufacturing. . . . . 34.0 27.2 21.3 16.3 10.2
Sales and Services . . 7.8 9.9 8.0 7.2 7.1
Other. . . . . . . . . 0.3 1.0 0.8 0.5 0.8
------ ------ ------ ------ ------
Total Revenue. . . . . . . $56.5 $50.5 $42.9 $33.4 $28.9
====== ====== ====== ====== ======
Gross Profit:
Construction. . . . . $ 5.0 $ 4.2 $ 4.3 $ 3.3 $ 4.2
Manufacturing 14.3 9.9 7.1 5.9 3.1
Sales and Services 2.2 3.8 3.1 3.3 3.4
Other 0.3 1.1 0.8 0.5 0.8
------ ------ ------ ------ ------
Total Gross Profit . . . $21.8 $19.0 $15.3 $13.0 $11.5
====== ====== ====== ====== ======
Other Income: $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.4
Expense:
Overhead . . . . . . $ 8.0 $ 5.2 $ 4.4 $ 3.7 $ 3.1
General and
Administrative . 9.0 8.5 6.5 5.7 5.0
Depreciation . . . .. 1.6 1.6 1.2 1.3 1.2
Interest . . . . . .. 0.7 0.8 0.9 0.9 1.2
Income Tax (Benefit) 1.0 0.4 0.9 (2.0) (0.3)
------ ------ ------ ------ ------
Total Expense . . $20.3 $16.5 $13.9 $ 9.6 $10.2
====== ====== ====== ====== ======
Earnings Before
Extraordinary Item $ 1.6 $ 2.6 $ 1.5 $ 3.5 $ 1.7
Equity (Loss) Earnings
And Minority Interest - (0.1) - 0.1 (0.8)
Extraordinary Item -
(Loss)Gain on
Extinguishment of Debt - - - (0.2) 0.9
------ ------ ------ ------ ------
Net Earnings $ 1.6 $2.5 $ 1.5 $ 3.4 $ 1.8
====== ====== ====== ====== ======
Earnings (Loss) Per Share:
Before Extraordinary Item $0.45 0.70 0.41 $1.00 $0.27
Extraordinary Item - - - (0.05) 0.29
------ ------ ------ ------ ------
Earnings Per Share:
Basic* $0.45 $0.70 $0.41 $0.95 $0.56
====== ====== ====== ====== ======
Diluted $0.45 $0.70 $0.41 $0.95 $0.51
====== ====== ====== ====== ======
Balance Sheet Data (at end of year):
Total Assets $42.2 37.7 $35.0 $32.6 $29.1
Long Term Obligations 7.6 7.0 7.7 7.4 8.4
Total Liabilities 24.3 21.5 21.3 20.4 20.4
Stockholders' equity 17.7 16.2 13.7 12.2 8.7
* No Dividends were paid on Common Stock during the above five-year period.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The subsidiaries of Williams Industries, Inc. provide specialized
services and products for the construction industry. Management continually
reviews the Company's allocation of assets to each subsidiary and makes
adjustments as necessary to enhance the Company's ability to take advantage of
opportunities in the marketplace. Since Fiscal 1996, the Company, availing
itself of opportunities available in the economy, has increased its emphasis
on its Manufacturing Segment. Manufacturing, which was 37% of the Company's
business in Fiscal 1996, comprised 60% of the revenue in Fiscal 2002. A
portion of this increase is due to the expansion of Williams Bridge Company
into a leased facility in Alabama, which opens new geographic markets for the
subsidiary.
The amount of commercial, institutional, and governmental construction
activity in the Mid-Atlantic region, where the Company traditionally has
focused its efforts, has been higher than many other regions in recent years,
but currently is in a state of flux due to severe state budgetary problems in
Virginia and Maryland. Geographic expansion will allow the Company to more
uniformly balance growth and to remove some of the vagaries of working only in
concentrated areas.
For the fiscal year ended July 31, 2002, the Company produced a 12%
increase in revenue. While this increase, which is attributable primarily to
the Manufacturing segment but also includes gains in the Construction segment,
is significant, it would have been even greater if it were not for declining
revenue in the Sales and Services segment.
Because of continuing losses in the Company's Sales and Services segment,
management is reviewing the operations and long-term future of this division
and is also evaluating the sale or lease of some of the segment's equipment.
While most of the Company's construction activities are focused in
Maryland, Virginia, and the District of Columbia, the Company now has
manufacturing facilities not only in the Mid-Atlantic region, but also in the
Southeast. Products are shipped well beyond both regions. The Company's
long-range business plan anticipates the continuation of this trend for at
least the next three to five years.
The subsidiaries of Williams Industries, Inc. operate in the commercial,
industrial, governmental and infrastructure construction markets with the
operating components divided into construction, manufacturing, and sales and
service segments. The services provided include: steel, precast concrete
and miscellaneous metals erection and installation; crane rental, heavy and
specialized hauling and rigging; fabrication of welded steel plate girders,
rolled steel beams, "stay-in-place" bridge decking, and light structural and
other metal products.
While management anticipates significant growth in the next four to five
years in the Company's manufacturing segment due to increased governmental
demand for highway projects, significant opportunities are also occurring in
commercial, industrial and institutional construction markets.
The Company's long-range plan also calls for the continued amalgamation
of existing subsidiaries to produce the most cost-effective and customer-
responsive combination of manufacturing, construction, and heavy hauling and
lifting capabilities possible. The Company's ability to offer a turnkey
approach for its customers, thereby increasing its competitiveness on some
contracts, will continue to be a strength.
Financial Condition
The Company's balance sheet includes sufficient near-term liquidity and
limited long-term debt. Inventory increases are directly attributable to the
Company's expansion in the manufacturing area and its decision to take
advantage of the current prices of raw materials.
The Company's revenues for the twelve months ended July 31, 2002
increased by $6 million or 12%. Total corporate earnings before income taxes
declined by about $400,000 or 13%. This decline is a direct result of losses
in the Sales and Services segment.
Direct costs, when viewed as a percentage of revenue, declined in
Construction and Manufacturing segments, while increasing appreciably in the
Sales and Services segment. The Sales and Services segment has substantial
fixed costs, such as lease payments on equipment, which become burdensome when
adequate revenue is not achieved.
Accounts receivable increased significantly, due primarily to the
Company's increased volume of work, particularly toward the end of the fiscal
year, and a reduction of underbillings as compared to the prior year. The
increased work in the fourth quarter also influenced the timing of payments in
relation to the close of the Company's fiscal year. The Company's allowance
for doubtful accounts increased from $1,075,000 at July 31, 2001 to $1,406,000
at July 31, 2002.
The Company continues to utilize its credit facilities as necessary to
handle short-term cash requirements, particularly in terms of inventory
expansion for major fabrication projects.
Bonding
The Company has a comprehensive bonding program with a primary
underwriter that is believed to be more than sufficient for the Company's
needs. In addition to this program, the Company has additional specific job
coverages with other underwriters. Although the Company's ability to bond
work is more than adequate, the Company has traditionally relied on its
superior reputation to acquire work and will continue to do so. However, the
Company recognizes that, as it expands its geographic range for providing
goods and services, it will be necessary to provide bonds to clients
unfamiliar with the Company.
Liquidity
The Company's operations require significant working capital to procure
materials for contracts to be performed over relatively long periods, and for
purchases and modifications of specialized equipment. Furthermore, in
accordance with normal payment terms, the Company's customers often retain a
portion of amounts otherwise payable to the Company as a guarantee of
completion. To the extent the Company is unable to receive progress payments
in the early stages of a project, the Company's cash flow could be adversely
affected. The issue of progress payments is a common one in the construction
industry as are short-term cash considerations.
The Company makes yearly payments to fund it workers compensation
program. A substantial portion, approximately $1 million, of "Prepaid"
expense relates to the workers compensation program.
As a result of the increased activity discussed elsewhere in this
document, the Company has been using cash to purchase materials, equipment and
other "start-up" costs associated with manufacturing and construction lead
times. The Company's cash and cash equivalents declined from $3,748,000 at
July 31, 2001 to $3,380,000 at July 31, 2002.
The Company incurred $1,392,000 in expenditures for property, plant and
equipment. Proceeds from the sale of other property, plant and equipment
items were not material. The bulk of the Company's equipment purchases or
leases have been for the manufacturing segment. Piedmont Metal Products Inc.
had expenditures of $142,000 for an addition to the subsidiary's shop
facilities. This expansion project will be completed in Fiscal 2003.
Management evaluates each acquisition on its own merits and then determines
whether a purchase or a lease offers the greatest cash flow and balance sheet
advantages.
In addition to the expenditures mentioned above, the Company made
payments of approximately $44,000 to former shareholders of S.I.P. Inc. of
Delaware under the terms of the purchase agreement.
Financing activities provided net cash. The Company borrowed $8,246,000
to take advantage of lower rates in the marketplace and for needed property,
plant and equipment at lower rates. The Company repaid notes payable of
$7,145,000.
Management believes that operations will generate sufficient cash to fund
activities. However, as revenues increase, it may become necessary to increase
the Company's credit facilities to handle short-term cash requirements.
Management, therefore, is focusing on the proper allocation of resources to
ensure stable growth.
Operations
The Company's Manufacturing subsidiaries continue to benefit from strong
demand for their products and services, while the Construction segment has
seen a decline in commercial demand but a steady increase in governmental
projects. The Sales and Services segment, as mentioned earlier, continues to
struggle with additional competition in the marketplace, resulting in reduced
revenues.
Additional consolidation of resources, including both personnel and
equipment, will occur until the Company has the most efficient configuration
for market conditions.
1. Fiscal Year 2002 Compared to Fiscal Year 2001
Expansion in the Company's Manufacturing segment dominated Fiscal 2002,
with the segment showing a 25% increase in revenues when compared to Fiscal
2001. While a portion of this improvement is due to the addition of the
leased facility in Bessemer, Alabama, the bulk of the increase is due to
higher sales in existing markets. This is particularly significant because
Williams Bridge Company's strongest traditional customers, the states of
Virginia and Maryland, have not been bidding much work due to severe budgetary
concerns. Williams Bridge Company not only produced more work but also
produced higher profit margins when the years are compared. It is also
significant to note that the addition of the Bessemer plant is responsible for
approximately $600,000 in increased G&A costs for the subsidiary; overhead
increasing accordingly.
The Construction segment also showed noteworthy changes, increasing
revenues by 17% while holding the segment's Direct Costs steady. Much of
this change is due to the fact that Williams Steel Erection Company, Inc. has
been able to eliminate its labor shortage as a result of softness in the
nation's economy coupled with its aggressive hiring program, which is linked
to the subsidiary's apprenticeship program.
The Sales and Services segment had a 22% decline in revenues when Fiscal
2002 is compared to Fiscal 2001. The segment also had an 11% increase in
Direct Costs as a percentage of revenue, a significant portion of which
resulted from increases in workers compensation expenses due to a series of
accidents. Because the segment has substantial fixed-cost expenses, such as
crane leases, profit margins decline sharply on reduced revenues.
Part of the Sales and Services segment's difficulties stemmed from new
competition in the marketplace, but other areas of concern involved accidents,
the segment's inability to sell underperforming assets and changes in the
segment's sales staff.
2. Fiscal Year 2001 Compared to Fiscal Year 2000
The single most significant difference between Fiscal 2001 and Fiscal
2000 was the addition of S.I.P. Inc. of Delaware to the Company's consolidated
results. The addition of S.I.P. was a major contributor to the Manufacturing
segment's increase in both revenues and profitability, although the entire
segment continues to benefit from consistent order flow for bridge girders and
decking, both components of the federal government's extensive infrastructure
funding program. The increasing proportion of revenues generated by
manufacturing is expected to continue as funding for infrastructure programs
is scheduled to continue for at least five years.
The Sales and Services segment also had an increase in revenues when the
years are compared. Some of this increase is attributed to the Company's
recent consolidation of crane management, which allows higher utilization for
both long and short-term projects. More coordinated scheduling also permits
the Company to seize emergency, time-sensitive opportunities, which generally
produce higher profit margins.
In the absence of many "mega" or extremely large construction projects,
the Construction segment performed a multitude of smaller jobs in Fiscal 2001
to keep its revenues close to those of Fiscal 2000. Institutional projects,
such as schools and Post Offices, comprised a significant component of the
segment's work in contrast to the commercial construction of the prior year.
The Company has been taking advantage of conditions in the overall
economy to restructure several long-term debt obligations, reducing the
average interest rate of its variable rate obligations by nearly two percent
and the rate on its total fixed interest notes by approximately 0.2%. These
savings are reflected on the Company's Income Statement.
The Company's provision for income taxes must also be evaluated when
reviewing bottom-line results. The Fiscal 2001 provision of $495,000 was
substantially less than the Fiscal 2000 provision of $892,000 as a result of
the Company's ability to use some of its tax-loss carryforwards. The
Company's future utilization of its remaining tax loss carryforwards will
continue to be evaluated on a yearly basis.
3. Fiscal Year 2000 Compared to Fiscal Year 1999
Total revenue, based on the same number of operating subsidiaries as the
prior year, increased by more than 28% when Fiscal 2000's revenue of
$42,876,000 were compared to the $33,379,000 produced in Fiscal 1999. Costs
rose proportionally to revenue, with the greatest increase in both revenue and
costs occurring in the manufacturing subsidiaries.
The $815,000 increase in earnings before income taxes, equity earnings
and minority interests from the $1,511,000 in Fiscal 1999 to the $2,326,000 in
Fiscal 2000, was due to increased revenue and gross profit and, in part, to a
reduction in workers' compensation expense for Fiscal 2000 resulting from an
excellent safety record. It should be noted that subsequent to the filing of
its July 31, 1999 annual report on Form 10-K, the Company became aware of
certain errors that had been made in the accounting for its worker's
compensation insurance expense over a period of several years. The errors
were corrected in the financial statements accompanying the Fiscal Year 2000
report.
One of the most significant differences between Fiscal 2000 and Fiscal
1999 was the difference between the income tax provision of $892,000 for
Fiscal 2000 as compared to the $2,000,000 benefit for Fiscal 1999. This
change was a major factor in explaining the difference in the Company's net
earnings of $1,487,000 for Fiscal 2000 and $3,406,000 for Fiscal 1999.
Safe Harbor for Forward Looking Statements
The Company is including the following cautionary statements to make
applicable and take advantage of the safe harbor provisions within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 for any forward-looking statements made by, or on behalf
of, the Company in this document and any materials incorporated herein by
reference. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements that are other than statements of historical
facts. Such forward-looking statements may be identified, without limitation,
by the use of the words "anticipates," "estimates," "expects," "intends," and
similar expressions. From time to time, the Company or one of its
subsidiaries individually may publish or otherwise make available forward-
looking statements of this nature. All such forward-looking statements,
whether written or oral, and whether made by or on behalf of the Company or
its subsidiaries, are expressly qualified by these cautionary statements and
any other cautionary statements which may accompany the forward-looking
statements. In addition, the Company disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
Forward-looking statements made by the Company are subject to risks and
uncertainties that could cause actual results or events to differ materially
from those expressed in, or implied by, the forward-looking statements. These
forward-looking statements may include, among others, statements concerning
the Company's revenue and cost trends, cost-reduction strategies and
anticipated outcomes, planned capital expenditures, financing needs and
availability of such financing, and the outlook for future construction
activity in the Company's market areas. Investors or other users of the
forward-looking statements are cautioned that such statements are not a
guarantee of future performance by the Company and that such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in, or implied by, such
statements. Some, but not all of the risk and uncertainties, in addition to
those specifically set forth above, include general economic and weather
conditions, market prices, environmental and safety laws and policies, federal
and state regulatory and legislative actions, tax rates and policies, rates of
interest and changes in accounting principles or the application of such
principles to the Company.
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk
Williams Industries, Inc. uses fixed and variable rate notes payable, a
tax-exempt bond issue, and a vendor credit facility to finance its operations.
These on-balance sheet financial instruments, to the extent they provide for
variable rates of interest, expose the Company to interest rate risk, with the
primary interest rate exposure resulting from changes in the prime rates or
Industrial Revenue Bond (IRB) rate used to determine the interest rates that
are applicable to borrowings under the Company's vendor credit facility and
tax exempt bond.
The information below summarizes Williams Industries, Inc.'s sensitivity
to market risks associated with fluctuations in interest rates as of July 31,
2002. To the extent that the Company's financial instruments expose the
Company to interest rate risk, they are presented in the table below. The
table presents principal cash flows and related interest rates by year of
maturity of the Company's credit facility and tax-exempt bond in effect at
July 31, 2002. Notes 5 and 12 to the Consolidated Financial Statements
contain descriptions of the Company's credit facilities and tax-exempt bond
and should be read in conjunction with the table below.
Financial Instruments by Expected Maturity Date
(In Thousands Except Interest Rates)
Year Ending July 31, 2003 2004 2005
-------- -------- --------
Interest Rate Sensitivity
Notes Payable:
Variable Rate $ 439 $2,545 $ 425
Average Interest Rate 5.03% 5.83% 4.96%
Fixed Rate $1,681 $ 797 $ 555
Fixed Interest Rate 7.80% 8.49% 8.00%
Year Ending July 31, 2006 Thereafter Total Fair Value
-------- ---------- --------- ----------
Variable Rate $ 381 $ 802 $4,592 $4,600
Average Interest Rate 4.87% 2.53% 5.02%
Fixed Rate $ 294 $1,850 $5,177 $5,200
Fixed Interest Rate 8.50% 8.70% 8.29%
Item 8. Williams Industries, Incorporated Consolidated Financial Statements
for the Years ended July 31, 2002, 2001, and 2000.
(See pages which follow.)
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
None.
Part III
Pursuant to General Instruction G(3) of Form 10-K, the
information required by Part III (Items 10, 11, 12 and 13) is hereby
incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission, pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934, in connection with the
Company's Annual Meeting of Shareholders scheduled to be held November 9,
2002.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The following documents are filed as a part of this report:
1. Consolidated Financial Statements of Williams Industries, Incorporated
and Independent Auditors' Reports.
Report of Aronson and Company
Report of the Audit Committee
Consolidated Balance Sheets as of July 31, 2002 and 2001.
Consolidated Statements of Earnings
for the Years Ended July 31, 2002, 2001, and 2000.
Consolidated Statements of Stockholders' Equity
for the Years Ended July 31, 2002, 2001, and 2000.
Consolidated Statements of Cash Flows
for the Years Ended July 31, 2002, 2001, and 2000.
Notes to Consolidated Financial Statements
for the Years Ended July 31, 2002, 2001, and 2000.
Schedule II -- Valuation and Qualifying Accounts
for the Years Ended July 31, 2002, 2001, and 2000
of Williams Industries, Incorporated.
(All included in this report in response to Item 8.)
2. (a) Schedules to be Filed by Amendment to this Report
NONE
(b)Exhibits:
(3) Articles of Incorporation: Incorporated by reference to Exhibits
3(a) of the Company's 10-K for the fiscal year ended July 31, 1989. By-Laws:
Incorporated by reference to Exhibit 3 of the Company's 8-K filed September 4,
1998.
(21) Subsidiaries of the Company
Name State of
Incorporation
Arthur Phillips & Company, Inc.* MD
Capital Benefit Administrators, Inc.* VA
John F. Beasley Construction Company* TX
Greenway Corporation MD
IAF Transfer Corporation* VA
Insurance Risk Management Group, Inc. VA
Piedmont Metal Products, Inc. VA
S.I.P. Inc. of Delaware DE
Williams Bridge Company VA
Williams Enterprises, Inc.* DC
Williams Equipment Corporation DC
WII Realty Management, Inc. VA
Williams Steel Erection Company VA
* Not Active
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WILLIAMS INDUSTRIES, INCORPORATED
September 16, 2002 /s/ Frank E. Williams, III
-------------------------------
Frank E. Williams, III
President and Chairman of
the Board
Chief Financial Officer
CERTIFICATIONS
I, Frank E. Williams, III, certify that:
1. I have reviewed this annual report on Form 10-K of Williams Industries,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered in
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual reports.
/s/ Frank E. Williams, III
-------------------------------
Frank E. Williams, III
President and Chairman of
the Board
Chief Financial Officer
Independent Auditor's Report
To the Board of Directors and Stockholders
Williams Industries, Incorporated
Manassas, Virginia
We have audited the accompanying Consolidated Balance Sheets of Williams
Industries, Incorporated as of July 31, 2002 and 2001, and the related
Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for
the years then ended. Our audits also included the financial statement
schedule for the years ended July 31, 2002 and 2001 listed in Item 14. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Williams
Industries, Incorporated as of July 31, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the years then ended
in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
Aronson & Company
Rockville, Maryland
September 10, 2002
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is composed of three outside
directors. Its primary function is to oversee the Company's system of
internal controls, financial reporting practices and audits to determine that
their quality, integrity and objectivity are sufficient to protect stockholder
interests.
The Audit Committee, either in person or by conference call, met three times
during Fiscal 2002 to review the overall audit scope, plans and results of the
independent auditors, the Company's internal controls, emerging accounting
issues, expenses, and audit fees. The Committee met separately without
management present and with the independent auditors to discuss the audit.
The Committee reviewed the Company's annual financial statements prior to
issuance. Audit Committee findings are reported to the full Board of
Directors.
The Audit Committee is satisfied that the internal control system is adequate
and that the Company employs appropriate accounting and auditing procedures.
Stephen N. Ashman
Chairman, Audit Committee
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JULY 31, 2002, 2001 and 2000
($000 omitted except earnings per share)
2002 2001 2000
--------- --------- ---------
REVENUE:
Construction $ 14,481 $ 12,386 $ 12,820
Manufacturing 33,978 27,210 21,321
Sales and service 7,764 9,889 7,953
Other revenue 281 1,023 782
--------- --------- ---------
Total revenue 56,504 50,508 42,876
--------- --------- ---------
DIRECT COSTS:
Construction 9,475 8,178 8,578
Manufacturing 19,672 17,277 14,223
Sales and service 5,565 6,023 4,822
--------- --------- ---------
Total direct costs 34,712 31,478 27,623
--------- --------- ---------
GROSS PROFIT 21,792 19,030 15,253
--------- --------- ---------
OTHER INCOME 96 107 115
--------- --------- ---------
EXPENSES:
Overhead 8,026 5,228 4,449
General and administrative 8,991 8,480 6,497
Depreciation
and amortization 1,553 1,589 1,185
Interest 715 840 911
--------- --------- ---------
Total expenses 19,285 16,137 13,042
--------- --------- ---------
EARNINGS BEFORE INCOME
TAXES,EQUITY EARNINGS
AND MINORITY INTERESTS 2,603 3,000 2,326
INCOME TAX PROVISION 962 405 892
--------- --------- ---------
EARNINGS BEFORE EQUITY
EARNINGS AND MINORITY
INTERESTS 1,641 2,595 1,434
Equity in earnings of
unconsolidated
affiliates - - 120
--------- --------- ---------
EARNINGS BEFORE
MINORITY INTERESTS 1,641 2,595 1,554
Minority Interests in
consolidated
subsidiaries (28) (77) (67)
--------- --------- ---------
NET EARNINGS $ 1,613 $ 2,518 $ 1,487
========= ========= =========
EARNINGS PER COMMON SHARE:
EARNINGS PER
COMMON SHARE-BASIC $ 0.45 $ 0.70 $ 0.41
========= ========= =========
EARNINGS PER
COMMON SHARE-DILUTED $ 0.45 $ 0.70 $ 0.41
========= ========= =========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2002 AND 2001
($000 Omitted)
ASSETS
2002 2001
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 3,380 $ 3,748
Restricted cash 50 49
Certificates of deposit 705 693
Accounts receivable, (net of
allowances for doubtful accounts
of $1,406 in 2002 and $1,075 in 2001):
Contracts
Open accounts 14,535 9,734
Retainage 656 912
Trade 1,523 2,473
Other 1,017 1,133
-------- --------
Total accounts receivable - net 17,731 14,252
-------- --------
Inventory 4,866 3,619
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,509 2,493
Prepaid expenses 2,263 1,151
-------- --------
Total current assets 30,504 26,005
-------- --------
PROPERTY AND EQUIPMENT, AT COST 20,209 19,228
Accumulated depreciation (12,238) (11,089)
-------- --------
Property and equipment, net 7,971 8,139
-------- --------
OTHER ASSETS
Deferred income taxes 2,246 3,067
Other 1,535 531
-------- --------
Total other assets 3,781 3,598
-------- --------
TOTAL ASSETS $42,256 $37,742
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
2002 2001
-------- --------
CURRENT LIABILITIES
Current portion of notes payable $ 2,120 $ 1,638
Accounts payable 4,900 4,684
Accrued compensation and
related liabilities 1,858 1,635
Billings in excess of costs
and estimated earnings
on uncompleted contracts 4,104 2,902
Deferred income 99 124
Other accrued expenses 3,462 3,103
Income taxes payable 137 15
-------- --------
Total current liabilities 16,680 14,101
LONG-TERM DEBT
Notes payable, less current portion 7,649 7,049
-------- --------
Total liabilities 24,329 21,150
-------- --------
MINORITY INTERESTS 212 378
-------- --------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $0.10 par value,
10,000,000 shares authorized;
3,575,776 and 3,601,196 shares
issued and outstanding 358 360
Additional paid-in capital 16,348 16,458
Accumulated earnings (deficit) 1,009 (604)
-------- --------
Total stockholders' equity 17,715 16,214
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $42,256 $37,742
======== ========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2002, 2001 AND 2000
($000 Omitted)
2002 2001 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,613 $ 2,518 $ 1,487
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,553 1,589 1,185
Increase (decrease) in allowance
for doubtful accounts 331 (1,787) 1,573
Loss (gain) on disposal of property,
plant and equipment 5 (84) (15)
Decrease in deferred income tax assets 821 346 846
Minority interest in earnings 28 77 67
Gain on disposal of consolidated subsidiary (83) - -
Equity in earnings of affiliates - - (120)
Dividend from unconsolidated affiliate - - 125
Changes in assets and liabilities:
(Increase) decrease
in open contracts receivable (5,007) 4,002 (3,983)
Decrease (increase) in contract retainage 256 (529) (213)
Decrease (increase) in trade receivables 270 (546) 352
Increase in contract claims - (492) -
Decrease (increase) in other receivables 95 (524) 503
(Increase) decrease in inventory (1,247) (608) 708
Decrease (increase) in costs and
estimated earnings in excess of
billings on uncompleted contracts 984 (948) (64)
Increase in billings in excess of
costs and estimated earnings on
uncompleted contracts 1,202 493 187
Increase in prepaid expenses (1,112) (7) (519)
(Increase) decrease in other assets (808) 241 97
Increase (decrease) in accounts payable 733 (373) 31
Increase in accrued compensation
and related liabilities 229 354 256
Decrease in deferred income (25) (97) (127)
Increase in other accrued expenses 345 121 105
Increase (decrease)
in income taxes payable 160 (105) (10)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 343 3,641 2,471
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property,
plant and equipment (1,392) (996) (932)
(Increase) decrease in restricted cash (1) 19 (7)
Proceeds from sale of
property, plant and equipment 1 864 431
Sale of subsidiary 100 - -
Cash of subsidiary sold (262) - -
Purchase of subsidiary (86) (1,302) -
Purchase of certificates of deposit (17) (118) (89)
Maturities of certificates of deposit 5 106 146
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,652) (1,427) (451)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 8,246 5,932 3,891
Repayments of notes payable (7,145) (6,934) (4,477)
Issuance of common stock 77 23 12
Repurchase of common stock (189) - -
Minority interest dividends (48) (55) (23)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 941 (1,034) (597)
-------- -------- --------
NET (DECREASE) INCREASE
IN CASH AND CASH EQUIVALENTS (368) 1,180 1,423
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,748 2,568 1,145
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $3,380 $3,748 $2,568
-------- -------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION (SEE NOTE 13)
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 2002, 2001 and 2000
($000 0mitted)
Additional Accumulated
Number Common Paid-In Earnings
of Shares Stock Capital (Deficit) Total
--------- ------ --------- --------- --------
BALANCE, JULY 31, 1999 3,588 $ 359 $16,424 $(4,609) $ 12,174
Issuance of stock 3 0 12 - 12
Net earnings
for the year * - - - 1,487 1,487
--------- ------ --------- --------- --------
BALANCE, JULY 31, 2000 3,591 359 16,436 (3,122) 13,673
Issuance of stock 10 1 22 - 23
Net earnings
for the year * - - - 2,518 2,518
--------- ------ --------- --------- --------
BALANCE, JULY 31, 2001 3,601 360 16,458 (604) 16,214
Issuance of stock 18 2 75 - 77
Repurchase of stock (43) (4) (185) (189)
Net earnings
for the year * - - - 1,613 1,613
--------- ------ --------- --------- --------
BALANCE, JULY 31, 2002 3,576 $ 358 $16,348 $ 1,009 $17,715
========= ====== ========= ========= ========
* There were no items of other comprehensive income during the year.
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDED
JULY 31, 2002, 2001 AND 2000
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Business - Williams Industries, Incorporated operates in the commercial,
industrial, institutional, governmental and infrastructure construction
markets, primarily in the Mid-Atlantic region of the United States.
The Company's main lines of business include: steel, precast concrete and
miscellaneous metals erection and installation; crane rental, heavy and
specialized hauling and rigging; fabrication of welded steel plate girders,
rolled steel beams, steel decking, and light structural and other metal
products. Through July 31, 2001, the Company was also in the business of
selling insurance, safety and related services.
Basis of Consolidation - The consolidated financial statements include
the accounts of Williams Industries, Inc. and all of its majority-owned
subsidiaries (the "Company").
All material intercompany balances and transactions have been eliminated
in consolidation.
Unconsolidated Affiliates - Through July 31, 2000, the Company's 42.5%
ownership interest in S.I.P., Inc. of Delaware was accounted for using the
equity method. Under the equity method, original investments are recorded at
cost and adjusted by the Company's share of distributions and undistributed
earnings and losses of the investee.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and Amortization - Property and equipment are recorded at
cost and are depreciated over the estimated useful lives of the assets using
the straight-line method of depreciation for financial statement purposes,
with estimated lives of 25 years for buildings and 3 to 12 years for
equipment, vehicles, tools, furniture and fixtures. Leasehold improvements are
amortized over the lesser of 10 years or the remaining term of the lease.
Straight-line and accelerated methods of depreciation are used for income tax
purposes.
Ordinary maintenance and repair costs are charged to expense as incurred
while major renewals and improvements are capitalized. Upon the sale or
retirement of property and equipment, the cost and accumulated depreciation
are removed from the respective accounts and any gain or loss is recognized.
Impairment of Long-Lived Assets - In accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
evaluates the potential impairment of long-lived assets based on projections
of undiscounted cash flows whenever events or changes in circumstances
indicate that the carrying value amount of an asset may not be fully
recoverable. Management believes no material impairment of its assets exists
at July 31, 2002.
Earnings Per Common Share - "Earnings Per Common Share-Basic" is based on
the weighted average number of shares outstanding during the year. "Earnings
Per Common Share-Diluted" is based on the shares outstanding and the weighted
average of common stock equivalents outstanding which consisted of stock
options during the years ended July 31, 2002, 2001 and 2000.
Revenue Recognition - Revenues and earnings from long-term contracts are
recognized for financial statement purposes using the percentage-of-completion
method; therefore, revenue includes that percentage of the total contract
price that the cost of the work completed to date bears to the estimated final
cost of the contract. Estimated contract earnings are reviewed and revised
periodically as the work progresses, and the cumulative effect of any change
in estimate is recognized in the period in which the estimate changes. When a
loss is anticipated on a contract, the entire amount of the loss is provided
for in the current period. Contract claims are recorded at estimated net
realizable value.
Revenues and earnings on non-contract activities are recognized when
services are provided or goods delivered.
Overhead - Overhead includes the variable, non-direct costs such as shop
salaries, consumable supplies, and vehicle and equipment costs incurred to
support the revenue generating activities of the Company.
Inventories - Materials inventory consists of structural steel, steel
plates, and galvanized steel coils. Costs of materials inventory is accounted
for using either the specific identification method or average cost. The cost
of supplies inventory is accounted for using the first-in, first-out, (FIFO)
method.
Allowance for Doubtful Accounts - Allowances for uncollectible accounts
and notes receivable are provided on the basis of specific identification.
Income Taxes - Williams Industries, Inc. and its subsidiaries file
consolidated federal income tax returns. The provision for income taxes has
been computed under the requirements of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Under SFAS No. 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and the tax basis of assets and liabilities,
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Cash and Cash Equivalents - For purposes of the Statements of Cash Flows,
the Company considers all highly liquid instruments and certificates of
deposit with original maturities of less than three months to be cash
equivalents. From time to time, the Company maintains cash deposits in excess
of federally insured limits. Management does not consider this to represent a
significant risk.
Restricted Cash - The Company's restricted cash is invested in short-
term, highly liquid investments. The carrying amount approximates fair value
because of the short-term maturity of these investments.
Certificates of Deposit - The Company's certificates of deposit have
original maturities greater than 90 days, but not exceeding one year.
Stock-Based Compensation - The Company has elected to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its employee stock
options. Under APB 25, because the exercise price of employee stock options
equals the market price of the underlying stock on the date of the grant, no
compensation expense is recorded. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation."
Reclassifications - Certain reclassifications of prior years' amounts
have been made to conform with the current years' presentation.
RECENT ACCOUNTING PRONOUNCEMENT:
During the Company's year ended July 31, 2002, the Accounting Standards
Board issued SFAS's No.144, Accounting for the Impairment or Disposal of Long
Lived Assets); No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No.13, and Technical Corrections; and No. 146,
Accounting for Costs Associated with Exit or Disposal Activities.
SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supercedes SFAS
No. 121 and requires a loss be recognized only if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows and that
the impairment be measured as the difference between the carrying amount and
the fair value of the asset. This statement also requires (a) that a long-
lived asset to be abandoned, exchanged for a similar productive asset, or
distributed to the owners in a spin-off be considered held and used until it
is disposed and (b) that long-lived assets to be disposed of by sale due to
discontinued operations are no longer measured on a net realizable value
basis, and future operations losses are no longer recognized before they
occur. The Company will comply with this Standard and does not believe it will
have any impact on its financial statements.
SFAS No. 145, among other clarifications, eliminates an inconsistency
between required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that are economically similar to
sale-leaseback transactions. Management will follow the standards for all
future sale-leaseback transactions and extinguishment of debt transactions and
does not believe the adoption of this standard will have any impact on its
financial statements.
In addition, SFAS No. 145 rescinds previous standards that required that
material extinguishments of debt be reported as extraordinary items in the
Statement of Income. Under SFAS No. 145, such extinguishments must be treated
as operating gains and losses unless circumstances are such that they would
otherwise qualify as extraordinary under APB Opinion No. 30. Such
circumstances are expected to rarely exist. Management does not believe the
adoption will have any impact on its financial statements.
SFAS No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a restructuring)." Under Issue No. 94-3, a liability for an
exit cost as defined in Issue 94-3 was recognized at the date of an entity's
commitment to an exit plan. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair market value only when the liability is incurred and not
when management has completed the plan. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December
31, 2002 and the Company expects to adopt this new Standard with its fiscal
year beginning August 1, 2002. The Company does not have any plans associated
with an exit or disposal of an activity and, therefore does not believe the
adoption of this standard will have an impact on its financial statements
1. CONTRACT CLAIMS
The Company maintains procedures for review and evaluation of performance
on its contracts. Occasionally, the Company will incur certain excess costs
due to circumstances not anticipated at the time the project was bid. These
costs may be attributed to delays, changed conditions, defective engineering
or specifications, interference by other parties in the performance of the
contracts, and other similar conditions for which the Company believes it is
entitled to reimbursement by the owner, general contractor, or other
participants. These claims are recorded at the estimated net realizable
amount after deduction of estimated costs of collection. There was one
contract claim receivable of approximately $490,000 at July 31, 2002 and 2001,
respectively.
2. RELATED-PARTY TRANSACTIONS
Mr. Frank Williams, Jr., who owns or controls approximately 36% of the
Company's stock at July 31, 2002, and is a director of the Company, also owns
a controlling or substantial interest in the outstanding stock of Williams
Enterprises of Georgia, Inc., Williams and Beasley Company and Structural
Concrete Products, LLC. Each of these entities did business with the Company
during the three years ended July 31, 2002. Net billings to and (from) these
entities were $1,295,000, $1,320,000 and ($997,000) for the years ended July
31, 2002, 2001 and 2000,respectively. At July 31, 2002, 2001 and 2000, the
Company had net accounts receivable balances from these entities of
$1,777,000, $863,000 and $490,000, respectively.
Mr. Williams, Jr. is a former director of Concrete Structures, Inc.
(CSI), a former subsidiary of the Company, which was operating under the
supervision of the U.S. Bankruptcy Court for the Eastern District of Virginia,
Richmond Division. During the years ended July 31, 2002, 2001, and 2000, there
were no billings to this entity. During the year ended July 31, 2001, the
Company agreed to accept approximately $130,000 as full and final payment on a
note receivable from CSI. Since the note was fully reserved, this amount was
recognized as Other Income during the year ended July 31, 2001.
During the years ended July 31, 2002, 2001 and 2000, the Company borrowed
$0, $850,000 and $950,000 from Mr. Williams, Jr., which was repaid. The money
was used to fund short-term cash flow requirements of the Company.
Amounts due to current and former directors of the Company amounted to
approximately $144,000, $135,000 and $123,000 at July 31, 2002, 2001 and 2000,
respectively. These are included in Notes payable and Other accrued expenses
on the Consolidated Balance Sheet.
On October 1, 2001, the Company sold its entire 64% interest in
Construction Insurance Agency, Inc. (CIA) to George R. Pocock, an officer of
the Company, for $300,000 and realized a gain of $82,646, which is included in
Other Income in the Consolidated Statements of Earnings. The Company received
$100,000 in cash and a $200,000 note bearing interest at 7.5%, which is due
October 1, 2005 and is secured by the CIA stock. The note is to be paid in 47
equal installments of $2,374 including interest and principal, and a single
payment of $138,812. At July 31, 2002, the balance due on the note was
$176,133. Billings from CIA were $350,000 for the year ended July 31, 2002. In
addition, the sale agreement included a provision for the retention of the
purchaser's services to provide continuing risk management services to the
Company for a period of four years. The Company maintains the right to
terminate this provision of the sale contract at any time providing a 90 day
notice. For the years ending July 31, 2003, 2004 and 2005, the Company has
agreed to pay $64,000, $63,000 and $61,000, respectively, for such risk
management services.
During the year ended July 31, 2002, the Company entered into an
agreement with Alabama Structural Products, Inc., a subsidiary of a company
owned by Frank E. Williams, Jr., a Director of the Company, to lease a 21,000
square foot building in Gadsden, AL. The lease payment is $2,500 per month.
During the year ended July 31, 2000 the Company entered into an agreement
with the Williams Family Limited Partnership to lease approximately 17 acres
of unimproved real estate adjoining its Prince William County, Virginia
properties. The initial lease term is for five years, with an extension option
for an additional five years. The base annual rent will be calculated on the
capitalized cost of the property times the partnership's costs of funds
(margin rate) plus one percent, which is currently $4,666 per month. The lease
contains an option to purchase up to ten acres at the "original pro-rata cost"
of $567,500. The Company recognized lease expense of $61,000 and $84,000 in
the years ended July 31, 2002 and 2001, respectively.
The Company believes these related party transactions are consistent with
the terms and conditions that would exist with unrelated parties.
3. CONTRACTS IN PROCESS
Comparative information with respect to contracts in process consisted of
the following at July 31(in thousands):
2002 2001
--------- ---------
Expenditures on uncompleted contracts $ 23,954 $ 21,819
Estimated earnings 10,911 10,105
--------- ---------
34,865 31,924
Less: Billings (37,460) (32,333)
--------- ---------
$ (2,595) $ (409)
========= =========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,509 $ 2,493
Billings in excess of costs and estimated
earnings on uncompleted contracts (4,104) (2,902)
--------- ---------
$(2,595) $ (409)
========= =========
Billings are based on specific contract terms that are negotiated on an
individual contract basis and may provide for billings on a unit price,
percentage of completion or milestone basis.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31 (in
thousands):
2002 2001
----------------------- -----------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------- ------------- ------- -------------
Land and buildings $ 5,886 $ 2,530 $ 5,697 $ 2,321
Automotive equipment 1,943 1,523 1,929 1,415
Cranes and heavy equipment 8,864 6,041 8,222 5,388
Tools and equipment 1,309 784 1,331 669
Office furniture and fixtures 308 193 329 220
Leased property under
capital leases 600 460 600 400
Leasehold improvements 1,299 707 1,120 676
------- ------- ------- -------
$20,209 $12,238 $19,228 $11,089
======= ======= ======= =======
5. NOTES AND LOANS PAYABLE
Notes and loans payable consisted of the following at July 31 (in
thousands):
2002 2001
Collateralized: -------- --------
Loan payable to United Bank; collateralized by
real estate, inventory and equipment; monthly
payments of principal plus interest at 8.7%
fixed; due April 1, 2014 $2,148 $2,256
Loan payable to United Bank; collateralized by
real estate, inventory and equipment; monthly
payments of principal plus interest at 8.7%
fixed; due April 1,2009 470 522
Total Lines of Credit; collateralized by real
estate, inventory and equipment; $2,500 available
at July 31, 2002 with monthly payments of interest
only at prime plus 0.50%, due in 2004; $4,600
available at July 31, 2001 with monthly payments
of interest only at prime plus 1.25%; and monthly
payments of principal and interest at: prime plus
1.25%, and 6.75% to 7.75% 2,110 2,248
Obligations under capital leases; collateralized by
leased property; interest from 8.34% to 18.81% for
2002 (one $8,000 capital lease at 18.81%); and
8.34% to 15.1% for 2001, payable in varying
monthly installments through 2005 380 540
Installment obligations collateralized by machinery
and equipment or real estate; interest ranging to
11.3% for 2002 and for 2001; payable in varying
monthly installments of principal and interest
through 2008 2,698 1,146
Industrial Revenue Bond; collateralized by a letter
of credit which in turn is collateralized by real
estate; principal payable in varying monthly
installments through 2012; variable interest based
on third party calculations, 1.83% at July 31, 2002 960 1,030
Unsecured:
Related party note; interest at 10.0%
for 2002 and 2001 88 88
Installment obligations with interest from 4.42% to
10.5% for 2002 and 6.0% to 12.1% for 2001; due in
varying monthly installments of principal and
interest through 2005 915 857
-------- --------
Total Note Payable 9,769 8,687
Notes Payable - Long Term (7,649) (7,049)
-------- --------
Current Portion $2,120 $1,638
======== ========
Contractual maturities of the above obligations at July 31, 2002 are as
follows:
Year Ending July 31: Amount
-------------------- --------
2003 $ 2,120
2004 3,342
2005 980
2006 675
2007 458
2008 and after 2,194
--------
TOTAL $9,769
========
As of July 31, 2002 and 2001, the carrying amounts reported above for
long term notes and loans payable approximate fair value based upon interest
rates for debt currently available with similar terms and remaining
maturities.
6. INCOME TAXES
As a result of tax losses incurred in prior years, the Company at July
31, 2002 has tax loss carryforwards amounting to approximately $4.3 million.
These loss carryforwards will expire from 2008 through 2011. Under SFAS No.
109, the Company is required to recognize the value of these tax loss
carryforwards if it is more likely than not that they will be realized. The
Company utilized, for federal income tax purposes, $2.8 million of its tax
loss carryforwards during the year ended July 31, 2002. The Company also
utilized approximately $1.2 million and $3.4 million of the benefit available
from its tax loss carryforwards during the years ended July 31, 2001 and 2000,
respectively.
The components of the income tax provision (benefit) are as follows for
the years ended July 31:
2002 2001 2000
------ ------ ------
(In thousands)
Current provision (benefit)
Federal $ - $(48) $ -
State 141 63 45
------ ------ ------
Total current provision 141 15 45
------ ------ ------
Deferred provision (benefit)
Federal 654 473 713
State 167 (83) 134
------ ------ ------
Total deferred provision 821 390 847
------ ------ ------
Total income tax provision $962 $405 $892
====== ====== ======
The differences between the tax provision calculated at the statutory
federal income tax rate and the actual tax provision for each year ended July
31 are shown in the table directly below.
2002 2001 2000
------ ------ ------
(In thousands)
Tax at statutory federal rate $ 814 $ 959 $ 791
State income taxes 208 240 101
Change in valuation reserve (60) (794) -
Actual income tax provision $ 962 $ 405 $ 892
The primary components of temporary differences which give rise to the
Company's net deferred tax asset are shown in the following table.
As of July 31, 2002 2001
------- -------
(In thousands)
Deferred tax assets:
Reserve and other nondeductible accruals $2,201 $1,781
Net operating loss & capital loss
carryforwards 1,897 3,116
Valuation reserve (785) (982)
------- -------
Total deferred tax asset 3,313 3,915
------- -------
Deferred tax liability:
Property and equipment (771) (453)
Inventories (296) (395)
------- -------
Total deferred tax liability (1,067) (848)
------- -------
Net deferred tax asset $2,246 $3,067
======= =======
7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During the year ended July 31, 2001, the Company purchased 584 shares or
approximately 56% of the outstanding stock of S.I.P. for $1,302,000, bringing
the total investment to approximately $2,345,000 through July 31, 2001, which
gave the Company 98% ownership and full control of its operations. During the
year ended July 31, 2002, the Company purchased the remaining 2%. The
aggregate investment in S.I.P. is $2,389,000.
In addition, the stock purchase agreements provide for additional
payments to be made annually based upon the net earnings of S.I.P through July
31, 2006. For the year ended July 31, 2001, the Company made payments to the
previous owners, including the current president of S.I.P., of approximately
$42,000.
The purchase has been accounted for and any additional payments will be
accounted for under the purchase method of accounting. S.I.P's financial
information has been consolidated in the accompanying Consolidated Balance
Sheet as of July 31, 2002 and 2001, and the related Consolidated Statements of
Earnings, Equity and Cash Flows for the years then ended.
A pro-forma presentation of the operating results of the Company, had
S.I.P. been consolidated at the beginning of the year ended July 31, 2000, is
as follows (in thousands):
Total Revenue $47,760
Net Earnings $ 1,613
Earnings per common share - basic and diluted $ 0.45
8. DISPOSITION OF ASSETS
During the year ended July 31, 2002, the Company sold its entire 64%
interest in Construction Insurance Agency, Inc. to George R. Pocock, an
officer of the Company. The sales price was $300,000 and the Company recorded
a gain of $83,000, which is included in "Other Income" on the Consolidated
Statement of Earnings.
During the year ended July 31, 2001, the Company entered into an
agreement to sell and lease back one of its heavy lift cranes. The primary
purpose of this transaction was to improve cash flow. This sale/leaseback
transaction resulted in a loss of approximately $28,000 which was recognized
during the period. Two older heavy lift cranes were sold for a net gain of
approximately $50,000.
Also during 2001, the Company sold 2.5 acres of land in Bedford, VA for
$37,000. The sale resulted in a gain of approximately $36,000, which is
included in "Other Income" for the year ended July 31, 2001.
During the year ended July 31, 2000, the Company entered into an
agreement to sell and lease back one of its heavy lift cranes. The primary
purpose of this transaction was to improve cash flow. This sale/leaseback
transaction resulted in a deferred gain of approximately $12,000, which is
being amortized over the life of the lease.
In January 1998, the Company sold its 2.25 acre headquarters property in
Fairfax County, Virginia for $1,430,000. The Company also entered into a
lease for several buildings on the property. The transaction resulted in a
gain of approximately $560,000 of which $71,000 and $115,000 is included in
"Other Income" in the Consolidated Statements of Earnings for the years ended
July 31, 2001 and 2000, respectively.
9. COMMON STOCK OPTIONS
At the November 1996 annual meeting, the shareholders approved the
establishment of a new Incentive Stock Option Plan (1996 Plan) to provide an
incentive for maximum effort in the successful operation of the Company and
its subsidiaries by their officers and key employees and to encourage
ownership of the common shares of the Company by those persons. Under the
1996 Plan, 200,000 shares were reserved for issue.
The Company also issues options to non-employee directors on an annual
basis. The shares issued upon exercise of these options are issued pursuant to
Rule 144 of the 1933 Securities Act.
The options that have been approved and issued by the Company's Board of
Directors for the last five years are as follows:
1998 1999 2000 2001 2002 Total
------- ------- ------- ------- ------- -------
Board of Directors/
Section 144 Issue 12,000 17,500 12,500 12,500 12,500 67,000
Officers/Key Employees
1996 Plan 12,000 30,000 18,500 19,000 22,500 102,000
------- ------- ------- ------- ------- -------
24,000 47,500 31,000 31,500 35,000 169,000
======= ======= ======= ======= ======= =======
The stock options granted vest immediately, expire five years from the
date of grant and have exercise prices which range from the quoted market
value to 110% of the quoted market value on the date of the grant. The Company
accounts for its options under the intrinsic value method of APB No. 25. Had
compensation expense for the Company's stock-based compensation plans been
determined based on the fair value at grant dates for awards under those
plans, consistent with the method of accounting under SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net earnings and
earnings per share would have been:
2002 2001 2000
Net Earnings (in thousands) ------ ------ ------
As reported $1,613 $2,518 $1,487
Pro forma 1,525 2,476 1,416
Earnings per share - Basic
As reported $ 0.45 $ 0.70 $ 0.41
Pro forma 0.43 0.69 0.39
Earnings per share - Diluted
As reported $ 0.45 $ 0.70 $ 0.41
Pro forma 0.43 0.69 0.39
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Year ended July 31, 2002 2001 2000
------ ------ ------
Dividend yield 0.00% 0.00% 0.00%
Volatility rate 57.56% 55.80% 84.70%
Discount rate 2.89% 5.40% 6.00%
Expected term (years) 5 5 5
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, the existing models may not be a reliable single measure of the fair
value of its stock options.
Stock option activity and price information follows:
Weighted Average
Number Exercise
of Shares Price
--------- ---------
Balance at:
August 1, 1997 - $ -
Granted 24,000 $ 4.30
Exercised - $ -
Forfeited - $ -
---------
Balance at:
July 31, 1998 24,000 $ 4.30
Granted 47,500 $ 3.57
Exercised - $ -
Forfeited - $ -
---------
Balance at:
July 31, 1999 71,500 $ 3.82
Granted 31,000 $ 3.30
Exercised - $ -
Forfeited - $ -
---------
Balance at:
July 31, 2000 102,500 $ 3.66
Granted 31,500 $ 2.82
Exercised -
Forfeited -
---------
Balance at:
July 31, 2001 134,000 $ 3.46
Granted 35,000 $ 4.97
Exercised -
Forfeited -
---------
Balance at:
July 31, 2002 169,000 $ 3.77
=========
Options exercisable
July 31, 2002 169,000
=========
10. SEGMENT INFORMATION
The Company and its subsidiaries operate principally in three segments
within the construction industry: construction, manufacturing and sales and
service. Operations in the construction segment involve structural steel
erection, installation of steel and other metal products, and installation of
precast and prestressed concrete products. Operations in the manufacturing
segment involve fabrication of steel plate girders, rolled beams, and light
structural metal products. Operations in the sales and service segment involve
the leasing and sale of heavy construction equipment.
Information about the Company's operations in its different segments for
the years ended July 31, is as follows (in thousands):
2002 2001 2000
-------- -------- --------
Revenue:
Construction 16,024 14,409 14,299
Manufacturing 34,410 27,272 21,681
Sales and service 7,908 11,028 8,435
Other revenue 281 1,023 782
-------- -------- --------
58,623 53,732 45,197
Inter-company revenue:
Construction (1,543) (2,023) (1,479)
Manufacturing (432) (62) (360)
Sales and service (144) (1,139) (482)
-------- -------- --------
Total revenue 56,504 50,508 42,876
======== ======== ========
Operating profits (loss):
Construction 983 549 945
Manufacturing 3,147 2,695 1,617
Sales and service (939) 392 224
-------- -------- --------
Consolidated operating profits 3,191 3,636 2,786
General corporate income, net 127 204 451
Interest Expense (715) (840) (911)
Income tax provision (962) (405) (892)
Equity in earnings (losses) of
unconsolidated affiliates - - 120
-------- -------- --------
Corporate earnings before
minority interests 1,641 2,595 1,554
======== ======== ========
Assets:
Construction 8,737 8,950 9,122
Manufacturing 22,572 16,870 12,045
Sales and service 3,011 4,141 4,800
General corporate 7,936 7,781 9,039
-------- -------- --------
Total assets 42,256 37,742 35,006
======== ======== ========
Accounts receivable
Construction 6,604 5,626 6,494
Manufacturing 9,402 5,998 4,823
Sales and service 1,571 2,031 1,591
General corporate 154 597 381
-------- -------- --------
Total accounts receivable 17,731 14,252 13,289
======== ======== ========
Capital expenditures:
Construction 201 114 170
Manufacturing 689 543 557
Sales and service 106 188 1,040
General corporate 396 152 182
-------- -------- --------
Total capital expenditures 1,392 997 1,949
======== ======== ========
Depreciation and Amortization:
Construction 249 243 102
Manufacturing 620 556 346
Sales and service 485 638 625
General corporate 199 152 112
-------- -------- --------
Total depreciation
and amortization 1,553 1,589 1,185
======== ======== ========
The Company utilizes revenues, operating profits and assets employed as
measures in assessing segment performance and deciding how to allocate
resources.
Operating profit is total revenue less operating expenses. In computing
operating profit (loss), the following items have not been added or deducted:
general corporate expenses, interest expense, income taxes, equity in the
earnings (loss) of unconsolidated affiliates and minority interests.
Identifiable assets by segment are those assets that are used in the
Company's operations in each segment. General corporate assets include
investments, some real estate, and certain other assets not allocated to
segments.
The majority of revenues have historically been derived from projects on
which the Company is a subcontractor of a material supplier, other contractor
or subcontractor. Where the Company acts as a subcontractor, it is invited to
bid by the firm seeking construction services or materials; therefore,
continuing favorable business relations with those firms that frequently bid
on and obtain contracts requiring such services or materials are important to
the Company. Over a period of years, the Company has established such
relationships with a number of companies. During the years ended July 31,
2000, 2001 and 2002, there was no single customer that accounted for more than
10% of consolidated revenues.
The accounts receivable from the construction segment at July 31, 2002,
2001, and 2000 were due from 35, 43, and 42 unrelated customers, of which 6,
6, and 7 customers accounted for $4,434,000, $3,776,000 and $3,809,000,
respectively. The amounts due from these customers is expected to be collected
in the normal course of business.
The accounts receivable from the manufacturing segment at July 31, 2002,
2001, and 2000 were due from 105, 110 and 21 unrelated customers, of which 8,
7 and 5 customers accounted for $5,162,000, $2,404,000 and $4,939,000,
respectively. The amounts due from these customers is expected to be collected
in the normal course of business.
The Company does not normally require its customers to provide collateral
for outstanding receivable balances.
11. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution retirement savings plan covering
substantially all employees. The Plan provides for optional Company
contributions as a fixed percentage of salaries. The Company contributes 3% of
each eligible employee's salary to the plan. During the years ended July 31,
2001, 2000 and 1999, expenses under the plan amounted to approximately
$381,000, $312,000 and $292,000, respectively.
12. COMMITMENTS AND CONTINGENCIES
Industrial Revenue Bond
In the year ended July 31, 2000, the Company renegotiated its Industrial
Revenue Bond with the City of Richmond backed by a Letter of Credit issued by
Wachovia Bank, secured by the Company's Richmond manufacturing facility. The
Company is current in all of its obligations under the IRB and the Company is
in compliance with the covenants contained in the agreement. As of July 31,
2002, the outstanding balance was $960,000. Principal payments are due in
increasing amounts through maturity in 2012.
The Company is party to various claims arising in the ordinary course of
its business. Generally, claims exposure in the construction services
industry consists of workers' compensation, personal injury, products'
liability and property damage. The Company believes that its insurance
accruals, coupled with its liability coverage, is adequate coverage for such
claims.
Leases
The Company leases certain property, plant and equipment under operating
lease arrangements, including leases with a related party discussed in Note 2,
that expire at various dates though 2011. Lease expenses approximated
$2,048,000, $1,450,000 and $1,245,000 for the years ended July 31, 2002, 2001,
and 2000, respectively. Future minimum lease commitments required under non-
cancelable leases are as follows (in thousands):
Year Ending July 31: Amount
------------------- -------
2003 $2,067
2004 1,922
2005 1,784
2006 1,587
2007 1,067
Thereafter 1,529
Letters of Credit
The Company's banks have issued $400,000 of letters of credit as
collateral for the Company's workers' compensation program.
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended July 31, 2002, 2001 and 2000, the Company issued
several notes payable to acquire assets with a cost of $150,000, $198,000 and
$1,017,000, respectively. These amounts are not included in the accompanying
Consolidated Statements of Cash Flows because the proceeds went directly to
the seller of the assets.
2002 2001 2000
------- ------- -------
Income Taxes $ 59 $ 143 $ 52
Interest $ 710 $ 871 $ 424
During the year ended July 31, 2001, the Company purchased approximately
56% of the outstanding stock of S.I.P., Inc. of Delaware. A summary of the
transaction of the acquisition is as follows:
Assets received:
- --------------------------
Current Assets $ 1,471
Net Property & Equipment 340
Other Assets 6
-------
Total Assets $ 1,817
-------
Liabilities Assumed:
Current Liabilities $ (513)
Long-term Liabilities ( 2)
-------
Total Liabilities $ (515)
-------
Purchase Amount $(1,302)
=======
During the year ended July 31, 2002, the Company sold its 64% interest in
Construction Insurance Agency, Inc.. A summary of the sale is as follows:
Assets sold:
- ------------------------
Current assets $ 827
Net property and equipment 43
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Total assets $ 870
=======
Liabilities assumed by purchaser:
- --------------------------------
Current liabilities $ 523
Long-term liabilities 16
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Total liabilities $ 539
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Net equity (329)
Less: Minority share (112)
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Net investment (217)
Sales price 300
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Gain on sale $ 83
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14. EARNINGS PER COMMON SHARE
The Company calculates earnings per share in accordance with SFAS No.
128, "Earnings Per Share" (EPS). Earnings per share were as follows:
Year-ended July 31, 2002 2001 2000
------ ------ ------
EPS - basic $0.45 $0.70 $0.41
EPS - diluted $0.45 $0.70 $0.41
The following is a reconciliation of the amounts used in calculating the
basic and diluted earnings per share (in thousands)
Year-ended July 31, 2002 2001 2000
------ ------ ------
Earnings - (numerator)
Net earnings - basic $1,613 $2,518 $1,487
====== ====== ======
Shares - (denominator)
Weighted average shares
outstanding - basic 3,578 3,596 3,589
Effect of dilutive securities:
Options 10 11 -
------ ------ ------
$3,588 $3,607 $3,589
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15. REDEMPTION OF STOCK
In January 2001, the Company's Board of Directors authorized the Company
to repurchase 175,000 shares of it's own stock. As of July 31, 2002, the
Company had repurchased 43,000 shares for $189,000.
Williams Industries, Inc.
Schedule II - Valuation and Qualifying Accounts
Years Ended July 31, 2002, 2001 and 2000
($000 Omitted)
Column A Column B Column C Column D Column E
- ------------------- ----------- -------------------- ----------- ----------
Additions
Charged
Balance at Charged to to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
July 31, 2002:
Allowance for
doubtful accounts $ 1,075 $ 0 $ 1,063(3) $(550)(1) $ 1,406
(182)(2)
July 31, 2001:
Allowance for
doubtful accounts 2,862 100 1,264(3) (371)(1) 1,075
(2,780)(2)
July 31, 2000:
Allowance for
doubtful accounts 1,289 28 1,868(3) (26)(1) 2,862
(297)(2)
(1) Collection of accounts previously reserved.
(2) Write-off from reserve accounts deemed to be uncollectible.
(3) Reserve of billed extras charged against corresponding revenue account.