UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended January 31, 2005
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 (IRS Employer
incorporation or organization) Identification No.)
8624 J.D. Reading Drive, Manassas, Virginia 20109
(Address of principal executive offices)
P.O. Box 1770, Manassas, VA 20108
(Mailing address of principal executive offices)
(703) 335-7800
(Registrant's telephone number, including area code)
Not Applicable
(Former names, former addresses and former fiscal year,
if change since last report)
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 whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Exchange Act).
YES NO X
January 31, 2005, the Registrant had outstanding 3,649,216
shares of Common Stock.
WILLIAMS INDUSTRIES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 2005
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets - January 31,
2005 and July 31, 2004
(Unaudited)..................................... 1
Condensed Consolidated Statements of Operations -
Three and Six months ended January 31, 2005 and 2004
(Unaudited)................................... 2
Condensed Consolidated Statements of Cash Flows -
Six months ended January 31, 2005 and 2004
(Unaudited)..................................... 3
Notes to Condensed Consolidated Financial Statements
(Unaudited)..................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS 17
ITEM 4. CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................ 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................... 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................... 19
ITEM 5. OTHER INFORMATION..................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 19
CERTIFICATIONS AND SIGNATURES.................................. 20
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands except share data)
ASSETS
--------------- January 31, July 31,
2005 2004
CURRENT ASSETS ----------- -----------
Cash and cash equivalents $ 304 $ 1,343
Restricted cash 481 1,003
Accounts receivable, net 21,718 17,458
Inventory 11,484 5,133
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,935 1,161
Prepaid and other assets 2,778 1,413
----------- -----------
Total current assets 38,700 27,511
----------- -----------
PROPERTY AND EQUIPMENT, AT COST 26,694 24,601
Accumulated depreciation (14,422) (13,486)
----------- -----------
Property and equipment, net 12,272 11,115
----------- -----------
OTHER ASSETS
Deferred income taxes 2,589 3,089
Other 335 419
Total other assets 2,924 3,508
----------- -----------
TOTAL ASSETS $ 53,896 $ 42,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------
CURRENT LIABILITIES
Current portion of notes payable $ 7,291 $ 5,390
Accounts payable 11,093 8,099
Billings in excess of costs and estimated
earnings on uncompleted contracts 12,161 3,633
Deferred income 14 19
Other liabilities 2,782 3,391
----------- -----------
Total current liabilities 33,341 20,532
----------- -----------
LONG-TERM DEBT
Notes payable, less current portion 6,051 5,229
----------- -----------
Total Liabilities 39,392 25,761
----------- -----------
MINORITY INTERESTS 192 180
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock -3,649,016 and 3,633,655 shares
issued and outstanding 365 363
Additional paid-in capital 16,590 16,537
Accumulated deficit (2,643) (707)
----------- -----------
Total stockholders' equity 14,312 16,193
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 53,896 $ 42,134
=========== ===========
See Notes To Condensed Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($000 omitted)
Three Months Ended Six Months Ended
January 31, January 31,
2005 2004 2005 2004
REVENUE -------- -------- -------- --------
Construction $ 4,454 $ 5,447 $ 9,543 $ 9,713
Manufacturing 8,003 6,525 15,376 15,823
Other 69 55 137 109
-------- -------- -------- --------
Total revenue 12,526 12,027 25,056 25,645
-------- -------- -------- --------
DIRECT COSTS
Construction 3,323 3,975 6,911 7,058
Manufacturing 6,396 4,830 12,108 10,806
-------- -------- -------- --------
Total direct costs 9,719 8,805 19,019 17,864
-------- -------- -------- --------
GROSS PROFIT 2,807 3,222 6,037 7,781
-------- -------- -------- --------
EXPENSES
Overhead 1,583 1,832 3,255 3,458
General and administrative 1,840 1,724 3,594 3,629
Depreciation 518 496 1,053 979
Interest 200 171 387 334
-------- -------- -------- --------
Total expenses 4,141 4,223 8,289 8,400
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES, MINORITY
INTERESTS AND EXTRAORDINARY ITEM (1,334) (1,001) (2,252) (619)
INCOME TAX PROVISION (BENEFIT) 850 (338) 500 (185)
-------- -------- -------- --------
LOSS BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM (2,184) (663) (2,752) (434)
Minority interests (3) (4) (12) (7)
-------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM $(2,187) $ (667) $(2,764) $ (441)
EXTRAORDINARY ITEM
Gain on extinguishment of debt 828 - 828 -
-------- -------- -------- --------
NET LOSS $(1,359) $ (667) $(1,936) $ (441)
======== ======== ======== ========
NET LOSS PER COMMON SHARE:
BASIC:
Loss before extraordinary item (0.59) (0.18) (0.75) (0.12)
Extraordinary item 0.22 0.00 0.22 0.00
-------- -------- -------- --------
LOSS PER COMMON SHARE - BASIC $ (0.37) $ (0.18) $ (0.53) $ (0.12)
======== ======== ======== ========
DILUTED:
Loss before extraordinary item (0.59) (0.18) (0.75) (0.12)
Extraordinary item 0.22 0.00 0.22 0.00
-------- -------- -------- --------
LOSS PER COMMON SHARE - DILUTED $ (0.37) $ (0.18) $ (0.53) $ (0.12)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING: BASIC AND DILUTED 3,639,554 3,596,932 3,637,125 3,591,912
--------- --------- --------- ---------
See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Six Months Ended
January 31,
2005 2004
---------- ----------
NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES $ (2,129) $ 638
NET CASH USED IN INVESTING ACTIVITIES (1,688) (1,957)
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,778 1,390
---------- ----------
NET (DECREASE) INCREASE
N CASH AND CASH EQUIVALENTS (1,039) 71
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,343 2,023
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 304 $ 2,094
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income Taxes $ 6 $ 20
========== ==========
Interest $ 371 $ 330
========== ==========
See Notes To Condensed Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2005
1. INTERIM FINANCIAL STATEMENTS
This document includes unaudited interim financial statements that should
be read in conjunction with the Company's latest audited annual financial
statements. However, in the opinion of management, these financial statements
contain all adjustments, consisting only of normal recurring items, necessary
for a fair presentation of the Company's financial position as of January 31,
2005 and July 31, 2004, the results of its operations for the three and six
months ended January 31, 2005 and 2004, and its cash flows for the six months
ended January 31, 2005 and 2004, respectively. Operating results for the three
and six months ended January 31, 2005 are not necessarily indicative of the
results expected for the full fiscal year. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended July 31, 2004.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB No. 25) and related interpretations to
account for its stock option plans. The Company grants options for common
stock at an option price equal to the fair market value of the stock on the
date of grant. Accordingly, the Company does not record stock-based
compensation expense for these options. The Company's stock option plans are
more fully described in the Company's Annual Report on Form 10-K for fiscal
year ended July 31, 2004.
On January 20, 2005, the Company issued a total of 30,000 common stock options
to its non-employee directors (6,000 shares per director) at a price of $4.10
a share. The Company continues to use the intrinsic method of valuing stock
options, and as prescribed by APB No. 25, it does not expense the value of
stock options. The following table shows the effect as if compensation cost
for all options had been determined based on the fair market value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" as amended by SFAS No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure."
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
AS REPORTED
- -----------
Net Loss $(1,359) $ (667) $(1,936) $ (441)
(in thousands)
Net Loss Per Common
Share Basic and Diluted $ (0.37) $ (0.18) $ (0.53) $ (0.12)
Stock-based compensation (43) - (43) -
(in thousands)
PRO-FORMA
- -----------
Net Loss $(1,402) $ (667) $(1,979) $ (441)
(in thousands)
Net Loss Per Common Share
Basic and Diluted $ (0.38) $ (0.18) $ (0.54) $ (0.12)
2. RELATED-PARTY TRANSACTIONS
Mr. Frank E. Williams, Jr., who owned or controlled approximately 45% of
the Company's stock at January 31, 2005, and is a director of the Company,
also owns controlling interests in the outstanding stock of Williams
Enterprises of Georgia, Inc., and Structural Concrete Products, LLC.
Additionally, Mr. Williams, Jr. owns a substantial interest in Bosworth Steel
Erectors, Inc. Revenue earned and costs incurred with these entities during
the three and six months ended January 31, 2005 and 2004 are reflected below.
Amounts receivable and payable to these entities at January 31, 2005 and July
31, 2004 are also reflected below. Mr. Williams has loaned the Company
$200,000 on demand notes with interest at the prime rate.
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
(in thousands)
Revenue $ 228 $ 253 $ 503 $ 307
Billings to entities $ 88 $ (24) $ 552 $ 233
Costs and expenses incurred $ 91 $ 192 $ 214 $ 424
Balance Balance
January 31, July 31,
2005 2004
-------- --------
Accounts receivable $ 714 $ 650
Costs and estimated earnings in excess of
billings on uncompleted contracts $ - $ -
Notes Payables $ 200 $ 100
Accounts Payable $ 246 $ 77
Billings in excess of costs and estimated
earnings on uncompleted contracts $ 115 $ -
Accrued Interest Payable $ 5 $ -
At July 31, 2004, the Company was obligated to the estate of F. Everett
Williams, a former director of the Company, for a Demand Note Payable of
approximately $88,000. The note, at 10% simple interest, is not secured.
During the six months ended January 31, 2005, the Company borrowed an
additional $200,000 from the estate, payable on demand, with interest at the
prime rate. The Company recognized interest expense for the three and six
months ended January 31, 2005 and 2004 as follows:
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
(in thousands)
Interest Expense $ 4 $ 2 $ 7 $ 5
Balance Balance
January 31, July 31,
2005 2004
-------- --------
Note Payable $ 288 $ 88
Accrued interest payable $ 80 $ 73
The Company is obligated to the Williams Family Limited Partnership
(WFLP) under a lease agreement for real property with an option to purchase.
The partnership is controlled by individuals who own, directly or indirectly,
approximately 48% of the Company's stock. The lease, which had an original
term of five years and an extension option for five years, commenced February
15, 2000. The original term was extended one year to February 15, 2006. The
lease contains an option to purchase up to ten acres at the "original pro-rata
cost" of $567,500. The Company currently pays annual lease payments of
approximately $43,000. Additionally, during the three months ended January 31,
2005, the Company borrowed an additional $300,000 from the partnership. Lease
expense for the three and six months ended January 31, 2005 and 2004 is
reflected below. Additionally, at January 31, 2005 and July 31, 2004, Notes
Payable, Accounts Payable, representing lease payments, and Accrued Interest
payable are reflected below.
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
(in thousands)
Lease Expense $ 11 $ 19 $ 12 $ 44
Interest Expense $ 3 $ - $ 5 $ -
Balance Balance
January 31, July 31,
2005 2004
-------- --------
Notes Payable $ 495 $ 100
Accounts Payable $ 128 $ 116
Accrued Interest Payable $ 6 $ -
The Company sold its interest in Construction Insurance Agency (CIA) to
George R. Pocock, a former officer of the Company, in 2001 and recorded a note
receivable related to the sale. The note bears interest at 7.5%, is secured by
the CIA stock and is due in monthly installments of $2,374, including
principal and interest, with a final payment of $138,812 due on October 31,
2005. The balance due on the note at January 31, 2005 and July 31, 2004 was
$150,532 and $158,946, respectively. Costs incurred with CIA, for insurance
premiums and brokerage fees, for the three and six months ended January 31,
2005 and 2004 are reflected below. In addition, balances payable at January
31, 2005 and July 31, 2004 are also reflected below.
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
(in thousands)
Costs incurred $ 24 $ 16 $ 127 $ 104
Balance Balance
January 31, July 31,
2005 2004
-------- --------
Accounts Payable $ 114 $ 109
Directors Frank E. Williams, Jr. and Stephen N. Ashman are shareholders
and directors of a commercial bank from which the Company obtained a $240,000
note payable on December 23, 2002. The note is payable in sixty equal monthly
payments of principal of $4,000 plus interest at 5.75% or the current Prime
rate, whichever is greater. The note, which replaced an existing current note
payable that had a higher interest rate and payment, was negotiated at arms
length under normal commercial terms. Interest expense for the three and six
months ended January 31, 2005 and 2004 is reflected below. The balance
outstanding at January 31, 2005 and July 31, 2004 is also reflected below.
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
(in thousands)
Interest Expense $ 3 $ 3 $ 6 $ 6
Balance Balance
January 31, July 31,
2005 2004
-------- --------
Note Payable $ 140 $ 164
Directors
At January 31, 2005, the Company owed the non-employee members of the
Board of Directors $61,000 for director and consulting fees.
3. SEGMENT INFORMATION
Information about the Company's operations for the three and six months
ended January 31, 2005 and 2004 is as follows (in thousands):
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenues:
Construction $ 5,232 $ 6,258 $11,145 $11,157
Manufacturing 8,883 6,582 16,979 15,922
Other 225 225 458 433
-------- -------- -------- --------
14,340 13,065 28,582 27,512
-------- -------- -------- --------
Intersegment revenues:
Construction 778 811 1,602 1,444
Manufacturing 880 57 1,603 99
Other 156 170 321 324
-------- -------- -------- --------
1,814 1,038 3,526 1,867
-------- -------- -------- --------
Consolidated revenues:
Construction 4,454 5,447 9,543 9,713
Manufacturing 8,003 6,525 15,376 15,823
Other 69 55 137 109
-------- -------- -------- --------
Total Consolidated
Revenues $12,526 $12,027 $25,056 $25,645
-------- -------- -------- --------
(Loss) earnings before income taxes,
minority interest
and extraordinary item:
Construction $ (266) $ 134 $ (158) $ 185
Manufacturing (650) (695) (1,244) 46
Other (418) (440) (850) (850)
-------- -------- -------- --------
Total $(1,334) $(1,001) $(2,252) $ (619)
-------- -------- -------- --------
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 six months ended January
31, 2005, two customers, in the manufacturing segment, accounted for 26% and
15% of "total revenue", and 43% and 24% of "manufacturing revenue", while two
customers in the construction segment accounted 13% and 12% of "construction
revenues." For the six months ended January 31, 2004, one customer in the
manufacturing segment accounted for 13% of "total revenue" and two customers
accounted for 22% and 14% of "manufacturing revenue", while in the
construction segment, two customers accounted for 15% and 14% of "construction
revenue."
The Company's bridge girder subsidiary is dependent upon one supplier of
rolled steel plate. The Company maintains good relations with the vendor,
generally receiving orders on a timely basis at reasonable cost for this
market. If the relationship with this vendor were to deteriorate or the vendor
were to go out of business, the Company would have trouble meeting production
deadlines in its contracts, as the other major supplier of steel plate has
limited excess production available to "new" customers.
4. INVENTORIES
Materials inventory consists of structural steel, steel plates and
galvanized steel coils. Cost of materials inventory is accounted for using
either the specific identification or the average cost method. The cost of
supplies inventory is accounted for using the first-in, first-out, (FIFO)
method. No significant amount of inventory is included in contracts in
process.
5. PURCHASE OF ASSETS
During the three months ended January 31, 2005, the Company purchased
Property and Equipment, for use in its operations, for approximately $100,000.
6. EXTRAORDINARY ITEM
During the three months ended January 31, 2005, the Company recognized
income of $828,000 on the write-off of debt on which the statute of
limitations had run. The debt was a bank loan, which was personally obtained
by Frank E. Williams, Jr. for the Company, and for which he was indemnified by
the Company. In 1995, Mr. Williams, Jr. was released from the loan by the
bank, leaving the Company directly liable. The bank failed to pursue
collection of the loan, and in the opinion of counsel, the bank is now
precluded from collection of this debt. In prior periods, the loan had been
carried in "Other liabilities" on the Balance Sheet.
7. RECLASSIFICATIONS
Certain Balance Sheet and Statement of Operations items for the prior
periods have been reclassified to conform to current period classifications.
Item 2. 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. They operate in the
commercial, industrial, governmental and infrastructure construction markets,
with the operating components divided into construction and manufacturing
segments. The services provided include: steel, precast concrete and
miscellaneous metals erection and installation; crane rental; rigging;
fabrication of welded steel plate girders and rolled beams, "stay-in-place"
bridge decking, and light structural and other metal products.
As was reported in the report for the quarter ended October 31, 2004,
the Company's manufacturing segment continues to be impacted by steel price
increases, which have increased by as much as 100% over the past fifteen
months. These cost increases, where contracts were awarded prior to the rapid
price increases, have reduced the segment's gross margins by as much as ten
percent over the past year. The manufacturing companies continue to pursue
recovery of the additional cost of steel from customers where possible.
Additionally, the manufacturing segment's operations were negatively affected
by costs associated with the shutdown of the Bessemer, Alabama manufacturing
plant. The shut down of operations at the plant have been completed. The
remaining inventory and assets are being sold or shipped to the Company's
remaining plants. The segment's Gadsden, Alabama plant, which had been shut
down in September 2004, was reopened in January 2005 to support the operations
of S.I.P., Inc of Delaware.
During the three months ended January 31, 2005, the Company recognized
income of $828,000 on the write-off of debt on which the statute of limitations
had run. The debt was a bank loan, which was personally obtained by Frank E.
Williams, Jr. for the Company, and for which he was indemnified by the
Company. In 1995, Mr. Williams, Jr. was subsequently released from the loan by
the bank, leaving the Company directly liable. The bank failed to pursue
collection of the loan, and in the opinion of counsel, the bank is now
precluded from collection of this debt. In prior periods, the loan had been
carried in "Other liabilities" on the Balance Sheet.
The Company's financial results were also impacted by the costs associated
with claims in its workers compensation program. The Company expensed the cost
of claims of approximately $500,000 for the six months ended January 31, 2005.
For the six month ended January 31, 2004, the Company recognized a reduction
in its workers' compensation expense of approximately $85,000.
The Company reversed a portion of its deferred income tax asset due to the
additional losses accumulated during the quarter ended January 31, 2005. In
evaluating the Company's ability to recover its deferred tax assets, the
Company considered all available positive and negative evidence including its
past operating results, the existence of cumulative losses in the most recent
fiscal years and its forecast of future taxable income. The analysis resulted
in a decrease in the deferred income tax asset of $500,000 and an increase in
the loss for the three and six months ended January 31, 2005 of $850,000 and
$500,000, respectively. The Company's estimated reserve on its net operating
loss carryforward is $1.8 million at January 31, 2005.
The Company has begun documenting its controls and procedures as required
by Section 404 of the Sarbanes-Oxley Act (SOX 404), which requires the
documentation and testing of internal controls within the operating entities.
The Company is considered a non-accelerated filer under SOX 404. Although
management believes that the controls, currently existing, are sufficient for
the accurate reporting of financial information, the Company has contracted
with an outside consulting firm to assist in this effort. The Company
anticipates that the cost will be substantial and will have a negative impact
on its financial results over the next twelve months, negatively impacting its
results of operations for the second half of the year ending July 31, 2005 and
the first half of the year ending July 31, 2006. On March 2, 2005, the
Securities and Exchange Commission extended the compliance dates for non-
accelerated filers. The Company will be required to be in compliance with SOX
404 by its year ending July 31, 2006.
Material Changes in Financial Condition
- ---------------------------------------
For the six months ended January 31, 2005, the following changes
occurred:
The Company's Cash and Cash Equivalents and Restricted Cash decreased
$1.6 million as the Company used cash for operations.
Accounts Receivable increased by approximately $4.2 million due to
billings for raw materials, and fabricated and/or delivered product for the
Company's bridge girder company.
Inventory increased $6.4 million as the Company purchased steel plate
and galvanized steel coils to produce its work, mainly on the I95/395/495
Springfield Interchange Project in Virginia and the Virginia approach to the
Woodrow Wilson Bridge near Washington, DC. The Company has adequate inventory
on hand to meet current needs.
Prepaid expenses and other assets increased $1.4 million as the Company,
through cash payments and notes payable, pre-paid its vehicle, equipment,
general liability, umbrella and workers' compensation insurance policies.
These insurance costs are expensed over the life of the policies, which is
generally one year.
Property and Equipment increased approximately $2.1 million as the
Company purchased two previously leased cranes for $2 million, financing the
cranes at competitive market rates.
Deferred income taxes decreased $500,000. During the quarter ended
January 31, 2005, the Company reversed the additional tax asset it had booked
at October 31, 2004 of $350,000 and wrote off an additional $500,000 due to
the additional losses accumulated in the second quarter. In evaluating the
Company's ability to recover its deferred tax assets, the Company considered
all available positive and negative evidence including its past operating
results, the existence of cumulative losses in the most recent fiscal years
and its forecast of future taxable income. In determining future taxable
income, the Company is responsible for assumptions utilized including the
amount of state and federal pre-tax operating income, the reversal of
temporary differences and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant judgment about the
forecasts of future taxable income and are consistent with the plans and
estimates the Company is using to manage the underlying businesses.
At January 31, 2005, the Company had approximately $5.4 million in
variable rate notes payable. Total Notes Payable increased $2.7 million during
the six months ended January 31, 2005. The Company borrowed approximately
$4.3 million, of which $1.9 million was used to fund equipment purchases, $1.6
was used to fund insurance financing and $800,000 was used to fund short-term
operations. The Company repaid $1.6 million related to short term borrowing,
mainly from funds from operations.
Accounts Payable increased $3 million as the Company purchased inventory
for its bridge projects in northern Virginia.
Billings In Excess of Costs and Estimated Earnings on Uncompleted
Contracts net of Costs and Estimated Earnings in Excess of Billings, increased
a net amount of $7.8 million as a result of material billings for the Company's
two major bridge projects, where the Company can bill for material purchases.
Other Liabilities decreased by $609,000 mainly from the write-off of
$858,000 related to debt on which the statute of limitations had run. The
Company also recorded liabilities related to its workers' compensation
programs which offset the impact of the write-off.
Stockholders' Equity decreased $1.9 million to $14.3 million related to
the Company's loss for the six-month period.
For the six months ended January 31, 2005, the Company used net cash of
$1 million. $2.1 million was used in operations, $4.4 million was provided
from new debt borrowings and the issuance of stock, while the Company paid
back $1.6 million against borrowings in financing activities. The Company used
$1.7 million for investing activities consisting of property and equipment
purchases of $2.2 million while it used restricted cash of $522,000 to fund
operational liabilities related to the reimbursement of workers' compensation
related losses.
The Company was not in compliance with its earnings covenant with
Wachovia Bank related to its Industrial Revenue Bond with the Bank of New York
for its Richmond, Virginia facility. The Company owed approximately $828,000
on its notes payable to Wachovia Bank and the Bank of New York at January 31,
2005. These notes are reported in the "Current portion of notes payable" at
January 31, 2005 due to the current expiration of the related Letter of Credit
on March 31, 2005.
The Company believes, as revenues increase, raw material prices increase
or suppliers restructure payment terms, it will be 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 and the ability to pay its obligations in a timely
fashion.
Material Changes in Results of Operations
- -----------------------------------------
Three Months Ended January 31, 2005 Compared to
Three Months Ended January 31, 2004
The Company reported an increase in revenues, a decrease in gross profit
and an increase in its net loss when compared to the quarter ended January 31,
2004.
The Company produced a net loss of $1.4 million, or $0.37 per share, on
total revenue of $12.5 million for the quarter ended January 31, 2005 as
compared to a net loss of $667,000, or $0.18 per share, on total revenue of
$12 million for the quarter ended January 31, 2004. The Company produced a net
loss of $2.2 million or $0.59 a share before recognizing extraordinary income
of $828,000 on the write off of debt. Included in the loss was the reversal of
$850,000 of tax benefit.
While revenues in the manufacturing segment increased $1.5 million, gross
profit declined $88,000 with the gross margin percentage declining from 26% in
2004 to 20.1% in 2005. Steel price increases have contributed to the lower
percentages. The Company continues to pursue recovery for many of the material
price increases. The segment's loss before income taxes improved slightly
from $695,000 in 2004 to $650,000 in 2005. Included in the loss for 2005 was
$187,000 related to the additional costs of worker' compensation insurance
claims. The Bessemer, Alabama plant has been closed and the Company is making
arrangements to sell or move the remaining inventory and plant equipment. The
Company does not anticipate losses on the sale of these assets.
Construction segment revenues declined $993,000. Gross profit decreased
$341,000 as the gross profit percentage declined from 27% in 2004 to 25.4% in
2005. Earnings before income taxes decreased $400,000. Although the backlog
remained strong, customers delayed the start of jobs, limiting the amount of
work the segment could perform. Additionally, the segment expensed
approximately $300,000 for workers' compensation claims.
Overhead decreased $249,000 related to the Company's shut down of its
Bessemer, Alabama plant and to the decrease in work in the construction
segment. General and Administrative expenses increased $116,000 related to
increased payroll costs and travel expenses. Depreciation expense increased
$22,000. Interest expense increased $29,000 on higher interest rates on more
debt.
Six Months Ended January 31, 2005 Compared to
Six Months Ended January 31, 2004
Revenue and gross profit declined contributing to the increase in the
loss for 2005 when compared to 2004.
The Company had a net loss of $1.9 million, or $0.53 per share, on total
revenue of $25.1 million for the six months ended January 31, 2005 as compared
to a net loss of $441,000, or $0.12 per share, on total revenue of $25.6
million for the six months ended January 31, 2004. The Company had a net loss
of $2.8 million or $0.75 per share before recognizing extraordinary income of
$828,000 on the write off of debt. Included in the loss was the reversal of a
$500,000 of tax benefit.
Revenues in the manufacturing segment declined $447,000 while the gross
margin declined $1.8 million. The gross margin percentage declined to 21.3% in
2005 compared to 31.7% in 2004. Steel price increases contributed to the lower
percentages. The Company continues to pursue recovery for the material price
increases. Also contributing to the lower gross profit were costs associated
with the close down of operations in the Bessemer, Alabama plant. The plant
was projected to cease operations October 31, 2004 but the close down was not
completed until the end of the second quarter. The segment's loss before
income taxes increased $1.2 million from 2004 to 2005. Included in the loss
were costs totaling $148,000 related to worker' compensation insurance claims.
Construction revenues declined $170,000. Gross profit and gross profit
percentage remained constant at $2.6 million and over 27% when the two years
are compared. Loss before income taxes increased $343,000 as depreciation
expense and interest expense increased, mainly due to the purchase of cranes
in the year ended July 31, 2004 and the quarter ended October 31, 2004.
Although the backlog remained strong, customers delayed starting jobs,
limiting the amount of work the segment could perform. Additionally, the
segment expensed approximately $335,000 for additional workers' compensation
claims from accidents on jobs.
Overhead decreased $203,000 related to the Company's close down of its
Bessemer, Alabama plant and to the decrease in work in the construction
segment. General and Administrative expenses decreased slightly. Depreciation
expense increased $74,000 due to the purchase of assets in the year ended July
31, 2004 and the purchase of cranes in the quarter ended October 31, 2004.
Interest expense increased $53,000 from higher interest rates on increased
debt outstanding.
BACKLOG
At January 31, 2005, the Company's backlog was $48.8 million, which is a
decrease of approximately $22 million from January 2004 and $11 million from
July 31, 2004. Due to the continuing delay of Congress in passing new
transportation funding, the bridge manufacturing companies have seen fewer
jobs on which they could bid. Until the new transportation act is funded, many
road jobs will be delayed, impairing the Company's ability to maintain
adequate backlog.
Approximately $33.2 million of the backlog will be completed within the
next twelve months. Management believes that the level of work is sufficient
to allow the Company to have adequate work into Fiscal 2006.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's cash equivalents and restricted cash, invested in interest-
bearing instruments, are presented at fair value on the Company's balance
sheets. The Company's exposure to market risks for changes in interest rates
relate primarily to these investments and current and long-term debt.
Item 4. Controls and Procedures
As of January 31, 2005, an evaluation was performed under the supervision
and with the participation of the Company's management, including Chief
Executive Officer (CEO) and Controller, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and Controller,
concluded that the disclosure controls and procedures were effective as of
January 31, 2005. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to January 31, 2005.
Disclosure controls and procedures are the Company's controls and
procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files under the Exchange Act are accumulated
and communicated to management, including the principal executive officers and
principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
The Company has begun documenting its controls and procedures as required
by Sarbanes-Oxley Section 404, which requires the documentation and testing of
internal controls within the its operating entities. Although management
believes that the controls, currently in place, are sufficient for the
accurate reporting of financial information, the Company has contracted with
an outside consulting firm to assist in this effort. The Company anticipates
that the cost will be substantial and have a negative impact on its financial
results over the next twelve months, negatively impacting its results of
operations for the second half of the year ending July 31, 2005 and the first
half of the year ending July 31, 2006.
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, which 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 the
availability of such financing, and the outlook for future activity in the
Company's market areas. Investors or other users of 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 risks 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.
PART II - OTHER INFORMATION
ITEM 1. 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 workers' compensation, personal injury, products'
liability and property damage. The Company believes that its insurance and
other expense accruals, coupled with its primary and excess liability
coverage, provide adequate coverage for such claims or contingencies.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
The Company was not in compliance with its earnings covenant related to
its Industrial Revenue Bond for its Richmond, Virginia facility. The Company
owed approximately $828,000 on its notes payable at January 31, 2005. These
notes are reported in the "Current portion of notes payable" at January 31,
2005 due to the current expiration of the related Letter of Credit on March
31, 2005.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Section 302 Certification for
Frank E. Williams, III
Exhibit 31.2 Section 302 Certification for
Christ H. Manos
Exhibit 32 Section 906 Certification for
Frank E. Williams, III and
Christ H. Manos
Exhibit 99 Press release dated
March 17, 2005
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
March 16, 2005 Williams Industries, Incorporated
---------------------------------
Registrant
/s/ Frank E. Williams, III
---------------------------------
Frank E. Williams, III
Chairman of the Board, President,
Chief Executive Officer,
Chief Financial Officer