SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
FOR QUARTER ENDED October 31, 1996
Commission File No. 0-8190
WILLIAMS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0899518
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
2849 MEADOW VIEW ROAD, FALLS CHURCH, VIRGINIA 22042
(Address of Principal Executive Offices) (Zip code)
(703) 560-5196
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former names, former address and former fiscal year,
if changes since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for 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
2,576,017
Number of Shares of Common Stock Outstanding at October 31, 1996
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
October 31, July 31,
1996 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,312,088 $ 1,300,867
Accounts and notes receivable 10,975,204 11,109,854
Inventories 2,252,898 2,169,353
Costs and estimated earnings in excess
of billing on uncompleted contracts 391,030 620,199
Investments in unconsolidated affiliates 1,964,125 1,986,300
Property and equipment, not of
accumulated depreciation and amortization 9,393,288 6,452,326
Prepaid expenses and other assets 1,222,047 1,372,853
TOTAL ASSETS $ 27,510,680 $ 28,011,752
LIABILITIES
Notes payable $ 14,793,450 $ 15,142,321
Accounts payable 5,365,537 6,561,815
Accrued compensation, payroll taxes
and amounts withheld from employee 811,643 853,925
Billings in excess of costs and estimated
earing on uncompleted contracts 2,420,747 2,231,188
Other accrued expenses 5,949,329 5,219,248
Income taxes payable 79,576 96,000
TOTAL LIABILITIES
Minority Interests 146,265 131,371
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Common Stock - $0.10 par value,
10,000,000 shares authorized:
2,576,017 shares issued and outstanding 257,602 257,602
Additional paid-in capital 13,147,433 13,147,433
Retained (deficit) (15,460,902) (15,629,149)
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY
IN ASSETS) (2,055,867) (2,224,114)
TOTAL LIABILITIES AND STOCKHOLDER' $27,510,680 $ 28,011,752
EQUITY (DEFICIENCY IN ASSETS)
</TABLE>
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
October 31,
1996 1995
<S> <C> <C>
REVENUE:
Construction $ 5,374,504 $ 3,766,524
Manufacturing 2,371,088 2,154,911
Other 659,558 188,643
Total revenue 8,405,150 6,110,078
DIRECT COSTS
Construction 3,396,151 2,289,943
Manufacturing 1,659,340 1,517,574
Total direct costs 5,055,491 3,807,517
GROSS PROFIT 3,349,659 2,302,561
EXPENSES:
Overhead 780,381 605,203
General and administrative 1,743,648 1,292,955
Depreciation 253,668 216,261
Interest 362,971 382,560
Total expenses 3,140,668 2,496,979
PROFIT (LOSS) BEFORE INCOME TAXES, EQUITY
EARNINGS AND MINORITY INTERESTS 208,991 (194,418)
INCOME TAXES 37,200 23,000
PROFIT (LOSS) BEFORE EQUITY EARNINGS AND
MINORITY INTERESTS 171,791 (217,418)
Equity in earnings of unconsolidated affiliates 11,350 43,710
Minority interest in consolidated subsidiaries (14,894) 770
PROFIT (LOSS) BEFORE EXTRAORDINARY ITEM 168,247 (172,938)
EXTRAORDINARY ITEM
Gain on extinguishment of debt - 348,000
NET PROFIT $ 168,247 $ 175,062
PROFIT (LOSS) PER COMMON SHARE:
Continuing operations 0.07 (0.07)
Extraordinary item
Gain on extinguishment of debt - 348,000
NET PROFIT $ 168,247 $ 175,062
PROFIT (LOSS) PER COMMON SHARE:
Continuing operations $ 0.07 $ (0.07)
Extraordinary item - 0.14
PROFIT PER COMMON SHARE $ 0.07 $ 0.07
</TABLE>
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<CAPTION>
Three Months Ended
October 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $ 168,247 $ 175,062
Adjustments to reconcile net profit to net
cash provided by operating activities:
Depreciation and amortization 253,668 216,261
Gain on extinguishment of debt - (348,000)
Loss on disposal of property, plant and
equipment 8,750 165,398
Minority interests in earnings (losses) 14,894 (770)
Equity in earnings of unconsolidated
affiliates (11,350) (43,710)
Changes in assets and liabilities:
Decrease (increase) in accounts and
notes receivable 134,650 (56,430)
(Increase) decrease in inventories (83,545) 162,428
Decrease in costs and estimated earnings
related to billings on uncompleted
contracts (net) 418,728 311,832
Decrease in prepaid expenses and other
assets 150,806 51,384
Decrease in accounts payable (1,196,278) (320,932)
Decrease in accrued compensation, payroll
taxes, and accounts withheld from employees (42,280) (10,786)
Increase in other accrued expenses 730,081 240,111
(Decrease) increase in income taxes payable (16,424) 21,582
NET CASH PROVIDED BY OPERATING ACTIVITY 529,947 563,430
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and
equipment (221,380) (367,539)
Proceeds from sale of property, plant
and equipment 18,000 436,670
Minority interest in dividends - (6,278)
Dividend from unconsolidated affiliate 33,525 5,588
NET CASH (USED) IN PROVIDED BY
INVESTING ACTIVITIES (169,855) 68,441
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 255,059 504,351
Repayments of notes payable (603,930) (767,928)
Issuance of common stock - 200
NET CASH USED IN FINANCING ACTIVITIES (348,871) (263,377)
NET INCREASE IN CASH AND EQUIVALENTS 11,221 368,494
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,300,867 819,735
CASH AND EQUIVALENTS, END OF PERIOD 1,312,088 1,188,229
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income Taxes $ 53,624 $ 1,418
Interest $ 117,094 $ 60,272
<PAGE>
</TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1996
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accompanying condensed consolidated financial statements have been
prepared in accordance with rules established by the Securities and Exchange
Commission. All financial disclosures required to present the financial
position and results of operations in accordance with generally accepted
accounting principles are not included herein. The reader is referred to the
financial statements included in the annual report to shareholders for the year
ended July 31, 1996. The interim financial information included herein is
unaudited. However, such information reflects all adjustments, consisting
solely of normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position as of
October 31, 1996 and the results of operations for the three months ended
October 31, 1996 and 1995, and cash flows for the three months ended October
31, 1996 and 1995.
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 form those estimates.
Basis of Consolidation - The condensed consolidated financial statements
include the accounts of the Company and all of its active, majority-owned,
subsidiaries, which are as follows:
<TABLE>
<CAPTION>
SUBSIDIARY PERCENT
OWNED
<S> <C>
John F. Beasley Construction Company 100
Greenway Corporation 100
Williams Bridge Company 100
Williams Enterprises, Inc. 100
Williams Equipment Corporation 100
Williams Steel Erection Company, Inc. 100
Williams Industries Insurance Trust 100
Capital Benefit Administrators, Inc. 90
Construction Insurance Agency, Inc. 64
Insurance Risk Management 100
Piedmont Metal Products, Inc. 80
</TABLE>
All material intercompany balances and transactions have been eliminated in
consolidation.
1. NOTES PAYABLE
A. Bank Group Debt
The Company, working in cooperation with its primary lenders, collectively
known as the "Bank Group", continues it efforts toward completing the repayment
of the Bank Group debt.
In 1991, the Company defaulted on a loan and security agreement with its then
primary lenders (referred to as the "Bank Group" throughout this document). At
July 31, 1993, the balance owed on Bank Group Notes was approximately $21
million. After a series of transactions involving the four original primary
lenders, the Bank Group now consisted of NationsBank, N.A. and the Federal
Deposit Insurance Corporation, which own 82% and 18%, respectively, of the
outstanding Bank Group notes.
On September 14, 1993, the Company entered into a Debt Restructuring
Agreement providing for a discounted payoff of Bank Group notes together with
the issuance of Company stock in an amount which would depend upon the amount
of the discount allowed. The Company commenced to perform under the Debt
Restructuring Agreement, and during Fiscal Year 1994 the Company paid
approximately $2 million the Bank Group, But was unable to meet the payment
schedule. At July 31, 1994, the balance owed on Bank Group notes was
approximately $20.5 million plus interest.
On November 30, 1994, the Company and the Bank Group entered into an Amended
and Restated Debt Restructuring Agreement, which modified the schedule of
payments and the amount and form of the equity to be issued. The Amended and
Restated Debt Restructuring Agreement provided for satisfaction of Bank Group
notes upon payment of $11.5 million after August 1, 1994, with $6.957 million
to be forgiven if the Company paid $8 million by January 31, 1995 (The "Initial
Discount"). Upon final satisfaction of Bank Group debt, the Bank Group would
receive a $500,000 convertible subordinated debenture which would be
convertible into approximately 18% of the outstanding stock of the Company.
The Company and Bank Group subsequently agreed to a letter agreement dated
July 21, 1995, which extended the payment schedule through December 31, 1995,
and provided that if the company paid $7.5 million by July 31, 1995, the Bank
Group would forgive $6.6 million, with the balance of the Initial Discount to
be allowed upon the payment of $8 million by September 30, 1995. The Company
paid $7.5 million by July 31, 1995 and received $6.6 million in debt
forgiveness in Fiscal Year 1995, which was reflected on the Fiscal Year 1995
Consolidated Financial Statements as Gain on Extinguishment of Debt. Due to
the substantial payments as well as the debt forgiveness, the balance owed
on Bank Group notes at July 31, 1995 had been reduced to approximately $8.3
million plus accrued interest of $484,000.
The Company also met the $8 million threshold, and it received the balance
of the Initial Discount of $348,000 during the first quarter of Fiscal Year
1996, which is reflected in the accompanying Condensed Consolidated
Statement of Operations for the three months ended October 31, 1995 as Gain on
Extinguishment of Debt. The Company continued its efforts to pay the balance
owed under the Agreement by December 31, 1995, but was unable to meet the
deadline.
The Company and Bank Group negotiated and entered into a Second Modification
to Amended and restated Debt Restructuring Agreement in February, 1996, which
provided for an extension of the payment schedule through April 30, 1996, in
consideration of increasing the payoff amount from $11.5 million to $11.65
million. Through July 31, 1996, the Company had paid approximately $8.3
million. while the formal agreement has expired, the Bank Group has taken no
action to accelerate the indebtedness nor to declare the Company in default,
and the Company continues diligently to pursue the final payoff and resolution
of Bank Group debt. At July 31, 1996, the balance owed on Bank Group notes
had been reduced to approximately $7.3 million plus accrued interest of $1.4
million.
Subsequent to July 31, 1996, the Company made a proposal to the Bank Group,
which is presently under review. The proposal provides for an extension of
the payment schedule in consideration of increasing the payoff amount from
$11.65 to $11.825 million, with the final payoff due March 31, 1997 to come
from an asset based loan, an increase in the Company's existing real estate
loan discussed below, and the continued liquidation of the assets of closed
operations by March 31, 1997.
A replacement asset-based lender, who is acceptable to the Bank Group, has
been identified and the majority of the terms and conditions required by the
replacement lender have been met.
If the proposal to the Bank Group results in agreement, the Company's core
companies would be free and clear of Bank Group debt and the Company would
receive a substantial portion of the balance of the debt forgiveness upon
closing of the asset based loan. Management believes that the continued
liquidation of the John F. Beasley Construction Co., Williams Enterprises, Inc.,
and Arthur Phillips & Co., Inc. assets will produce sufficient cash within
the proposed time for final payoff of Bank Group debt.
B. Real Estate Loan
The Company currently owes NationsBank of Virginia, N.A., approximately
$1.6 million on a real estate loan secured by the Company's real estate in
Prince William County, Virginia and Fairfax County, Virginia. The Company
and the lender are now working to negotiate a new real estate loan.
C. Industrial Revenue Bond
In September 1987, the Company was granted an Industrial Revenue Bond (IRB)
by the City of Richmond not to exceed $2,000,000 for the purpose of acquiring
land and facilities located in the City.
The Company currently is not in compliance with all the covenants contained
in the IRB, generally relating to the Company's overall financial condition.
As of October 31, 1996, approximately $1.5 million was still owed on the debt.
A portion of the property covered by the IRB is now leased to a non-affiliated
third party, and the rent is paid directly against the IRB. No action to
accelerate the obligation has been taken by the lender.
2. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
Accounts and notes receivable consist of the following:
<CAPTION>
October 31, July 31,
1996 1996
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Contracts:
Open accounts $ 8,143,947 $ 8,645,575
Retainage 807,977 689,144
Trade 1,423,305 1,396,207
Contract claims 886,647 886,647
Other 415,111 221,202
Allowance for doubtful accounts (924,345) (953,921)
Total accounts receivable 10,752,622 10,884,854
NOTES RECEIVABLE 222,582 225,000
TOTAL ACCOUNTS AND NOTES RECEIVABLE $10,975,204 $11,109,854
</TABLE>
Included in the above amount at October 31, 1996 is approximately $925,000
that is not expected to be received within one year.
3. 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. These costs are written off when incurred for Federal
income tax purposes. The items are taken into account in the accompanying
statements as follows:
<TABLE>
<CAPTION>
October 31, July 31,
1996 1996
<S> <C> <C>
Equipment held for resale $ 42,786 $ 42,786
Expendable construction equipment
and tools, at average cost which
does not exceed market value 801,039 801,039
Materials, structural steel, metal
decking, and steel cable at
lower of cost or estimated
market value 1,010,583 927,038
Supplies at lower of cost or
estimated market value 398,490 398,490
$2,252,898 $2,169,353
</TABLE>
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 18.3% of the outstanding stock of the Company
own 7.49% of the outstanding stock of Williams Enterprises of Georgia, Inc.
Intercompany billings to and from this entity and other affiliates were not
significant.
Certain shareholders owning 13.8% of the outstanding stock of the Company own
100% of the stock of Williams and Beasley Company. Intercompany billings to
and from this entity and other affiliates during the period ended October 31,
1996 were $175,000.
6. COMMITMENTS/CONTINGENCIES
Pribyla
The Company is a party to a claim for excess medical expenses incurred by a
former officer and shareholder of a subsidiary pursuant to a stock purchase
agreement. On February 10, 1994, judgment was awarded by the District Court of
Dallas, Texas, 134th Judicial District, in favor of Eugene F. Pribyla and Karen
J. Pribyla against the Company and its wholly-owned subsidiary, John F. Beasley
Construction Company, in the principal amount of $2,500,000, plus attorneys
fees of $135,000, for breach of contract. Mr. Pribyla asserted at trial that
the stock purchase agreement, wherein he sold his stock in the Beasley company
to the Company, provided a guarantee of a set level of health insurance
benefits, and that the plaintiffs were damaged when Beasley changed health
insurance companies.
The Company filed a timely appeal in the Texas Court of Civil Appeals, which
resulted in overturning the judgment against Beasley, but affirming the
judgment against the Company. The Company filed a timely Application for Writ
of Error and scheduled oral argument. This decision does not affect the
judgment creditor's right to take action to collect their judgment pending a
decision by the Supreme Court, nor does it necessarily indicate that the result
would be favorable.
Commencing July 1, 1995 and continuing through the date of this filing, the
Company has made weekly forbearance payment to the judgment creditor under a
forbearance agreement.
On September 15, 1996, Mr. Eugene Pribyla died. The Company has reached an
agreement with the judgment holder to settle the dispute, provided a number of
conditions are met. If the conditions are not met, the Company may either seek
an extension of the forbearance agreement or proceed with the aforementioned
appeal.
FDIC
The Company was party to a guaranty under which the FDIC claimed that the
Company was responsible for 50% of the alleged deficiencies on the part of
Atchison & Keller, Inc., the borrower. Suit was filed against the Company for
$350,000, but the FDIC accepted the company's proposal to settle the matter.
In the settlement, the Company was to issue a $100,000 convertible debenture
under which the FDIC would receive 110,000 shares of unregistered stock.
This settlement had not yet been formalized when a management change occurred
at the FDIC. The Company has requested that the FDIC seek approval of a
modification which would allow the Company to redeem the unregistered shares
for a number of registered shares which would depend on their value at the
time of issuance.
Precision Components Corp.
Precision Components Corp. ("PCC"), the buyer of Industrial Alloy
Fabricators' ("IAF") assets, contributed $300,000 to the settlement of a
liability claim against IAF. the Company was advised by counsel that the
voluntary assumption of this liability, which was not to be assumed by the
buyer pursuant to the agreement of the sale, renders this payment not subject
to reimbursement. PCC has made demand upon the Company for reimbursement,
which demand the Company rejects. Subsequently, the Company has been served
with 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. The Company has 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. Management believes that the ultimate outcome of this
matter will not have a material adverse impact on the Company's financial
position or results of operations.
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
trust accruals, coupled with its excess liability coverage, is adequate
coverage for such claims.
7. SUBSEQUENT EVENT
On November 13, 1996, the Company, with the agreement of the Industrial
Revenue Bond holders in Richmond, Virginia, finalized the sale of an office
building on the Richmond property which was part of the real estate
encumbered by the IRB. The proceeds form this $210,000 sale were used to pay
obligations related to the IRB.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
This quarter marks the ninth consecutive quarter in which Williams Industries,
Inc., in its smaller configuration, is reporting a profit. The company
continues to strive to achieve its goal of Bank Group Debt repayment.
The core companies, Greenway Corporation, Piedmont Metal Products, Inc.,
Williams Bridge Company, Williams Equipment Corporation, and Williams Steel
Erection Company, Inc., represent the Company's business focus for the
foreseeable future. These companies, from an aggregate operating perspective,
are working to enhance the on-going value of Williams Industries, Inc. and to
establish a sound base for any future growth. Going forward, core profit
levels will have to be of a magnitude capable of offsetting any losses
incurred by the parent or the supporting subsidiaries.
The core companies' efforts are being augmented by Construction Insurance
Agency, Inc., Insurance Risk Management Group, Inc., the Williams Industries
Insurance Trust, and Capital Benefit Administrators, Inc., which provide
necessary services both for the core companies and outside customers.
The Company still holds some assets which may not be part of the long range
activities for Williams Industries, Inc. These assets may be sold and the
proceeds used to pay Bank Group debt.
Working within the Company's comprehensive long-range plan, management is
taking steps necessary to return the Company to operational profitability
through a combination of measures. These include the removal of Bank Group
debt; expansion of market areas within the core businesses; and further
consolidation of corporate as necessary.
Financial Condition
The Company continues to improve its overall financial position, as
indicated by the accompanying Condensed Consolidated Statements of Operations,
Condensed Consolidated Balance Sheet, and Condensed Consolidated Statements
of Cash Flows.
Operating results show significant improvement. for the three months ended
October 31, 1996, the Company had a net profit of $168,247, seven cents per
share. While this mirrors last year's results of a net profit of $175,062,
also seven cents per share, several significant factors must be taken into
account. In the three months ended October 31, 1995, the company had a loss
of $172,938 before the $348,000 Extraordinary Item, Gain on Extinguishment of
Debt, is taken into account. By contrast, this year's profit includes no
extraordinary items and operating profit nevertheless increased by
approximately $340,000. Revenues have also increased from $6,110,078 for the
three month ended October 31, 1995 to $8,405,150 for the three month ended
October 31, 1996. Approximately $458,000 of the 1996 amount shown as "Other"
revenues represents the proceeds received by the company's subsidiary, John F.
Beasley Construction Company, as the beneficiary of an insurance policy on the
life of Mr. Eugene Pribyla. The 1996 General and Administrative Expenses
include a charge of a similar amount as the company established a reserve to
apply against its expenses in settling a related lawsuit (see Legal Section for
additional details.)
The shareholder's deficiency in assets, which was $5,065,679 a year ago, has
now been reduced to $2,055,867 as of October 31, 1996. Management believes
that this deficiency will be totally eliminated when the final payment is
made on the Bank Group debt.
The company continues its efforts to finalize its Bank Group Debt repayment
and has identified an asset-based lender who is ready to move forward as soon
as the Bank Group makes its decision on a pending Company proposal. Once Bank
Group debt repayment is achieved, the Company believes it will return to a
positive equity position.
As soon as the Company returns to a positive equity position and other
prerequisites are met, the Company intends to petition NASDAQ for relisting.
Preliminary work in this regard has already begun.
BANK GROUP AGREEMENT
As detailed in Note 1 of the Notes to the Condensed Consolidated Financial
Statement included with this filing, the Company continues to work with its
Bank Group. In order to obtain funds necessary to finalize the agreed upon
repayment, the Company has been working to get an asset-based loan to be used
to complete the Bank Group Debt repayment. A replacement lender, who is
acceptable to the Bank Group, has been identified. The lender's terms and
conditions, with the exception of necessary approvals and restructuring
documents from the Bank Group itself, have been satisfied.
Information is exchanged between management and the Bank Group on a regular
basis. Management has every reason to believe that the Bank Group will
continue to allow the Company sufficient time to make the necessary payments
to retire the Bank Group debt while simultaneously allowing the Company enough
flexibility to continue its return to operational profitability.
CENTRAL FIDELITY BANK
The company is not in compliance with the financial covenants contained in its
Industrial Revenue Bond on which approximately $1.5 million was outstanding as
of October 31, 1996. No action to accelerate the obligation has been taken
by the lender.
BONDING
Due to the company's financial condition in recent years, the Company has
limited ability to furnish payment and performance bonds for some of its
contracts. The Company has been able to secure bonds for some of its
projects; however, for the most part, the Company has been able to obtain
projects without providing bonds. Management does not believe the Company
lost any work during the quarter due to bonding concerns.
LIQUIDITY
The company continues to have improved operating results and has returned to
profitable operations. Work continues to be strong in the Company's
traditional marketplaces. Core companies, on aggregate, are generally
producing the funds necessary to cover their operational expenditures.
The proceeds from the sale of assets are being used to pay obligations to the
Bank Group. Management believes that on-going operations will provide the
cash necessary to finance day-to-day operations and to service its other debt.
SALE OF ASSETS
Subsequent to October 31, 1996, the Company sold an office building in
Richmond, Virginia for $210,000. The proceeds were used to pay debt related
to the Industrial Revenue Bond and other expenses on the property.
OPERATIONS
The restructuring of the Company, started in Fiscal Year 1993, is now
essentially complete. The reconfigured corporation has a much smaller, but
more profitable, group of operating companies.
The Core companies include manufacturing, construction and equipment leasing
operations and is composed of Williams Equipment Corporation, Williams Steel
Erection Company, Inc., Greenway Corporation, Williams Bridge Company, and
Piedmont Metal Products, Inc.
The parent corporation, Williams Industries, Inc., and the Williams
Industries Insurance Trust and its subsidiaries, which support core companies'
activities, are the remaining active components of the restructured
corporation.
Several former operations, including Williams Enterprises, Inc., and John F.
Beasley Construction Company, have, for the most part, been sold or liquidated.
However, each of these companies still has administrative activities, such as
collection of receivables and payment of liabilities, which impact results and
therefore, for purposes of financial statement disclosure, their results will
continue to be included in the overall results.
1997 QUARTER COMPARED TO 1996 QUARTER
The Company saw improvement in both its construction and manufacturing
revenue during the first quarter of Fiscal Year 1997. For the three months
ended October 31, 1996, construction revenue increased significantly, due
primarily to the tremendous increase in work occurring at Williams Steel
Erection Company.
Williams Steel's revenues for the 1997 quarter increased by an incredible
72% when compared to the subsidiary's decision to enter into a joint venture
arrangement with another local company to bed on major projects. The joint
venture was successful in obtaining the steel erection work for the MCI Center,
a major new sports complex, in Washington, D.C.
Piedmont Metal Products, the Company's specialty manufacturing facility
located in Bedford, Virginia, has also seen its revenues increase dramatically
when the quarters are compared. In fact, Piedmont's actual percentage of
increase, 76%, is higher than that of Williams Steel, but Piedmont does a much
smaller total volume of work than does its sister company.
Of the remaining core subsidiaries, all but Williams Bridge showed a pre-tax
profit. Williams Bridge, the Company's major manufacturing arm, has sub-
stantially reduced its losses from prior years and is now beginning to see an
improvement in both its backlog and gross margins.
Management believes that all the core companies will benefit from the
improvements in the construction marketplace which are occurring in all the
Company's traditional market areas. Core companies will also greatly benefit
from the removal of the Bank Group debt. Once that obligation is satisfied,
the parent organization will be able to more easily obtain better financing
terms for the subsidiaries, which in turn will allow them to increase their
profit margins.
The combination of the reduction in interest expense and the removal of
losses from operations which have been closed should allow the Company to
continue to be operationally profitable in the future without any
extraordinary items or gain from sale of assets.
Once all of the company's extraordinary business is concluded, 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.
BACKLOG
The Company's backlog of work under contract or otherwise believed to be firm
as of October 31, 1996 was approximately $18,725,600. The number remains high,
despite the large volumes of work completed during the quarter, due to new
work being acquired. It should be noted that two of the core companies,
Greenway Corporation and Williams Equipment Corporation, perform work on a
rapid response basis and therefore only have small amounts included in the
backlog.
Management now firmly believes that the level of work in the Core companies
is sufficient to allow the Company to have adequate work for the fiscal year.
Management estimates that most of the backlog at October 31,1996 will be
completed within the next 12 months if contract schedules are followed.
MANAGEMENT
Managment continues to take a conservative approach to the Company's
business activities. The repayment of Bank Group debt remains a high priority,
as is the Company's maintaining consistent profitability. substantial
standardization is occurring with the Company's remaining subsidiaries.
Strong emphasis continues to be placed on each subsidiary working toward
enhanced consolidated results rather than stressing individual subsidiary
profitability.
PART II
ITEM 1. LEGAL PROCEEDINGS
Pribyla
The Company is a party to a claim for excess medical expenses incurred by a
former officers and shareholder of a subsidiary pursuant to a stock purchase
agreement. On February 10, 1994, judgment was awarded by the District Court
of Dallas, Texas, 134th Judicial District, in favor of Eugene F. Pribyla and
Karen J. Pribyla against the Company and its wholly-owned subsidiary, John F.
Beasley Construction Company, in the principal amount of $2,500,000 plus
attorneys fees of $135,000, for breach of contract. Mr. Pribyla asserted at
trial that the stock purchase agreement, wherein he sold his stock in the
Beasley company to the Company, provided a guarantee of a set level of health
insurance benefits, and that the plaintiffs were damaged when Beasley changed
health insurance companies.
The Company filed a timely appeal in the Texas Court of Civil Appeals,
which resulted in overturning the judgment against Beasley, but affirming the
judgment against the Company. The company filed a timely Application for Writ
of Error to the Texas Supreme Court. During the fourth quarter of Fiscal Year
1996, the Texas Supreme Court granted the Writ of Error and scheduled oral
arguments. This decision does not affect the judgment creditor's right to
take action to collect their judgment pending a decision by the Supreme Court,
nor does it necessarily indicate that the result would be favorable.
Commencing July 1, 1995 and continuing through the date of this filing, the
Company has made weekly forbearance payments to the judgment creditor under
a forbearance agreement.
On September 15, 1996, Mr. Eugene Pribyla died. The company has reached an
agreement with the judgment holder to settle the dispute, provided a number of
conditions are met. If the conditions are not met, the Company may either
seek an extension of the forbearance agreement or proceed with the
aforementioned appeal.
Precision Components Corp.
Precision Components Corp. ("PCC"), the buyer of Industrial Alloy Fabricators'
("IAF") assets, contributed $300,000 to the settlement of a liability claim
against IAF. The Company was advised by counsel that the voluntary assumption
of this liability, which was not to be assumed by the buyer pursuant to the
agreement of the sale, renders this payment not subject to reimbursement. PCC
has made demand upon the Company for reimbursement, which demand the Company
rejects. Subsequently, the Company has been served with 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. The company has 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.
Management believes that the ultimate outcome of this matter will not have a
material adverse impact on the Company's financial position or results of
operations.
FDIC
The company was party to a guaranty under which the FDIC claimed that the
Company was responsible for 50% of the alleged deficiencies on the part of
Atchison & Keller, Inc., the borrower. Suit was filed against the Company
for $350,000, but the FDIC accepted the Company's proposal to settle the
matter. In the settlement, the Company was to issue a $100,000 convertible
debenture under which the FDIC would receive 100,000 shares of unregistered
stock. This settlement had not yet been formalized when a management change
occurred at the FDIC. The company has requested that the FDIC seek approval of
a modification which would allow the company to redeem the unregistered shares
for a number of registered shares which would depend on their value at the
time of issuance.
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 trust
accruals, coupled with its excess liability coverage, is adequate coverage for
such claims.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Bank Group
Williams Industries, Inc. and its subsidiaries are parties to a Credit and
Security Agreement with NationsBank, of Virginia, N.A. (f/k/a Sovran Bank,
N.A.), NationsBank, N.A. (f/k/a American Security Bank, N.A.), and the FDIC
as receiver for the National Bank of Washington and The Washington Bank of
Virginia (the "Bank Group"). The Company and the Bank Group entered into an
Amended and Restated Debt Restructuring Agreement dated as of November 30,
1994, to cure prior defaults. Subsequently, in July 1995, the new schedule
was modified and additional time to repay the obligation has been granted. The
Company and the Bank Group are continuing to work together to finalize
repayment of the obligation.
Central Fidelity
The Company is not in compliance with the covenants contained in its
Industrial Revenue Bond agreement on which approximately $1.5 million was
outstanding as of October 31, 1996. No action to accelerate the Obligation
has been taken by the lender.
ITEM 4. SUBMISSION OF MATTERS TO A VOTER OF SECURITY HOLDERS
On November 16,1996, the shareholders of Williams Industries, Inc. elected a
new board of directors. Elected were: William C. Howlett, R. Bentley Offutt,
Dr. John Rasmussen, Frank E. Williams, Jr., and Frank E. Williams, III. Under
the terms of the Company's By-Laws, it is possible, if it is in the best
interest of the corporation, that an additional member be added to the board
during the course of the fiscal year. This additional member, who would be an
"outside" director, could be added by the Board of Directors on an interim
basis until the next vote of shareholders.
The results of the November 16, 1996 shareholder's election of directors
are as follows:
<TABLE>
<CAPTION>
Nominee For Abstain
<S> <C> <C>
William C. Howlett 2,140,360 7,934
R. Bentley Offutt 2,140,360 7,934
Dr. John Rasmussen 2,140,360 7,934
Frank E. Williams, Jr. 2,140,318 7,936
Frank E. Williams, III 2,140,360 7,934
</TABLE>
The shareholders also voted for the adoption of the 1996 Incentive Compensa-
tion Plan. The vote was as follow:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
2,047,776* 62,350 38,168
</TABLE>
*Of the votes cast FOR the Plan, 929,198 were broker nonvotes which were cast
in favor of the plan pursuant to discretionary authority.
ITME 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS INDUSTRIES, INCORPORATED
December 10, 1996
/s/ Frank E. Williams, III
Frank E. Williams, III
President, Chairman of the
Board
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 1,312,088
<SECURITIES> 0
<RECEIVABLES> 10,050,859
<ALLOWANCES> (924,345)
<INVENTORY> 2,252,898
<CURRENT-ASSETS> 0
<PP&E> 18,940,018
<DEPRECIATION> (9,546,730)
<TOTAL-ASSETS> 27,510,680
<CURRENT-LIABILITIES> 0
<BONDS> 14,793,450
0
0
<COMMON> 257,602
<OTHER-SE> (2,313,469)
<TOTAL-LIABILITY-AND-EQUITY> 27,510,680
<SALES> 0
<TOTAL-REVENUES> 8,405,150
<CGS> 0
<TOTAL-COSTS> 5,055,491
<OTHER-EXPENSES> 2,777,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362,971
<INCOME-PRETAX> 208,991
<INCOME-TAX> 37,200
<INCOME-CONTINUING> 171,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,247
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
