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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 (FEE REQUIRED)
For the Fiscal Year Ended July 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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.)
2849 Meadow View Road
Falls Church, Virginia 22042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(703) 560-5196
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. X
Aggregate market value of voting stock held by non-affiliates of
the Registrant, based on last sale price as reported on October 3, 1997.
$17,038,536
Shares outstanding at October 3, 1997 2,839,756
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 22,
1997.
To the Board of Directors and Stockholders
Williams Industries, Incorporated
Falls Church, Virginia
We have audited the accompanying consolidated balance sheets of Williams
Industries, Incorporated, and subsidiaries (the "Company") as of July 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficiency in assets) and cash flows for each of the
three years in the period ended July 31, 1997. Our audits also included the
financial statement schedule 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 generally accepted auditing
standards. 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, such consolidated financial statements present fairly in all
material respects, the consolidated financial position of Williams
Industries, Incorporated, and subsidiaries as of July 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended July 31, 1997 in conformity with general
accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information as set forth therein.
Deloitte & Touche LLP
Washington, D.C.
September 30, 1997
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1997 AND 1996
1997 1996
ASSETS
Cash and cash equivalents $ 1,867,144 $ 900,867
Restricted cash 252,412 400,000
Accounts and notes
receivable, net (Note 3) 10,322,033 11,109,854
Inventories 2,727,814 2,169,353
Costs and estimated earnings
in excess of billings on
uncompleted contracts (Note 6) 845,325 620,199
Investments in unconsolidated
affiliates (Note 11) 1,770,940 1,986,300
Property and equipment, net of
accumulated depreciation
and amortization (Note 8) 10,686,243 9,452,326
Prepaid expenses and other assets 1,217,808 1,372,853
Deferred income taxes (Note 10) 1,800,000 -
TOTAL ASSETS $ 31,489,719 $ 28,011,752
LIABILITIES
Notes payable (Note 9) $ 12,638,056 $ 15,142,321
Accounts payable 4,842,837 6,561,815
Accrued compensation, payroll
taxes and amounts withheld
from employees 694,634 853,923
Billings in excess of costs
and estimated earnings on
uncompleted contracts (Note 6) 2,972,587 2,231,188
Other accrued expenses 3,531,599 5,219,248
Income taxes payable (Note 10) 108,000 96,000
Total Liabilities 24,787,713 30,104,495
Minority Interests 170,237 131,371
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Common stock - $0.10 par value,
10,000,000 shares authorized;
2,839,756 and 2,576,017 shares
issued and outstanding (Note 12) 283,976 257,602
Additional paid-in capital 15,705,430 13,147,433
Accumulated deficit (9,457,637) (15,629,149)
Total stockholders' equity
(deficiency in assets) 6,531,769 (2,224,114)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY IN ASSETS) $ 31,489,719 $ 28,011,752
See notes to consolidated financial statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1997, 1996 and 1995
1997 1996 1995
REVENUE:
Construction $22,387,476 $16,131,534 $19,672,459
Manufacturing 10,975,857 10,062,367 10,336,748
Other revenue 945,186 963,611 1,603,073
Total revenue 34,308,519 27,157,512 31,612,280
DIRECT COSTS:
Construction 13,585,100 9,934,174 14,501,397
Manufacturing 7,750,377 7,097,194 6,419,359
Total direct costs 21,335,477 17,031,368 20,920,756
GROSS PROFIT 12,973,042 10,126,144 10,691,524
OTHER INCOME 60,035 2,509,864 238,262
EXPENSES:
Overhead 3,215,336 2,674,133 2,975,690
General and administrative 5,867,798 5,310,514 9,015,059
Depreciation 1,079,682 984,662 1,252,557
Interest 1,606,575 1,510,985 2,301,661
Total expenses 11,769,391 10,480,294 15,544,967
PROFIT (LOSS) BEFORE
INCOME TAXES, EQUITY
EARNINGS AND MINORITY
INTERESTS 1,263,686 2,155,714 (4,615,181)
INCOME TAX PROVISION
(BENEFIT) (NOTE 10) (1,716,000) 62,500 50,000
PROFIT (LOSS) BEFORE
EQUITY EARNINGS AND
MINORITY INTERESTS 2,979,686 2,093,214 (4,665,181)
Equity in earnings of
unconsolidated affiliates 51,690 83,350 66,060
Minority interest in
consolidated subsidiaries (48,864) (23,717) (11,480)
PROFIT (LOSS) FROM
CONTINUING OPERATIONS 2,982,512 2,152,847 (4,610,601)
DISCONTINUED OPERATIONS
(NOTES 2 & 7)
Gain on extinguishment
of debt - - 1,605,516
Estimated (loss) on
disposal of
discontinued operations - - (168,974)
PROFIT (LOSS) BEFORE
EXTRAORDINARY ITEM 2,982,512 2,152,847 (3,174,059)
EXTRAORDINARY ITEM
(NOTE 1)
Gain on extinguishment of
debt 3,189,000 808,000 6,609,000
NET PROFIT $ 6,171,512 $ 2,960,847 $ 3,434,941
PROFIT (LOSS) PER
COMMON SHARE -PRIMARY:
Continuing operations $ 1.13 $ 0.84 $ (1.82)
Discontinued operations - - 0.57
Extraordinary item 1.20 0.31 2.60
PROFIT PER COMMON
SHARE - PRIMARY $ 2.33 $ 1.15 $ 1.35
PROFIT (LOSS) PER COMMON
SHARE -ASSUMING FULL
DILUTION
Continuing operations 0.99 0.81 (1.78)
Discontinued operations - - 0.55
Extraordinary item 1.05 0.31 2.56
PROFIT PER COMMON SHARE
- -ASSUMING FULL DILUTION: $ 2.04 $ 1.12 $ 1.33
See notes to consolidated financial statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1997, 1996 AND 1995
1997 1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net profit $ 6,171,512 $ 2,960,847 $ 3,434,941
Adjustments to reconcile
net profit(loss) to net
cash provided by
operating activities:
Depreciation and
amortization 1,079,682 984,662 1,252,557
Interest expense related
to convertible debenture 269,937 - -
Gain on extinguishment
of debt (3,189,000) (808,000) (6,609,000)
(Gain) loss on disposal
of property, plant and
equipment (408,515) (2,323,496) 143,598
Increase in deferred
income tax asset (1,800,000) - -
Minority interests in
earnings 48,864 23,717 11,480
Equity in earnings of
affiliates (51,690) (83,350) (66,060)
Gain on extinguishment of
debt of discontinued
operations - - (1,605,516)
Estimated loss on disposal
of discontinued operations - - 168,974
Changes in assets and
liabilities:
Decrease (increase) in
accounts and notes
receivable 787,821 (1,933,678) 7,034,643
(Increase) decrease
in inventories (558,461) 252,334 1,020,863
Decrease in costs and
estimated earnings
related to billings on
uncompleted contracts
(net) 516,273 1,507,863 1,185,250
Decrease (increase) in
prepaid expenses and
other assets 155,045 (454,517) 240,267
Increase in net
liabilities of
discontinued operations - - 521,562
Decrease in accounts
payable (1,718,978) (216,735) (1,688,523)
(Decrease) increase in
accrued compensation,
payroll taxes, and
accounts withheld
from employees (159,289) 257,028 (232,131)
(Decrease) increase in
other accrued expenses (1,377,402) 261,827 (1,037,808)
Increase in income taxes
payable 12,000 46,000 15,000
NET CASH (USED IN)
PROVIDED BY OPERATING
ACTIVITIES (222,201) 474,502 3,790,097
CASH FLOWS FROM
INVESTING ACTIVITIES:
Expenditures for property,
plant and equipment (2,743,325) (924,581) (485,424)
Decrease (increase) in
restricted cash 147,588 (300,000) (100,000)
Proceeds from sale of
property, plant and
equipment 1,038,241 3,389,348 3,912,668
Purchase of minority
interest - (22,900) (659,798)
Minority interest dividends (9,998) (6,278) (10,584)
Dividend from
unconsolidated affiliate 67,050 22,350 6,258
NET CASH (USED IN) PROVIDED
BY INVESTING ACTIVITIES (1,500,444) 2,157,939 2,663,120
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from borrowings 9,085,403 1,308,134 1,107,114
Repayments of notes payable (6,536,658) (3,815,423) (7,499,346)
Issuance of common stock 140,177 55,980 375
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES 2,688,922 (2,451,309) (6,391,857)
NET INCREASE IN CASH
AND EQUIVALENTS 966,277 181,132 61,360
CASH AND EQUIVALENTS,
BEGINNING OF YEAR 900,867 719,735 658,375
CASH AND EQUIVALENTS,
END OF YEAR $ 1,867,144 $ 900,867 $ 719,735
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
(NOTE 16)
See notes to consolidated financial statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED JULY 31, 1997, 1996 and 1995
Additional
Number Common Paid-In Accumulated
of Shares Stock Capital Deficit Total
BALANCE,
AUGUST 1, 1994 2,535,267 $253,527 $13,095,153 $(22,024,937) $(8,676,257)
Issuance of
stock 3,750 375 - - 375
Net profit for
the year - - - 3,434,941 3,434,941
BALANCE,
JULY 31, 1995 2,539,017 253,902 13,095,153 (18,589,996) (5,240,941)
Issuance of
stock 37,000 3,700 52,280 - 55,980
Net profit for
the year - - - 2,960,847 2,960,847
BALANCE,
JULY 31, 1996 2,576,017 257,602 13,147,433 (15,629,149) (2,224,114)
Issuance of
stock 263,739 26,374 449,740 - 476,114
Issuance of
convertible
debentures - - 2,108,257 - 2,108,257
Net profit for
the year - - - 6,171,512 6,171,512
BALANCE,
JULY 31, 1997 2,839,756 $283,976 $15,705,430 $(9,457,637) $6,531,769
See notes to consolidated financial statements.
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1997, 1996 AND 1995
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Consolidation - The consolidated financial statements include
the accounts of the Company and all of its majority-owned subsidiaries.
All material intercompany balances and transactions have been
eliminated in consolidation.
Unconsolidated Affiliates - The equity method is utilized when the
Company, through ownership percentage, membership on the Board of
Directors or through other means, meets the requirement of significant
influence over the operating and financial policies of an investee.
The Company's investment in S.I.P. Inc. of Delaware is carried on
the equity method. The cost method of accounting is used for Atlas
Machine & Iron Works, Inc. since the Company cannot exert significant
influence over its operating and financial policies. The Company owns
36.6% of Atlas Machine and Iron Works, which filed Chapter 11 Bankruptcy
in December 1996. The investment is recorded at the net realizable
value, which is lower than cost.
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 is depreciated
for financial statement purposes on the straight-line basis, with estimated
lives of 25 years for buildings and 3 to 10 years for equipment, and for
income tax purposes using both straight-line and accelerated methods.
Ordinary maintenance and repairs are expensed 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.
Profit (Loss) Per Share - Profit (loss) per share is based on the
weighted average number of shares outstanding during the year. Fully
diluted profit per share for the year ended July 31, 1997 reflects the
assumed conversion of convertible debentures.
In March 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" which simplifies the standards for
computing EPS previously found in Accounting Principles Board Opinion
No. 15 and makes them comparable to international EPS standards. The
Statement is effective for financial statements issued for periods
ending after December 15, 1997. Had this statement been effective for
the years ended July 31, 1997, 1996 and 1995, profits per share would
have been presented as follows:
Year Ended July 31 1997 1996 1995
EPS-basic $2.33 $1.15 $1.35
EPS-assuming dilution 2.04 1.12 1.33
Revenue Recognition - Contract income is recognized for financial
statement purposes using the percentage-of-completion method. This
means that the revenue amounts include 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. 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
(see Note 4).
Contract income is determined for income tax purposes using the
percentage-of-completion, capitalized cost (PCCM) method.
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 - Inventory of equipment held for resale is valued at
cost, which is less than market value, as determined on a specific
identification basis.
The costs of materials and supplies are accounted for as assets for
financial statement purposes. The items are taken into account in the
accompanying statements as follows:
1997 1996
Equipment held for resale $ 0 $ 42,786
Expendable construction
equipment and tools at
average cost, which does
not exceed market value 761,565 801,039
Materials, structural steel,
metal decking, and steel
cable at lower of cost or
estimated market value 1,551,742 927,038
Supplies at lower of cost or
estimated market value 414,507 398,490
---------- ----------
$2,727,814 $2,169,353
Allowance for Doubtful Accounts - Allowances for uncollectible
accounts and notes receivable are provided on the basis of specific
identification.
Income Taxes - The Company and certain of its subsidiaries file a
consolidated Federal income tax return. The provision for income taxes
has been computed under the requirements of 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.
The Company does not provide for income taxes on the undistributed
earnings of affiliates since these amounts are intended to be
permanently reinvested. The cumulative amount of undistributed earnings
on which the Company has not recognized income taxes is approximately
$996,000.
Cash and Cash Equivalents - For purposes of the Statements of Cash
Flows, the Company considers all highly liquid instruments with original
maturities of less than three months to be cash equivalents.
Reclassifications - Certain reclassifications of prior years' amounts
have been made to conform with the current year's presentation.
RECENT ACCOUNTING PRONOUNCEMENTS:
Effective August 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." This statement requires that long-lived assets and certain
identifiable intangible assets, to be held and used by an entity, be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If this condition
exists, an impairment loss is recognized for the difference between the fair
value of the asset and its carrying amount. SFAS No. 121 had no impact on
the Company's financial statements for the year ended July 31, 1997.
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". The Company will apply this statement beginning
in fiscal 1999 and reclassify its financial statements for earlier
periods provided for comparative purposes.
SFAS 131 established standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
This Statement supersedes SFAS Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise," but retains the requirement to
report information about major customers. It amends FASB No. 94,
"Consolidation of All Majority-Owned Subsidiaries," to remove the
special disclosure requirements for previously unconsolidated
subsidiaries.
At this point, the Company has not determined the impact of
adopting SFAS 131.
1. BUSINESS CONDITIONS AND DEBT RESTRUCTURING
During the mid to late 1980s, the Company had diversified and
experienced significant growth with an accompanying heavy debt
structure, which ultimately lead to its operating results becoming
erratic. Significant losses were reported for the years ended July 31,
1991, 1992, 1993, and 1994. Throughout these years, and in the years
ended July 31, 1995 and 1996, the Company struggled not only to reduce
debt, but also to improve its business base and operations. Net profits
were reported in the years ended July 31, 1995, 1996 and again in 1997,
with final Bank Group debt resolution occurring in the year ended July 31,
1997.
Bank Group Debt
The restructuring of the Bank Group debt was concluded as of March
31, 1997 with the execution of agreements between the Company,
representatives of the Company's Bank Group, and The CIT Group/Credit
Finance, Inc. (CIT). Funding of the transactions occurred on April 2,
1997. The following is a summary of the transactions which enabled the
closing to occur:
CIT: The Company entered into a Loan and Security Agreement with
CIT for a credit facility of approximately $3 million. This loan
requires monthly principal payments as well as interest at prime plus
2.5%. Payments began on May 1, 1997 and are due on the first of each
month. The loan has a three year term. This loan is secured by the
Company's equipment and receivables as well as subordinate deeds of
trust on real estate.
At closing, the Company received an advance of $2.5 million from
the CIT credit facility. These funds, in addition to funds already paid
to the Bank Group, were used to pay the balance of Bank Group debt and
other outstanding past due obligations of the Company. As of July 31,
1997, approximately $1.9 million was due on the CIT credit facility.
NationsBank: The restructuring of the Bank Group debt was
concluded and debt forgiveness granted. The debt forgiveness is
reflected in the Company's Consolidated Statements of Operations
for the year ended July 31, 1997 as "Gain On Extinguishment of Debt".
In connection with the debt forgiveness, the Company issued $500,000
of debentures which bear interest until paid or converted (into 20%
of the Company's outstanding stock after the conversion).
In the final restructuring of the Bank Group debt, the Bank
Group and Real Estate loans were combined and the combined balance
was reduced to $2.5 million as of March 31, 1997. The combined loan
is secured by first deeds of trust on all the Company's real property
(with the exception of the Richmond facility encumbered by the
Industrial Revenue Bond), and by certain other collateral not granted
to CIT to secure the Company's new loan. The combined loan bears
interest at 11% fixed, and requires payments based on a 20 year
amortization. The loan is due and payable in full on December 31,
1997.
The calculation of the "Gain on Extinguishment of Debt" is set
forth as follows:
Debt Retired $9,891,000
New Debt Incurred to Retire Debt Above:
NationsBank - New Loan 2,500,000
Bank Group Debentures - At Fair
Market Value of Stock Issuable
on Conversion 2,338,000
Cash paid to Bank Group 1,864,000
---------
Total consideration 6,702,000
---------
Gain on Extinguishment of Debt $3,189,000
==========
The Gain on Extinguishment of Debt is net of the fair market
value of the Company's stock, approximately $2,338,000, issuable
upon conversion of the debentures, as determined at the date of
closing of the restructuring. The difference between the fair
market value of the stock and the face value of the debentures
has been recorded as additional paid in capital.
Pribyla: In order to obtain the CIT loan, the Company was
required to reach agreement on several old legal issues. Most
of the necessary settlements occurred in the first and second
quarter of Fiscal 1997, but a settlement with Mrs. Karen Pribyla
and the estate of Mr. Eugene Pribyla, regarding claims for excess
medical expenses, coincided with the Bank Group closing. Under
the company's settlement with Pribyla, the company issued a
promissory note in the face amount of $744,000 which does not
bear interest but allows a prepayment discount at a 10% annual
rate. This note is secured by subordinate deeds of trust on the
Prince William and Fairfax real estate. The Company also paid
$205,000 in cash and issued 215,000 shares of the Company's common
stock in the settlement.
As a consequence of all of the above mentioned transactions,
the Company has cured all of the default issues in relation to the
Bank Group and is current under the terms and conditions of all
restructured debt.
Real Estate Loan
As described above, the Company's real estate loan with
NationsBank has been modified in connection with the Bank Group
settlement. The Company intends to obtain a replacement lender
for the remaining balance of the $2.5 million loan prior to
December 31, 1997.
Industrial Revenue Bond
On September 1, 1997, the Company entered into a First
Amendment to Reimbursement Agreement with Central Fidelity
National Bank for a three-year renewal for the Letter of Credit
backing the Industrial Revenue Bond (IRB) secured by the Company's
Richmond manufacturing facility. All obligations under the IRB are
current and the Company is in compliance with the covenants
contained in the agreement. As of July 31, 1997, the outstanding
liability was approximately $1.54 million. This balance does not
include a $200,000 payment which was held in an interest-bearing
escrow account until August 1, 1997, when it was applied against
the principal according to the terms of the bond documents and is included
in restricted cash in the Consolidated Balance Sheets. Principal payments
are due in increasing amounts through maturity. A portion of the property
covered by the IRB is leased by a non-affiliated third party.
2. DISPOSITION OF ASSETS
In November 1996, the Company, with the agreement of the Industrial
Revenue Bond trustee and Letter of Credit issuer, finalized the sale of an
office building on the Richmond property which was part of the real estate
encumbered by the IRB. The proceeds from this $210,000 sale were used to
pay obligations related to the IRB and resulted in a gain of approximately
$60,000.
During the year ended July 31, 1997, the Company's subsidiary, John F.
Beasley Construction Company, which is liquidating its assets under Chapter
11 of the Bankruptcy Code, sold its remaining two acres in Dallas, Texas and
its two acre parcel in Muskogee, Oklahoma, to an unaffiliated third party for
$90,000. The sales were approved by the U.S. Bankruptcy Court and produced a
loss of approximately $4,000 which is included in results of continuing
operations in the accompanying Consolidated Statements of Operations.
During the year ended July 31, 1997, the Company also sold several large
pieces of equipment in order to modernize its fleet and pay off debt. Heavy
equipment, with an original cost of approximately $917,000, was sold for
approximately $713,000. A net gain of approximately $540,000 was recognized.
Approximately $636,500 was paid to CIT against the Company's credit facility
as a result of these asset sales.
In the year ended July 31, 1996, the Company sold eight of the ten acres
owned by the John F. Beasley Construction Company in Dallas, Texas. Beasley,
which is in Chapter 11 protection in the United States Bankruptcy Court,
Northern District of Texas, Dallas Division, sold approximately six acres,
together with certain other assets, to an investment group owned by Frank E.
Williams, Jr., and John M. Bosworth. Mr. Williams, Jr. is a current director
and former officer of the Company and the former chairman of Beasley. Mr.
Bosworth is the former President of the Beasley Building Division. Two acres
were sold to a neighboring property owner not affiliated with the Company.
The sales prices were approved by the Bankruptcy Court. A provision for the
loss of approximately $260,000 from the sale of these assets was recorded
during the fiscal year ended July 31, 1995.
Also during the year ended July 31, 1996, the Company sold certain of
its real estate in Prince William County, Virginia. The sale resulted in a
gain of approximately $2.4 million, which is included in "Other Income"
in the Consolidated Statement of Operations for the Year Ended July 31, 1996.
In September 1994, the Company sold its Davidsonville, Maryland
facility. The Davidsonville plant, which was sold as industrial property for
$1,053,000, included a 23 acre parcel of land containing a prestressed
concrete product plant, an office and a shop building. A provision for the
loss of approximately $500,000 from the sale of this asset was recorded
during the year ended July 31, 1994. The net proceeds were paid to the Bank
Group.
During the year ended July 31, 1995, the assets of Industrial Alloy
Fabricators, Inc. were sold for $3.6 million. As of the closing, the 20% of
Industrial Alloy Fabricators' common stock that had not been owned by the
Company was redeemed for consideration of $660,000, reflecting the pro-rata
consideration paid for the assets, discounted for costs associated with the
transaction, and negotiated with the minority shareholders. The net proceeds
of the transaction, $2,830,000, were paid to the Bank Group after deducting
brokerage commission and costs of $110,000. After taking into account the
redemption and the costs of the sale, the Company recognized a gain on the
sale of approximately $800,000.
In addition during 1995, the final documents were executed to close the
sale of the Company's 97% stock ownership of Concrete Structures Inc. for
$975,000, of which $650,000 was paid in cash, which was paid to the Company's
Bank Group, and $325,000 was a deferred purchase money note. This sale was
made to a group headed by a former officer, director and employee of the
Company. Another former officer, director and employee, is an investor in
the group. The Company provided a reserve against the $325,000 note
mentioned above and the revenue from the note is being recognized as gain as
the note is paid. The Company recognized a gain of approximately $253,000 on
the sale.
Also during 1995, the Company and its subsidiary, Williams Marine
Construction Corporation, entered into an agreement with First Tennessee
Equipment Finance Corporation, the holder of the mortgage on Williams
Marine's floating crane, the Atlantic Giant, whereby the security documents
were modified to provide for the prompt sale of the asset, without further
recourse against Williams Marine or the Company, for payment of the note
secured by the asset. In exchange for a release from any further liability
under the security documents, the Company issued an interest-bearing
convertible subordinated debenture in the amount of $100,000, which is due in
1998. The debenture is convertible at the holder's option into common shares
of the Company at the ratio of $1.43 per common share, including principal
and interest outstanding at the time of conversion. As a consequence of the
settlement agreement, Williams Marine realized a gain in the amount of
approximately $1,606,000, which was included as a gain on extinguishment of
debt in discontinued operations.
In July 1995, the Company sold the assets of the Bridge Division of the
J. F. Beasley Construction Company to Traylor Brothers, Inc. for $2,001,000.
The Company recognized a loss of approximately $974,000 on the sale of these
assets.
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following
at July 31:
1997 1996
Accounts Receivable:
Contracts:
Open Accounts $7,940,532 $8,645,575
Retainage 563,730 689,144
Trade 1,642,121 1,396,207
Contract Claims 534,025 886,647
Employees 43,380 66,176
Other 145,187 155,026
Allowance for doubtful
accounts (758,141) (953,921)
Total accounts receivable $10,110,834 $10,884,854
Notes Receivable 211,199 225,000
Total accounts and notes
receivable $10,322,033 $11,109,854
Included in the above amounts at July 31, 1997 is approximately $702,000
that is not expected to be received within one year.
4. 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 claims 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 legal fees and
other costs of collection.
5. RELATED-PARTY TRANSACTIONS
Certain shareholders owning 11.25% of the outstanding and committed
stock of the Company, computed on a fully diluted basis assuming the
conversion of outstanding debentures, own 67.49% of the outstanding stock of
Williams Enterprises of Georgia, Inc. Billings to this entity and its
affiliates were approximately $1,205,000 for the year ended July 31, 1997.
For the prior two years, the intercompany billings to and from this entity
were not significant.
Certain shareholders owning 9.4% of the outstanding and committed stock
of the Company, computed on a fully diluted basis assuming the conversion of
outstanding debentures, own 100% of the stock of the Williams and Beasley
Company. Net billings from this entity during the year ended July 31, 1997
were approximately $436,000. For the prior two years, the intercompany
billings to and from this entity were not significant.
As discussed in Note 2, the Company has sold certain assets to
individuals who are former employees, directors, and officers of the Company.
6. CONTRACTS IN PROCESS
Comparative information with respect to contracts in process consisted
of the following at July 31:
1997 1996
----------- -----------
Expenditures on uncompleted $21,670,677 $ 9,843,412
contracts
Estimated earnings thereon 7,984,347 3,639,762
29,655,024 13,483,174
Less: Billings
applicable thereto (31,782,286) (15,094,163)
$(2,127,262) $(1,610,989)
Included in the accompanying
balance sheet
under the following captions:
Costs and estimated earnings in
excess of billings on
uncompleted contracts $ 845,325 $ 620,199
Billings in excess of costs and
estimated earnings on
uncompleted contracts (2,972,587) (2,231,188)
------------ -----------
$(2,127,262) $(1,610,989)
============ ============
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 complete or milestone basis.
7. DISCONTINUED OPERATIONS
During the year ended July 31, 1993, the Company decided to cease doing
business in several business lines: fabrication of architectural, ornamental
and miscellaneous metal products, production of precast and prestressed
concrete products, and the construction of marine facilities.
8. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31:
1997 1996
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Land and
buildings $6,320,073 $2,052,366 $6,481,875 $1,934,541
Automotive
equipment 1,585,188 1,140,321 1,421,168 1,061,706
Cranes and heavy
equipment 9,312,084 4,469,639 8,033,555 4,668,602
Tools and
equipment 798,024 658,399 716,701 625,015
Office furniture and
fixtures 422,834 356,001 561,580 477,737
Leased property
under capital
leases 740,000 197,368 740,000 124,500
Leasehold
improvements 895,195 513,061 860,217 470,669
----------- ---------- ----------- ----------
$20,073,398 $9,387,155 $18,815,096 $9,362,770
=========== ========== =========== ==========
9. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following at July 31:
1997 1996
--------- ---------
Collateralized:
Loans payable to Bank Group;
collateralized by
receivables, inventory, equipment,
investments, and real estate;
interest at Prime + 2% - $7,247,386
Loan payable to CIT/Credit
Finance; collateralized by
inventory, equipment and real
estate; interest at Prime
+ 2 1/2% (11% as of July 31, 1997);
due in installments through
March 31, 2000 $1,909,274 -
Loan payable to NationsBank;
collateralized by
real estate; interest at Prime
+ 1 1/2% - 1,530,852
Loans payable to NationsBank;
collateralized by real estate
and certain other collateral not
granted to CIT; interest at
11% fixed; due December 31, 1997 2,492,497 -
Obligations under capital leases;
collateralized by leased property;
interest from 8% to 11%
payable in varying monthly or
quarterly installments 409,174 546,781
Installment obligations; collateralized
by machinery and equipment or real
estate; interest from 7.9%
to 18%; payable in varying
monthly or quarterly installments of
principal and interest through 2008. 4,578,959 2,590,656
Industrial Revenue Bond; collateralized
by a letter of credit which in turn is
collateralized by real estate; principal
payable in varying monthly
installments through 2007;
variable interest based on
third party calculations; (3.9%
as of July 31, 1997). 1,540,000 1,562,600
Demand notes; interest at 6.5%
Collateralized by Certificates
of Deposit. - 300,000
Unsecured:
NationsBank/FDIC (Bank Group):
Convertible debentures;
interest at prime plus 2.5%;
(11% as of July 31, 1997);
principal payable on February 1,
2001; convertible with five days
notice into 20% of the
Company's common stock after
issuance. 500,000 -
FDIC: Convertible
debenture; non-interest bearing;
principal payable on
August 1, 1998;
convertible with 10 days notice
into 110,294 common shares 75,000 -
First Tennessee: Convertible
subordinated debenture;
interest at 10% to prime plus 1.5%;
principal payable in 1998;
convertible upon five days notice
to common stock of
the Company at the ratio of
$1.43 per common share. 100,000 100,000
Lines of credit, interest
at prime to prime plus
1% to 13.5% 271,269 767,220
Installment obligations with interest
from 7.25% to 13.5%; due in varying
monthly installments of principal and
interest through 2001. 761,883 496,826
----------- -----------
$12,638,056 $15,142,321
=========== ===========
At July 31, 1997, substantially all of the Company's assets are collateral
for the notes and loans payable indicated above. Contractual maturities of the
above obligations are as follows:
Year Ending July 31 Amount
1998 $5,281,243
1999 1,285,163
2000 1,977,362
2001 615,855
2002 552,722
2003 and thereafter 2,925,711
See Note 1 for additional information concerning the
obligations payable to CIT, installment obligations collateralized
by real estate and the Industrial Revenue Bond. As of July 31,
1997, the carrying amounts reported above for notes and loans
payable approximate their fair value based upon interest rates for
debt currently available with similar terms and remaining
maturities. As of July 31, 1996, because of the ongoing Bank
Group negotiations regarding debt repayment and forgiveness, and
real estate refinancing, it was not practical to determine a fair
value for these financial instruments.
10. INCOME TAXES
The provision for income taxes for the years ended July 31,
1996 and 1995 represents primarily a current state income tax
provision related to states where the Company cannot file a
consolidated return.
As a result of tax losses incurred in prior years, the Company,
at July 31, 1997, has tax loss carryforwards amounting to $15
million. Under Statement of Financial Accounting Standard No.
109 ("SFAS 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 by reducing the amount of income taxes
payable in future income tax returns. This in turn depends on
projections of the Company's profitability in future years during
the carryforward period. As a result of the completion of the
restructuring of the Company's Bank Group debt during 1997 and
the return to profitable operations of the Company's ongoing
businesses during the past three years, the Company expects to
report profits for income tax purposes in the future. As a
consequence, the Company recognized a $1.8 million portion of
the benefit available from its tax loss carryforwards during the
year ended July 31, 1997.
Realization of this asset is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes that it
more likely than not all of the recorded deferred tax asset will
be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
The differences between the tax provision calculated at the
statutory federal income tax rate and the actual tax provision for
each year are shown in the table directly below.
1997 1996 1995
Tax at statutory
federal rate $ 429,600 $ 733,000 $(1,549,000)
State income taxes 75,800 129,000 (273,000)
Change in valuation
reserve (2,221,400) (799,500) 1,872,000
----------- --------- -----------
Actual income tax
provision (benefit) $(1,716,000) $ 62,500 $ 50,000
============ ========= ===========
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, 1997 July 31, 1996
Deferred tax assets:
Reserves and other $ 883,700 $1,259,448
non-deductible accruals
Purchase Accounting Adjustment - 162,112
Net operating loss & capital loss
carryforwards 6,618,100 7,061,028
Valuation reserve (5,175,000) (8,002,776)
----------- -----------
Total deferred tax assets 2,326,800 479,812
Deferred tax liability:
Inventories (526,800) (479,812)
--------- ---------
Net deferred tax asset $1,800,000 $ 0
========== ==========
11. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates consisted of the following at
July 31:
1997 1996
---------- ----------
Investments valued using the
Equity Method
S.I.P., Inc. of Delaware
(42.5% owned) $960,269 $975,629
Investment using the Cost
Method
Atlas Machine and Iron Works
Inc.(36.6% owned) 810,671 1,010,671
---------- ----------
$1,770,940 $1,986,300
========== ==========
12. COMMON STOCK OPTIONS
The Company currently has no outstanding stock options.
13. INDUSTRY INFORMATION
Information about the Company's operations in different
industries for the years ended July 31, is as follows:
1997 1996 1995
Revenue:
Construction $24,068,633 $18,121,379 $20,837,043
Manufacturing 11,203,684 10,287,072 10,615,342
Other 945,186 963,611 1,603,073
36,217,503 29,372,062 33,055,458
Inter-company revenue:
Construction (1,681,157) (1,989,845) (1,164,584)
Manufacturing (227,827) (224,705) ( 278,594)
Consolidated
Revenue $34,308,519 $27,157,512 $31,612,280
Operating profits (Loss):
Construction $ 2,364,087 $ 1,682,454 $(2,589,691)
Manufacturing (58,758) 120,788 1,029,452
Consolidated
Operating
Profits (Losses) 2,305,329 1,803,242 (1,560,239)
General corporate
income (expenses) 564,932 1,863,457 (753,281)
Interest expense (1,606,575) (1,510,985) (2,301,661)
Profit (Loss)
before income
taxes, equity earnings,
and minority interest $1,263,686 $ 2,155,714 $(4,615,181)
Identifiable assets:
Construction $15,878,023 $14,303,853 $11,845,023
Manufacturing 6,324,220 6,342,351 5,617,867
General corporate 9,287,476 7,365,548 7,131,216
Total Identifiable
Assets $31,489,719 $28,011,752 $24,594,106
Capital expenditures:
Construction $2,402,672 $ 2,880,325 $ 1,192,022
Manufacturing 314,083 113,651 25,499
General corporate 26,570 21,295 7,903
Total Capital
expenditures $2,743,325 $ 3,015,271 $1,225,424
Depreciation:
Construction $ 774,559 $ 660,250 $ 872,236
Manufacturing 132,548 137,922 166,833
General corporate 172,575 186,490 213,488
Total Depreciation $1,079,682 $ 984,662 $ 1,252,557
The Company and its subsidiaries operate principally in two segments
within the construction industry; construction and manufacturing. Operations
in the construction segment involve structural steel erection, installation
of steel and other metal products, installation of precast and prestressed
concrete products, and the leasing and sale of heavy construction equipment.
Operations in the manufacturing segment involve fabrication of steel plate
girders and light structural metal products.
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 investees, minority interests and
discontinued operations.
Identifiable assets by industry are those assets that are used in the
Company's operations in each industry. General corporate assets include
investments, some real estate, and sundry other assets not allocated to
segments.
While the Company bids and contracts directly with the owners of
structures to be built, the majority of these revenues have historically been
derived from projects on which it is a subcontractor of a material supplier
or other contractor. Where the Company acts as a subcontractor, it is
invited to bid by the firm seeking construction services; therefore,
continuing favorable business relations with those firms that frequently bid
on and obtain contracts requiring such services are important to the Company.
Over a period of years, the Company has established such relationships with a
number of companies. Revenues derived from any particular customer fluctuate
significantly, and during a given fiscal year, one or more customers may
account for 10% or more of the Company's consolidated revenues through
individual, competitively bid contracts. During the years ended July 31,
1997, 1996, and 1995, no single contract or customer accounted for more than
10% of consolidated revenue.
14. EMPLOYEE BENEFIT PLAN
The Company has a retirement savings plan covering substantially all
employees. The Plan provides for optional Company contributions as a fixed
percentage. There were no company contributions for the years ended July 31,
1997, 1996 and 1995.
15. COMMITMENTS AND CONTINGENCIES
Industrial Revenue Bond
On September 1, 1997, the Company entered into a First Amendment to
Reimbursement Agreement with Central Fidelity National Bank for a three-year
renewal for the Letter of Credit backing the Industrial Revenue Bond issue on
the Company's Richmond manufacturing facility. All obligations under the IRB
are current and the Company is in compliance with the covenants contained in
the agreement. As of July 31, 1997, the debt was approximately $1.54 million
and it is secured by the real estate in the City of Richmond. This amount
does not include $200,000 which was held in escrow and applied against the
principal on August 1, 1997 according to the terms of the agreement.
Principal payments are due in increasing amounts through 2007. A portion of
the property covered by the Industrial Revenue Bond is leased by a non-
affiliated third party.
Precision Components Corp.
The Company is party to a suit by Industrial Alloy Fabricators, Inc. and
Precision Components Corp. against Williams Industries, Inc. and IAF Transfer
Corporation, filed in the Circuit Court for the City of Richmond, Law No.
96B02451, seeking $300,000 plus interest and fees arising from a product
liability claim against the Company. The Company retained counsel to respond
to the suit and filed a counterclaim seeking reimbursement of damages caused
by the plaintiffs. The Company intends to aggressively defend this claim.
Trial is now set for November 1997. Management believes that the ultimate
outcome of this matter will not have a material adverse impact on the
Company's financial position, results of operations, or cash flows.
Foss Maritime
The Company's subsidiary, Williams Enterprises, Inc., was named a third
party defendant in a suit pending in the U.S. District for the Western
District of Washington, Foss Maritime v. Salvage Assn. v. Williams
Enterprises & Etalco, #C95-1835R. The suit arises from damage in transit to
cargo which was shipped from Charleston, SC to Bremerton, WA. Williams
Enterprises was hired by Foss Maritime to sea-fasten the cargo according to a
design by Etalco, and the Salvage Association was hired to conduct a marine
survey prior to the voyage. The Salvage Association filed the Third-Party
Complaint, alleging that Williams Enterprises was negligent in the
performance of its work. The damages claimed are approximately $3.6 million,
which was paid by the Cargo Insurance carrier. Williams Enterprises'
exposure under its own liability coverage is $100,000, but the Company
believes that this insurance is not ultimately involved because the agreement
between Foss and Williams Enterprises was that Williams Enterprises would be
a named insured on Foss's Cargo Insurance policy with a "waiver of
subrogation" endorsement. Although Foss failed to have Williams Enterprises
named on the policy, management believes that Foss will be responsible for
any damage or expense incurred by Williams Enterprises. In addition, the
Company disputes that it was in any way responsible for the damage.
On March 19, 1997, the court entered a Summary Judgment in favor of the
Salvage Association and against Foss Maritime. This effectively ends the
case against Williams Enterprises because the claim was a third-party claim
brought by the Salvage Association. However, Foss has filed an appeal with
the U.S. Court of Appeals for the Ninth Circuit, so the case remains active
until a disposition of the appeal. Management believes that the ultimate
outcome will not have a material adverse impact upon the Company's financial
position, results of operations, or cash flows.
Koppleman
The Company has been named a defendant in an action filed in the Circuit
Court for the City of Baltimore, Maryland, by the estate of Joseph Koppleman.
The suit seeks in excess of $2 million in damages for fraud and other
asserted causes of action. The case results from an injury award in favor of
Koppleman against the Company's subsidiary corporations, Harbor Steel
Erectors, Inc. and Arthur Phillips & Company, Inc., (the "Original Judgment
Debtors") in the amount of $270,600, entered in 1995. The claim resulted
from an injury to Mr. Koppleman in 1989. The claim falls within the
deductible of the applicable insurance policy. Because of the plaintiff's
failure to collect their judgment against the Original Judgment Debtors, this
action has been filed, naming as defendants the Company, numerous present and
former subsidiaries, and the insurance carrier and the insurance broker who
were involved in the creation of the insurance arrangement. Management
believes that this case is groundless and that the conduct of the underlying
litigation was appropriate. The Company has retained counsel and intends to
defend this matter aggressively. Management believes that the ultimate
outcome will not have a material adverse impact upon the Company's financial
position, results of operations, or cash flows.
CIGNA Insurance
The Company maintained certain policies of insurance with members of the
CIGNA group of insurance companies during the period from 1986 through 1991.
Certain of those policies provided for what are known as "retrospective
premium adjustments" which depend upon the claims made under the policies.
In February, 1997, the Company received an invoice for $1.1 million which has
been disputed. Pursuant to prior litigation between the Company and CIGNA
which was settled in January 1993, the parties agreed to arbitrate their
disputes in the future. An arbitration proceeding has been commenced
concerning the referenced invoice and the Company intends aggressively to
defend this claim and to press its claims for damages against CIGNA.
Management believes that the ultimate outcome of this matter will not have a
material adverse impact upon the Company's financial position, results of
operations, or cash flows.
General
The Company is also party to various other 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 that expire at various dates through 2008. Rent expenses
approximated $278,000, $90,300 and $75,900 for the years ended July 31, 1997,
1996 and 1995, respectively. Minimum future rental commitments are as
follows:
Year Ending July 31 Amount
1998 $498,000
1999 454,000
2000 422,000
2001 422,000
2002 422,000
Thereafter 1,757,000
----------
$3,975,000
==========
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the year ended July 31, 1997, convertible debentures with an
aggregate face amount of $575,000 were issued to settle outstanding
obligations of the Company. In connection with the issuance of the
debentures, the difference between the fair market value of the shares
issuable upon conversion of the debentures, approximately $2,683,000, as
determined at the dates the related transactions were closed, and the face
amount of the debentures, was added to additional paid in capital.
During the year ended July 31, 1997, the Company entered into several
financing agreements to acquire assets with a cost of $1,882,000.
1997 1996 1995
Cash paid during
the year for:
Income taxes $ 72,000 $ 16,500 $ 19,500
Interest $1,268,683 $1,062,171 $2,080,069
17. SUBSEQUENT EVENT
On September 30, 1997, the Company entered into a contract with a
nonaffiliated third party to sell the 2 1/4 acre headquarters property for
$1,465,000, with the Company to lease back several buildings on the property.
The sale is contingent upon the buyer obtaining all necessary approvals to
operate a school on the site. The transaction is expected to close during
the second quarter and would, if consummated, result in a gain of
approximately $500,000.
Williams Industries, Inc.
Schedule II - Valuation and Qualifying Accounts
Years Ended July 31, 1997, 1996 and 1995
Column A Column B Column C Column D Column E
- -------- -------- ------------------- --------- ---------
Additions
-------------------
Charged
Balance at Charged to to Other Balance
Beginning Costs and Accounts- Deductions- at End of
Description of Period Expenses Describe Describe Period
July 31, 1997:
Allowance for
doubtful
accounts $ 953,921 $ 60,246 $ 293,000(3) $(212,867)(1) $ 758,141
(336,159)(2)
July 31, 1996:
Allowance for
doubtful
accounts 1,633,566 243,885 246,410(3) (19,944)(1) 953,921
(1,149,996)(2)
July 31, 1995:
Allowance for
doubtful
accounts 728,410 134,338 981,805(3) (42,652)(1) 1,633,566
(168,335)(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.
PART 1
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
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 1. Business.
A. General Development of Business
Originally established as a public entity in 1970 as the parent of two
sister companies formed a decade previously, Williams Industries,
Incorporated (the "Company") quickly grew to become a leader in the
construction services market. During the mid to late 1980s, the Company
diversified from its modest origins and grew into a conglomerate with 27
subsidiaries and whose revenues in 1990 approached $119,000,000.
With this growth, however, came a significant debt structure, thinly
stretched management and an inability to respond quickly to changing market
conditions. The Company, along with the economy, floundered and drastic
measures were necessary.
In order to reduce the major operating losses reported in Fiscal 1991
through 1994 and simultaneously meet financial obligations, the Company
downsized. Agreements were negotiated with lenders, assets were sold,
operations were liquidated. The culmination of these efforts came in March
1997 with Bank Group debt settlement, and the Company began another chapter
in its history. Refer to Note 1 in the Notes to Consolidated Financial
Statements for details of how the Company arrived at its current, profitable
configuration and details of debt reduction.
Although Williams Industries, Inc. is now a smaller corporation than the
conglomerate it was in the mid-1980s and early 1990s, the Company has evolved
into a highly functional, cohesive entity, much more capable of producing
profit, even on smaller revenues.
Despite its smaller configuration, the Company's remaining subsidiaries,
Greenway Corporation, Piedmont Metal Products, Inc., Williams Bridge Company,
Williams Equipment Corporation, and Williams Steel Erection Company, Inc.,
have the capability of providing a wide range of construction services as
subcontractors on major industrial, commercial, bridge and highway and
governmental construction projects. These services include steel fabrication
and erection; manufacture and installation of non-structural and ornamental
metals; equipment rental, primarily of cranes; and the rigging and
installation of equipment. The Company's ability to provide a wide range of
construction services, often on a rapid-response basis, has strengthened its
reputation as an industry leader in the Mid-Atlantic region.
The construction services are augmented by several administrative
components which provide necessary services for the construction activities
or management of the Company's assets. Of these administrative activities,
Construction Insurance Agency, Inc., Insurance Risk Management Group, Inc.,
and WII Realty Management, Inc., which was established to manage the
Company's real estate, also cultivate outside customers to enhance the
overall profitability of the parent organization.
B. Financial Information About Industry Segments
The Company's activities are divided into three broad categories: (1)
Construction, which includes industrial, commercial and governmental
construction, the construction, repair and rehabilitation of bridges as well
as the rental, sale and service of heavy construction equipment; (2)
Manufacturing, which includes the manufacture of metal products; and (3)
Other, which includes insurance operations and parent company transactions
with unaffiliated parties. Financial information about these segments is
contained in Note 13 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, 1997, 1996 and 1995 as restated
to reflect discontinued operations and the foregoing reclassification of
segments:
Fiscal Year Ended July 31,
-------------------------
1997 1996 1995
---- ---- ----
Construction . . . . . . . . . . . . 65% 59% 62%
Manufacturing. . . . . . . . . . . . 32% 37% 33%
Other. . . . . . . . . . . . . . . . 3% 4% 5%
This mix has changed over the years as the Company continues to organize
its business into a more profitable configuration. While levels of operating
activity in the construction and manufacturing segments are likely to be
maintained for some time going forward, the percentages of total revenue are
expected 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, the
installation of precast and prestressed concrete products, the rental of
construction equipment and the rigging and installation of equipment for
utility and industrial facilities.
The Company owns a wide variety of construction equipment and has
experienced little difficulty in having sufficient equipment to perform its
contracts. Most labor employed by this segment is obtained in the areas
where the particular project is located. Labor in the construction segment
is primarily open shop. The Company has not experienced any significant
labor difficulties. In its construction segment, the Company requires few
raw materials, such as steel or concrete, since these are generally furnished
by and the responsibility of the person who employs 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.
Although revenue derived from any particular customer has fluctuated
significantly in recent years, no single customer has accounted for more than
10% of consolidated revenue.
A significant 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 local, state, and federal 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.
Most of the Company's steel construction revenue 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;
however, the Company is not dependent upon any single customer or contract.
The Company operates its steel erection business primarily in the Mid-
Atlantic area 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 non-
affiliated customers, and the business is not dependent upon any particular
customer.
c. 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. Since management believes that the demand for these services,
particularly by utilities, is relatively stable throughout business cycles,
it is aggressively pursuing the expansion of this phase of its construction
services.
d. Equipment Rental
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. Operating margins
from rentals are attractive because the direct cost of renting is relatively
low. As a result, the Company is aggressively pursuing the expansion of this
phase of its business.
2. Manufacturing
The Company manufactures metal products that are frequently used in
projects on which the Company is providing construction services. Products
fabricated include steel plate girders used in the construction of bridges
and other projects, 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 predominantly open shop. Management
believes that its labor relations in this segment are good.
Competition in this segment, based on price, quality and service, is
intense. Although revenue derived from any particular customer fluctuates
significantly, in recent years no single customer has accounted for more than
10% of consolidated revenue.
a. Steel Manufacturing
The Company has two 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 other plant, located on 17 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.
Both 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. Light Structural Metal Products
The Company fabricates light structural metal products at a Company-
owned facility in Bedford, Virginia. The Bedford plant is located on about
32 acres, of which 21.38 are owned by the parent corporation and 10.56 are
owned by Piedmont Metal Products. For the past two Fiscal years, this
subsidiary 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.
3. General and Insurance
a. General
All segments of the Company are influenced by adverse weather
conditions. Accordingly, 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. This variation is more
pronounced in the construction segment than in the manufacturing segment.
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 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, 1997, the Company had 278
employees, of which 15 were covered by a collective bargaining agreement.
Generally, management believes that its employee relations are good.
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 and a $2,000,000
aggregate. The Company also carries what is known as an "umbrella" policy
which provides limits of $4,000,000 excess of the primary. The primary
policy has a $25,000 deductible; however, it does provide first dollar
defense coverage. If additional coverage is required on a specific project,
the Company makes those purchases.
Workers' Compensation Coverage
Worker's compensation coverage is provided by several programs,
depending on the jurisdiction. In some states, the program is traditionally
insured, while in other states, self-funding mechanisms are used. Since
1987, the Company's "loss modification factor" (an increase or decrease to a
standard premium based on an insured's previous claims experience) on its
workers' compensation insurance premiums declined from a high of 1.73 in 1986
to a low of 0.92 in 1992. The current loss modification factor is less than
1.0. Management attributes this to the strengthening of safety and loss
control measures, education of management and employees in the importance of
compliance at all times with the corporate safety program, along with
constant monitoring of claims to minimize or eliminate costly friction
between the claimant and the Company. The Company strives to be in the
forefront in providing a safe work place for its workers, but, because of the
dangerous nature of its business, injuries do occur. In those cases, the
Company recognizes the personal tragedy that can accompany those injuries and
attempts to provide comfort and individual consideration to the injured party
and his or her family.
Item 2. Properties and Equipment.
At the end of Fiscal Year 1997, the Company owned approximately 89 acres
of industrial property, most of which is being presently utilized.
Approximately 39 acres are near Manassas, in Prince William County, Virginia;
17 acres are in Richmond, Virginia; 32 acres in Bedford, in Virginia's
Piedmont section between Lynchburg and Roanoke; and one acre in Baltimore,
Maryland.
The 3,000 square foot building housing the executive offices of the
Company is located on a 2 1/4 acre parcel owned by the Company in Fairfax
County, Virginia. This parcel also includes a 7,500 square foot two story
masonry building and several smaller structures housing the Company's
insurance operations, its construction group headquarters, accounting and
data processing functions. Portions of this complex also are rented to non-
affiliated third parties.
On September 30, 1997, the Company entered into a contract with a
nonaffiliated third party to sell the 2 1/4 acre headquarters property for
$1,465,000, with the Company to lease back several buildings on the property.
The sale is contingent upon the buyer obtaining all necessary approvals to
operate a school on the site. The transaction is expected to close during
the second quarter and would, if consummated, result in a gain of
approximately $500,000 and in appreciable cash flow benefits going forward
because the cost of leasing the needed space on the property will be lower
than the carrying cost of the debt on the property.
The Company owns numerous large cranes, tractors and trailers and other
equipment. Management believes the equipment is in good condition and is
well maintained. During Fiscal Year 1997, the Company continued to upgrade
its fleet, both with new and used equipment. Expenditures for such equipment
totaled $2.74 million in Fiscal Year 1997. The availability of used
equipment at attractive prices varies primarily with the construction
industry business cycle. The Company attempts to time its purchases and
sales to take advantage of this cycle. All equipment is encumbered by
security interests.
Item 3. Legal Proceedings.
Precision Components Corp.
The Company is party to a suit by Industrial Alloy Fabricators, Inc. and
Precision Components Corp. against Williams Industries, Inc. and IAF Transfer
Corporation, filed in the Circuit Court for the City of Richmond, Law No.
96B02451, seeking $300,000 plus interest and fees arising from a product
liability claim against the Company. The Company retained counsel to respond
to the suit and filed a counterclaim seeking reimbursement of damages caused
by the plaintiffs. The Company intends to aggressively defend this claim.
Trial is now set for November 1997. Management believes that the ultimate
outcome of this matter will not have a material adverse impact on the
Company's financial position, results of operations, or cash flows.
Foss Maritime
The Company's subsidiary, Williams Enterprises, Inc., was named a third
party defendant in a suit pending in the U.S. District for the Western
District of Washington, Foss Maritime v. Salvage Assn. v. Williams
Enterprises & Etalco, #C95-1835R. The suit arises from damage in transit to
cargo which was shipped from Charleston, SC to Bremerton, WA. Williams
Enterprises was hired by Foss Maritime to sea-fasten the cargo according to a
design by Etalco, and the Salvage Association was hired to conduct a marine
survey prior to the voyage. The Salvage Association filed the Third-Party
Complaint, alleging that Williams Enterprises was negligent in the
performance of its work. The damages claimed are approximately $3.6 million,
which was paid by the Cargo Insurance carrier. Williams Enterprises'
exposure under its own liability coverage is $100,000, but the Company
believes that this insurance is not ultimately involved because the agreement
between Foss Maritime and Williams Enterprises was that Williams Enterprises
would be a named insured on Foss's Cargo Insurance policy with a "waiver of
subrogation" endorsement. Although Foss Maritime failed to have Williams
Enterprises named on the policy, management believes that Foss Maritime will
be responsible for any damage or expense incurred by Williams Enterprises.
In addition, the Company disputes that it was in any way responsible for the
damage.
On March 19, 1997, the court entered a Summary Judgment in favor of the
Salvage Association and against Foss Maritime. This effectively ends the
case against Williams Enterprises because the claim was a third-party claim
brought by the Salvage Association. However, Foss has filed an appeal with
the U.S. Court of Appeals for the Ninth Circuit, so the case remains active
until a disposition of the appeal. Management believes that the ultimate
outcome will not have a material adverse impact upon the Company's financial
position, results of operations or cash flows.
Koppleman
The Company has been named a defendant in an action filed in the Circuit
Court for the City of Baltimore, Maryland, by the estate of Joseph Koppleman.
The suit seeks in excess of $2 million in damages for fraud and other
asserted causes of action. The case results from an injury award in favor of
Koppleman against the Company's subsidiary corporations, Harbor Steel
Erectors, Inc. and Arthur Phillips & Company, Inc., (the "Original Judgment
Debtors") in the amount of $270,600, entered in 1995. The claim resulted
from an injury to Mr. Koppleman in 1989. The claim falls within the
deductible of the applicable insurance policy. Because of the plaintiff's
failure to collect their judgment against the Original Judgment Debtors, this
action has been filed, naming as defendants the Company, numerous present and
former subsidiaries, and the insurance carrier and the insurance broker who
were involved in the creation of the insurance arrangement. Management
believes that this case is groundless and that the conduct of the underlying
litigation was appropriate. The Company has retained counsel and intends to
defend this matter aggressively. Management believes that the ultimate
outcome will not have a material adverse impact upon the Company's financial
position, results of operations, or cash flows.
CIGNA Insurance
The Company maintained certain policies of insurance with members of the
CIGNA group of insurance companies during the period from 1986 through 1991.
Certain of those policies provided for what are known as "retrospective
premium adjustments" which depend upon the claims made under the policies.
In February, 1997, the Company received an invoice for $1.1 million which has
been disputed. Pursuant to prior litigation between the Company and CIGNA
which was settled in January 1993, the parties agreed to arbitrate their
disputes in the future. An arbitration proceeding has been commenced
concerning the referenced invoice and the Company intends aggressively to
defend this claim and to press its claims for damages against CIGNA.
Management believes that the ultimate outcome of this matter will not have a
material adverse impact upon the Company's financial position, results of
operations or cash flows.
General
The Company is also party to various other 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 Stock and Related Security Holder
Matters.
The Company's Common Stock was traded on the NASDAQ National Market
System under the symbol (WMSI) until its equity position no longer met NASDAQ
requirements for inclusion in that market. Subsequently, the Company's stock
has traded on the "bulletin boards" and will return to NASDAQ only when it
meets all of the requirements for market listing. 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.
8/1/95 11/1/95 2/1/96 5/1/96 8/1/96 11/1/96 2/1/97 5/1/97
10/31/95 1/31/96 4/30/96 7/31/96 10/31/96 1/31/97 4/30/97 7/31/97
- -------- ------- ------- ------- -------- ------- ------- -------
$3.50 $4.00 $3.93 $5.25 $6.25 $6.38 $5.50 $6.13
$0.75 $2.12 $2.69 $2.50 $3.00 $2.88 $3.13 $3.75
The Company has paid no cash dividends in recent years. While it is the
directors' policy to have the Company pay cash dividends whenever feasible,
the Company's credit agreements prohibit cash dividends without the lenders'
permission. In addition, the need for cash in the Company's business
indicates that cash dividends will not be paid in the foreseeable future.
The prices shown reflect inter-dealer prices, without retail mark-up,
mark-down, or commissions and may not necessarily reflect actual
transactions.
At September 26, 1997, there were 493 holders of record of the Common
Stock.
The Company recently has filed with the Securities and Exchange
Commission a secondary offering of its securities on Form S-2 on behalf
of certain selling shareholders who received stock or convertible
debentures in connection with the transactions (Bank Group, FDIC, and
Pribyla) described elsewhere in this report. The number of shares included
in the Registration is 1,080,294, although certain of those shares are
subject to restriction on their transfer which are effective through December
31, 1998. All of the subject shares are considered outstanding as of the
date of commitment in the calculation of "Earnings Per Share - Fully Diluted"
in the accompanying Consolidated Statements of Operations for the Year Ended
July 31, 1997.
Item 6. Selected Consolidated 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)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Statements of Operations Data:
Revenue:
Construction . . . . . $22.4 $16.1 $19.7 $27.9 $28.0
Manufacturing. . . . . 11.0 10.1 10.3 16.9 21.7
Other. . . . . . . . . 1.0 1.0 1.6 0.8 0.9
----- ----- ----- ----- -----
Total Revenue. . . $34.4 $27.2 $31.6 $45.6 $50.6
===== ===== ===== ===== =====
Gross Profit:
Construction. . . . . $ 8.8 $ 6.2 $ 5.2 $ 4.8 $ 3.5
Manufacturing . . . . 3.2 2.9 3.9 4.2 5.4
Other. . . . .. . . . 1.0 1.0 1.6 0.8 0.9
----- ----- ----- ----- -----
Total Gross Profit . . $13.0 $10.1 $10.7 $ 9.8 $ 9.8
===== ===== ===== ===== =====
Other Income: $ - $ 2.5 $ 0.2 $ - $ -
Expense:
Overhead . . . . . . $ 3.2 $ 2.7 $ 3.0 $ 3.6 $ 3.9
General and
Administrative . 5.8 5.3 9.0 8.1 10.7
Depreciation . . . .. 1.1 1.0 1.2 1.4 1.6
Interest . . . . . .. 1.6 1.5 2.3 1.7 1.5
Income Taxes (1.7) - - - .1
----- ----- ----- ----- -----
Total Expense . . $10.0 $10.5 $15.5 $14.8 $17.8
===== ===== ===== ===== =====
Profit (Loss) from
Continuing Operations $ 3.0 $ 2.1 $(4.6) $(5.0) $(8.0)
Gain (Loss) from
Discontinued
Operations - - 1.4 (4.6) (5.1)
Extraordinary Item -
Gain on Extinguish-
ment of Debt 3.2 0.8 6.6 - -
----- ----- ----- ----- -----
Net Earnings
(Loss) . . . . $6.2 $ 2.9 $ 3.4 $(9.6) $(13.1)
===== ===== ===== ===== =====
Earnings (Loss) Per Share:
From Continuing
Operations...... $1.13 $0.84 $(1.82) (1.98) $(3.20)
From Discontinued
Operations . . . . . - - 0.57 (1.80) (2.01)
Extraordinary Item 1.20 0.31 2.60 - -
----- ----- ----- ----- -----
Earnings (Loss) Per
Share* $2.33 $1.15 $ 1.35 $(3.78) $(5.21)
===== ===== ===== ===== =====
Balance Sheet Data (at end of
year):
Total Assets--Continuing
Operations . . . . . . $31.5 $28.0 $24.6 $38.4 $40.9
Net (Liabilities) Assets
of Discontinued
Operations. . . - - - (1.0) 3.6
Long Term Obligations 7.2 5.8 2.9 5.0 17.2
Total Liabilities 25.0 30.2 29.8 46.1 43.6
Stockholders equity
(Deficiency
in assets) 6.5 (2.2) (5.2) (8.7) 0.9
* No Dividends have been paid on Common Stock during the above period.
During the five years reflected by the above table, the Company
substantially reduced its number of subsidiaries and discontinued operations
in several lines of business. It also disposed of a number of assets, as
discussed in Notes 2 and 7 to the Notes to Consolidated Financial Statements.
These factors are relevant to any comparisons.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company achieved one of its most significant objectives, that of
settling Bank Group debt, in 1997. After many years of struggling with the
downsizing and restructuring necessary to return to profitability and retire
debt, on March 31, 1997, the Company's efforts were rewarded when the final
funds were paid to the Bank Group. The debt forgiveness accompanying this
transaction immediately improved the Company's equity position. Details of
this transaction are contained in Note 1 to the Consolidated Financial
Statements.
In addition to achieving the objective of retiring Bank Group debt, the
Company has also made great strides toward another objective, that of having
consistent operational profitability. The Company's fundamental lines of
business are conducted through the core subsidiaries of Greenway Corporation,
Piedmont Metal Products, Inc., Williams Bridge Company, Williams Equipment
Corporation, and Williams Steel Erection Company, Inc. These operations, on
aggregate, have been profitable for several years.
Management continues to work to enhance the on-going value of Williams
Industries Inc., which, in addition to the companies mentioned above,
includes the parent corporation and several companies, Construction Insurance
Agency, Insurance Risk Management and WII Realty Management, that provide
services both for the core companies and outside customers.
When the Company retired its Bank Group debt, it also entered into a
relationship with a new lender, The CIT Group/Credit Finance, Inc. ("CIT").
Within the framework of a Loan and Security Agreement, the Company
established a credit facility of approximately $3 million with CIT. The loan
is secured by the Company's equipment and receivables, as well as subordinate
deeds of trust on the Company's real estate. The structure of the loan
allows the Company to pay off debt through a variety of mechanisms, such as
the proceeds from the sale of an asset, while also retaining the ability to
borrow against the credit line should the need arise.
In the fourth quarter of Fiscal 1997, the Company upgraded several
components of its fleet while simultaneously paying portions of the CIT debt
with the proceeds from the sale of old equipment.
The new credit facility is also being used to allow the subsidiaries to
negotiate better payment terms on certain transactions, such as the purchase
of materials, by having cash available when necessary.
Another benefit of the settlement of Bank Group debt was the ability of
management to change its focus to other issues, such as developing innovative
methods to obtain quality work and expand market areas to more fully avail
the Company's subsidiaries of new opportunities in traditional market areas.
In addition to its strategic planning for operational activities,
management is also focusing on the relisting of the Company's stock on
NASDAQ. It is anticipated that an application for relisting will be filed
using the audited results from Fiscal 1997. Management knows of no reason at
this time why the application would not be considered favorably by the NASDAQ
Board of Governors, which must review the Company's background and prospects,
as well as its current financial position.
The core companies' profits must be at a level to sustain the parent
operation and any auxiliary services, such as the Williams Industries
Insurance Trust, which is the umbrella organization administering the
Company's insurance programs.
Financial Condition
The financial condition of Williams Industries, Inc. improved throughout
Fiscal 1997, with the most substantial change occurring during the third
quarter when the Company completed debt restructuring with its Bank Group and
cured all outstanding defaults. Details of these transactions are discussed
in Notes 1 and 10 of the Notes to the Consolidated Financial Statements and
included a $3,189,000 gain on extinguishment of debt and the recognition
of a $1.8 million deferred tax asset. A significant portion of these Notes
relate to the Bank Group Debt settlement and accompanying new financial
arrangements, the settlement of old legal issues, and the Company's income
tax provisions.
In addition, the Company reported on-going profitable operations which
were not a result of unusual transactions. These profits are being generated
by the aggregate results of the Company's core subsidiaries, Greenway
Corporation, Piedmont Metal Products, Inc., Williams Bridge Company, Williams
Equipment Corporation, and Williams Steel Erection Company, Inc.
With a few exceptions, the Company has essentially sold all the assets
that are not part of its long-range activities. The remaining assets will be
used in Company businesses.
As the Company culminated its lengthy efforts to restructure its debt
and cure the Bank Group and real estate loan defaults, management began a
more intense focus on NASDAQ relisting and general business development.
With the Bank Group settlement, the accompanying debt forgiveness, the
benefit recognized from the deferred tax asset, and profitable operations,
the Company has returned to a positive equity position of $6.5 million.
This amount exceeds one of the NASDAQ requirements, the $4 million tangible
net worth threshold required for a relisting application to be considered.
The goal of relisting on NASDAQ is paramount in management's thinking and a
variety of efforts will be employed to meet the relisting requirements as
soon as practical without compromising the Company's long-term posture.
The Company is now in compliance with the terms of its debt covenants.
Central Fidelity Bank, the issuer of the Letter of Credit backing the bonds
on the Company's Industrial Revenue Bond (IRB) secured by the Richmond
property, and the Company entered into a new agreement on September 1, 1997,
for a three-year renewal of the Letter of Credit. Approximately $1.54
million remained on this obligation as of July 31, 1997. This does not
include a $200,000 payment which was held in an interest-bearing escrow
account and which was applied against principal on August 1, 1997 according
to the terms of the bond documents.
A number of other issues which had the potential to impact the Company's
future earnings have also been resolved. The settlement and quantification
of expense and exposure to old legal issues such as Pribyla, enables the
Company to be in a much stronger position going forward. Although certain
contingencies are discussed in Note 15 to the Notes to Consolidated Financial
Statements, management believes that major uncertainties that
could have impacted the Company's financial posture have largely been
removed, enabling management, potential creditors and customers to have a
much clearer picture of the Company's financial future.
Bonding
Until recently, the Company had limited ability to furnish payment and
performance bonds for some of its projects. The Company's ability to furnish
payment and performance bonds has improved with the improvement in the
financial condition, but essentially all of its projects have been obtained
without the need to provide bonds. Management does not believe the Company
has lost any significant work in Fiscal 1997 due to bonding concerns.
Liquidity
The Company's liquidity position continues to improve. On-going
operations continue to provide the cash necessary to finance day-to-day
operations and to service debt. In addition, these operations were able to
reduce accounts payable and other accrued expenses by approximately $3.0
million during Fiscal 1997. The Company has a loan of approximately $2.5
million due on December 31, 1997 and plans to repay a portion of the balance
with the proceeds to be received from the sale of its headquarters property
(See Note 17 in the Notes to Consolidated Financial Statements) and refinance
thebalance with a new loan, using other real estate as collateral. The
Company anticipates leasing back a portion of the current headquarters'
property and expects appreciable cash flow benefits going forward because the
cost of leasing the needed space on the property will be lower than the
carrying cost of the debt on the property.
Operations
Each of the Company's core operations has benefited from the increased
activity in the construction marketplace as well as the improved financial
condition of the parent corporation. Once the parent cured its defaults, the
subsidiaries found it much easier to obtain new equipment or supplies based
on their own results and profitability. This trend is expected to continue
and will lead to further improved results through reduced finance costs and
the more efficient delivery of services through enhanced capabilities.
Operations
1. Fiscal Year 1997 Compared to Fiscal Year 1996
"Revenue" shows an improvement from $27,157,512 in Fiscal 1996 to
$34,308,519 in Fiscal 1997, which is attributable to several sources, but
most specific to several "mega" projects undertaken by Williams Steel
Erection Company during the year. The "Other Income" amounts consist of
real estate sales and reflect the varying gains recognized from these
transactions. For details of real estate sales, refer to Note 2 in the Notes
to Consolidated Financial Statements.
For the year ended July 31, 1996, the total construction and
manufacturing revenue was $26,193,901 which compares to $33,363,333 for the
year ended July 31, 1997, or more than a 27 percent increase in revenue. The
Company's joint venture on the large arena in Washington, D.C. is essentially
complete. With the completion of this project, the Company has concluded
essentially all of its "mega" steel erection contracts. There currently are
not any outstanding bids on projects of similar size. As a result, the
Company's backlog has declined from $19 million as of July 31, 1996 to
approximately $12.5 million as of July 31, 1997. In order to increase the
backlog, the Company continues to pursue other joint venture arrangements in
both the construction and manufacturing segments on certain projects which
are greater than $1.0 million in size and complex enough to involve large
quantities of manpower, management time and equipment. The Company's policy
is to enter into joint ventures only where it is at least a 50% partner and
actively participates in the management of the venture. Further, the
Company's policy is to seek to engage in joint ventures with partners who
reputation and status in the industry indicate to management that they are
trustworthy partners. During the course of the MCI Joint Venture, there
were no disputes regarding management, but the agreement did provide for an
alternative dispute resolution mechanism, as will any future joint venture
arrangement.
In continuing the year to year comparisons, several transactions or
sales in both years are highly complicated. For details of these events,
refer to Notes 1 and 2 to the Notes to Consolidated Financial Statements
elsewhere in this document.
Unusual events have contributed to "Profit Before Extraordinary Items"
of $2,982,512 for the year ended July 31, 1997 and the $2,152,847 for the
year ended July 31, 1996, most particularly the $1.8 million deferred income
tax asset recognized in 1997, and the $2.4 million gain on the sale of real
estate recognized in 1996.
With respect to the income tax asset, as a result of tax losses incurred
in prior years, the Company, at July 31, 1997, has tax loss carryforwards
amounting to $15 million. Under Statement of Financial Accounting Standards
No. 109 ("SFAS 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 by reducing the amount of the Company's profitability in future
years during the carryforward period. As a result of the completion of the
restructuring of the Company's Bank Group debt during 1997 and the return to
profitable operations of the Company's ongoing businesses during the past two
years, the Company expects to report profits for income tax purposes in the
future. As a consequence, the Company recognized a $1.8 million portion of
the benefit available from its tax loss carryforwards during the year ended
July 31, 1997.
Revenues for the year ended July 31, 1997 exceeded projected levels and
expenses have been kept to reasonable and customary levels. From a core
company aggregate operating perspective, revenues, gross profit and pre-tax
profit all increased when the years are compared. Overhead expense increased
as a result of increased operational activity. General and Administrative
expense, which does not vary according to revenue levels, increased primarily
as a result of settlement of litigation.
Management believes that the removal of Bank Group debt has greatly
benefited both the parent and subsidiary operations. As a consequence of
better financing terms, the subsidiaries should be able to increase their net
profit margins and become more cost competitive in the marketplace, thereby
allowing further increases in their revenues.
2. Fiscal Year 1996 Compared to Fiscal Year 1995
While Fiscal Years 1996 and 1995 were both profitable, comparisons were
complicated due to significant one time events. In Fiscal Year 1995, the
Company recorded $8.2 million in gains from the extinguishment of debt
compared to $800,000 in Fiscal Year 1996. Fiscal Year 1996 profitability was
achieved through a combination of factors, not the least significant of which
was the $2.4 million gain on the sale of assets which is included in "Other
Income" in the Consolidated Statement of Operations for the year ended July
31, 1996. Total revenue decreased in 1996 by approximately fourteen percent
while gross profit increased from 33.8% to 37.3%.
The revenue decline was a direct result of the cessation of operations
of certain subsidiaries, most notably: John F. Beasley Construction Company,
Williams Enterprises, Inc. and Industrial Alloy Fabricators, Inc. In Fiscal
Year 1995, these operations accounted for revenue of approximately $11.5
million and losses of $3.25 million, compared to revenue of approximately
$280,000 and losses of $300,000 in Fiscal Year 1996.
The Company's consolidated revenue in 1996 was down from 1995, but the
revenues of the core companies each improved, some, such as Williams Steel
Erection Company, Inc. and Williams Bridge Company, by more than 50%. On
aggregate, the five core companies increased revenue by approximately 39%
from 1995 to 1996. Management viewed this improvement as highly significant,
particularly considering the Winter of 1996 was one of the worst in history.
Another area of contrast from 1995 to 1996 was in expenses.
Consolidated expenses declined from $15.5 million in Fiscal Year 1995 to
$10.5 million in Fiscal Year 1996. This decline was also primarily the
result of the Company's decision to cease operations of the previously
mentioned subsidiaries.
Management believed that all the core companies would benefit from the
improvements in the construction marketplace which are occurring in all the
Company's traditional market areas.
Item 8. Williams Industries, Incorporated Consolidated Financial Statements
for the Years ended July 31, 1997, 1996 and 1995.
(See pages which follow.)
Item 9. Disagreements 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 schedule to be held November 22, 1997.
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' Report.
Report of Deloitte & Touche LLP.
Consolidated Balance Sheets as of July 31, 1997 and 1996.
Consolidated Statements of Operations for the Years Ended
July 31, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity (Deficiency
in Assets) for the Years Ended July 31, 1997, 1996 and
1995.
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements for the Years
Ended July 31, 1997, 1996 and 1995.
Schedule II -- Valuation and Qualifying Accounts for
the Years Ended July 31, 1997, 1996, and 1995
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 and By-laws. Incorporated by
reference to Exhibits 3(a) and 3(b) of the Company's 10-K for the
fiscal year ended July 31, 1989.
(11) Primary and Fully Diluted Earnings Per Share Calculation
for the year ended July 31, 1997.
(21) Subsidiaries of the Company.
Name State of
Incorporation
Arthur Phillips & Company, Inc.* MD
John F. Beasley Construction Company* TX
Greenway Corporation MD
IAF Transfer Corporation* VA
Piedmont Metal Products, Inc. VA
Williams Bridge Company VA
Williams Enterprises, Inc.* DC
Williams Equipment Corporation DC
Williams Industries Insurance Trust VA
Capital Benefit Administrators, Inc. VA
Construction Insurance Agency, Inc. VA
Insurance Risk Management Group, Inc. VA
WII Realty Management, Inc. VA
Williams Steel Erection Company VA
* Not Active
(27) Financial Data Schedule
(c) A Form 8-K/A, amending a Form 8-K filed on
April 2, 1997, accompanies this filing.
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.
WILLIAMS INDUSTRIES, INCORPORATED
October 17, 1997 /s/ Frank E. Williams, III
Frank E. Williams, III
President, Chairman of the
Board
Chief Financial Officer