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 January 31, 1997
Commission File No. 0-8190
Williams Industries, Incorporated
(Exact name of registrant as specified in its charter)
Virginia 54-0899518
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification 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 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
2,598,167
Number of Shares of Common Stock Outstanding at January 31, 1997
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
January 31, July 31,
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $1,074,866 $1,300,867
Accounts and notes receivable 10,291,572 11,109,854
Inventories 2,570,942 2,169,353
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,117,633 620,199
Investments in unconsolidated affiliates 1,941,322 1,986,300
Property and equipment, net of accumulated
depreciation and amortization 9,487,851 9,452,326
Prepaid expenses and other assets 1,841,229 1,372,852
TOTAL ASSETS $ 28,325,415 $ 28,011,752
LIABILITIES
Notes payable $15,372,903 $15,142,321
Accounts payable 5,473,372 6,561,815
Accrued compensation, payroll taxes and
amounts withheld from employees 723,197 853,923
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,618,917 2,231,188
Other accrued expenses 5,686,371 5,219,248
Income taxes payable 102,585 96,000
Total Liabilities 29,977,34 30,104,495
Minority Interests 153,066 131,371
STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Common Stock - $0.10 par value, 10,000,000
shares authorized: 2,598,167 and 2,576,017
shares issued and outstanding 259,817 257,602
Additional paid-in capital 13,195,168 13,147,433
Retained (deficit) (15,259,981) (15,629,149)
Total stockholders' equity (deficiency
in assets) (1,804,996) (2,224,114)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY IN ASSETS) $28,325,415 $28,011,752
<FN>
<F1>
See notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
January 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit $369,168 $1,886,624
Adjustments to reconcile net cash used
in operating activities:
Depreciation and amortization 502,829 473,164
Gain on extinguishment of debt - (348,000)
Gain on disposal of property, plant
and equipment (50,998) (2,187,945)
Minority interests in earnings 28,584 2,581
Equity in earnings of unconsolidated
affiliates (5,310) (51,450)
Changes in assets and liabilities:
Decrease in accounts and notes receivable 818,282 35,118
Increase in inventories (401,589) (54,004)
Increase in costs and estimated earnings
related to billings on uncompleted
contracts (net) (109,705) (201,369)
Increase in prepaid expenses and other
assets (468,376) (745,601)
(Decrease) increase in accounts payable (1,088,443) 693,273
(Decrease) increase in accrued
compensation, payroll taxes, and
accounts withheld from employees (130,726) 48,221
Increase (decrease) in other accrued
expenses 467,123 (256,824)
Increase in income taxes payable 6,585 11,870
NET CASH USED IN OPERATING ACTIVITIES (62,576) (694,342)
CASH FLOWS FROM INVESTING ACTIVITES
Expenditures for property, plants and
equipment (718,356) (1,862,488)
Proceeds from sale of property, plant and
equipment 231,000 3,218,746
Minority interest dividends (6,889) (6,278)
Dividends from unconsolidated affiliate 50,288 11,175
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (443,957) 1,361,155
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 1,191,578 2,095,325
Repayments of notes payable (960,996) (2,610,009)
Issuance of common stock 49,950 55,980
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITES 280,532 (458,704)
NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS (226,001) 208,109
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,300,867 819,735
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,074,866 $1,027,844
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $61,415 $13,130
Interest $820,060 $874,984
</TABLE>
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUE
Construction $5,578,513 $3,284,227 $10,953,017 $7,050,751
Manufacturing 2,504,730 2,531,593 4,875,818 4,686,504
Other 248,171 2,679,121 907,729 2,867,764
Total Revenue 8,331,414 8,494,941 16,736,564 14,605,019
DIRECT COSTS
Construction 3,522,141 2,156,153 6,918,292 4,446,096
Manufacturing 1,648,964 1,754,378 3,308,304 3,271,952
Total Direct Costs 5,171,105 3,910,531 10,226,596 7,718,048
GROSS PROFIT 3,160,309 4,584,410 6,509,968 6,886,971
EXPENSES
Overhead 923,894 664,279 1,704,275 1,269,482
General and
Administrative 1,382,457 1,559,527 3,126,105 2,852,482
Depreciation 249,161 256,903 502,829 473,164
Interest 353,346 394,528 716,317 777,088
Total Expenses 2,908,858 2,875,237 6,049,526 5,372,216
PROFIT BEFORE INCOME
TAXES, EQUITY
EARNINGS AND MINORITY
INTERESTS 251,451 1,709,173 460,442 1,514,755
INCOME TAXES 30,800 2,000 68,000 25,000
PROFIT BEFORE EQUITY IN EARNINGS
AND MINORITY INTERESTS 220,651 1,707,173 392,442 1,489,755
Equity in earnings
(loss) of unconsolidated
affiliates (6,040) 7,740 5,310 51,450
Minority interest in consolidated
subsidiaries (13,690) (3,351) (28,584) (2,581)
PROFIT FROM CONTINUING
OPERATIONS 200,921 1,711,562 369,168 1,538,624
EXTRAORDINARY ITEM
Gain on extinguishment
of debt - - - 348,000
NET PROFIT $200,921 $1,711,562 $369,168 $1,886,624
PROFIT PER COMMON SHARE
Continuing operations $0.08 $0.66 $0.14 $0.59
Extraordinary item - 0.14
PROFIT PER COMMON SHARE $0.08 $0.66 $0.14 $0.73
<PAGE>
</TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997
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. Certain 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 January 31, 1997 and the results of operations for the three and six
months ended January 31, 1997 and 1996, and cash flows for the six months
ended January 31, 1997 and 1996.
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.
Basis of Consolidation - The condensed consolidated financial statements
include the accounts of the Company and all of its 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 Industries Insurance Trust 100
Capital Benefit Administrators, Inc. 90
Construction Insurance Agency, Inc. 64
Insurance Risk Management Group, Inc. 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 its efforts toward completing the
repayment of the Bank Group debt. A brief synopsis of this situation is a
follows:
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 ultimately became 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 to 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 accrued 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 18% of the outstanding stock of the Company.
The Company and Bank Group subsequently reached an agreement dated July 21,
1995, which extended the payment schedule through December 31, 195, 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 has been reduced to approximately $8.5
million plus accrued interest of about $500,000.
The Company met the $8 million threshold discussed above and it received the
balance of the Initial Discount of $348,000 during the first quarter of
Fiscal Year 1996, which was reflected in the 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 paid approximately $8.3 million.
At July 31, 1996, the balance owed on Bank Group notes was approximately $7.3
million plus accrued interest of $1.4 million.
During the first quarter of Fiscal 1997, the Company made a proposal to the
Bank Group which provided 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.
The Company continues to negotiate the final terms and conditions of the Bank
Group payoff. During the second quarter of Fiscal 1997, the Company entered
into a non-binding agreement with NationsBank and which they, as agent for
the Bank Group, agreed to recommend to the FDIC and which is pending FDIC
approval. The agreement provided that the final payoff will be effected on
the terms explained in the prior paragraph with the exception that the Bank
Group debenture will be convertible into 20% of the outstanding stock of the
Company instead of the 18% previously agreed. The net impact of this change
is that future earnings of the Company will be diluted by 2.5%.
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 settlement is consummated, the
Company would be free and clear of Bank Group debt and the Company would receive
of the balance of the debt forgiveness upon closing of the asset based loan.
B. Real Estate Loan
The Company currently owes NationsBank of Virginia, N. A., approximately $1.6
million plus accrued interest of approximately $200,000 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 January 31 1997, 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>
January 31, July 31,
1997 1996
<S> <C> <C>
Accounts Receivable:
Contracts:
Open accounts $ 7,024,085 $ 8,645,575
Retainage 914,53 689,144
Trade 1,508,217 1,396,207
Contract claims 747,285 886,647
Other 611,691 221,202
Allowance for doubtful accounts (736,826) (953,921)
Total accounts receivable 10,068,990 10,884,854
Notes Receivable 222,582 225,000
Total Accounts and Notes Receivable $10,291,572 $11,109,854
</TABLE>
Included in the above amount at January 31, 1997 is approximately $732,000
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>
January 31, July 31,
1997 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 803,556 801,039
Materials, structural steel, metal decking,
and steel cable at lower of cost or
estimated market value 1,326,259 927,038
Supplies at lower of cost or
estimated market value 398,341 398,490
$2,570,942 $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
67.49% of the outstanding stock of Williams Enterprises of Georgia, Inc.
Intercompany billings to and from this entity and other affiliates were
approximately $600,000 for the six months ended January 31, 1997.
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 during the six months ended January 31, 1997 were
$371,000.
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 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 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 payments to the judgment creditor under
a forbearance agreement.
On September 15, 1996, Mr. Pribyla died. The Company reached an agreement
with the judgment holder to settle the dispute, provided a number of
conditions are met. This agreement has been informally extended and
management expects the judgment holder will close the settlement in
connection with the Bank Group settlement and the Asset-Based Loan discussed
elsewhere in this document. 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 Corps
The Company is party to a suit by Industrial Alloy Fabricators, Inc. and
Precision Components Corps. against Williams Industries, Inc. and IAF Transfer
Corporation, filed in the Circuit Court for the City of Richmond, Law No.
96B02451. 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. 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 110,000 shares of unregistered
stock. This settlement had not yet been formalized when a management change
occurred at the FDIC. The Company 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. The FDIC rejected the Company's proposal.
Management has decided to go forward with the settlement as previously agreed.
It is expected that the settlement will be concluded during the third quarter.
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
involved because the agreement between Foss and Williams Enterprises was that
Williams Enterprises would be a named insured on the 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 anyway responsible for the
damage. Management believes that the ultimate outcome will not have a
material adverse impact upon the Company's financial position or results of
operations.
General
The Company is also party to various other claims arising in he
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 excess liability coverage, is adequate
coverage for such claims.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Williams Industries, Inc., once again is reporting profitable operations,
none of which resulted from extraordinary or unusual, non-recurring
transactions. The company is still working to finalize arrangements for 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 current business focus. These
companies, from an aggregate operating perspective, are enhancing the
on-going value of Williams Industries, Inc. and are establishing a base for
future growth. Going forward, core profit levels must be of a magnitude
capable of offsetting any losses incurred by the parent or the supporting
subsidiaries.
The core companies' efforts are 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.
WII Realty Management, Inc. was established during the second quarter to own
and manage the Company's real estate assets. The company has transferred its
Fairfax and Prince William County, Virginia real estate to this subsidiary.
Management believes that the separation of its real estate assets will
result in better and more efficient management of these assets.
In addition to the assets that the Company will retain and use for its own
operations or for rental, the Company also has certain assets which may not
be part of its long range activities. These assets may be sold and the
proceeds used to pay debt.
Financial Condition
The Company's overall financial position and operations, as presented in the
accompanying Condensed Consolidated Statements of Operations, Condensed
Consolidated Balance Sheet, and Condensed Consolidated Statements of Cash
Flows, continues to improve.
Substantial improvement was noted in construction revenue for the quarter
ended January 31, 1997. A significant portion of this improvement can be
attributed to the difference in two factors; the weather and the general
construction marketplace. The severe winter weather of 1996 kept
construction revenues down while the mild weather of the winter of 1997 has
allowed work, for the most part, to continue without significant interruption.
Additionally, there is more overall activity in the Company's traditional
market areas.
For the three months ended January 31, 1997, the Company had a net profit of
$200,921, or eight cents per share. While this may seem to be a poor result
next to the $1,711,562, or $0.66 per share, of net profit in the second
quarter of 1996, comparisons must be made which take into account the fact
that the 1996 profit included approximately $2.2 million derived from the
sale of land to the Virginia Department of Transportation.
Construction revenues increased from $3,284,227 for the three months ended
January 31, 1996 to $5,578,513 for the three months ended January 31, 1997.
Manufacturing revenues declined slightly from $2,531,503 for the three months
ended January 31, 1996 to $2,504,730 for the three months ended January 31,
1997. "Other Revenue" declined from $2,679,121 for the three months ended
January 31, 1996 to $248,171 for the quarter ended January 31, 1997 due
primarily to the real estate transaction already discussed.
The shareholder's deficiency in assets, which was $3,298,337 in January 1996,
has now been reduced to $1,804,996 as of January 31, 1997. The Company
continues its efforts to finalize its Bank Group Debt repayment. 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 take
necessary steps for relisting on a major exchange. 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 obtain an assetbased
loan to be used to complete the Band Group Debt repayment. A replacement
lender, who is acceptable to the Bank Group, has been identified and the
lender's terms and conditions have essentially been satisfied.
Management believes that the Bank Group will continue to allow the Company
sufficient time to make the necessary payments to retire the Bank Group debt.
Central Fidelity Bank
The Company is not in compliance with the covenants contained in its
Industrial Revenue Bond on which approximately $1.5 million was outstanding
as of January 31, 1997. 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
has lost any significant work due to bonding concerns in recent years.
Liquidity
The Company continues to achieve improved operating results and has returned
to profitable operations. Work continues to be strong in the Company's
traditional marketplaces. The core companies, on aggregate, are 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
On November 13, 1996, the Company, with the agreement of the Industrial
Revenue Bond (IRB) 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 from this $210,000 sale were used to pay
obligations related to the IRB.
Operations
The Company's core operations in manufacturing, construction and equipment
leasing continue to be, on aggregate, profitable. Each of the core
operations, which include Williams Equipment Corporation, Williams Steel
Erection Company, Inc., Greenway Corporation, Williams Bridge Company, and
Piedmont Metal Products, Inc., have seen their operating results improve
along with overall improvements in their traditional market areas. Several
of the core companies are also expanding their geographic base of operations
a result of successful bids on competitive contracts.
The parent corporation, Williams Industries, Inc., WII Realty Management,
Inc., and the Williams Industries Insurance Trust and its subsidiaries,
which support core companies' activities, are the remaining active
components of the Company.
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;
therefore, their results will continue to be included in the overall results.
1997 Quarter Compared to 1996 Quarter
The second quarter of Fiscal 1997 was superior in almost every operating
aspect to the second quarter of Fiscal 1996. Each of the core operations
had an improvement in gross profit margins. All but one of the core
operations saw a significant increase in overall revenue due to the
superior weather in 1997 and the general strengthening of the construction
market in traditional service areas.
On a percentage basis, Williams Steel Erection Company experienced the
largest growth in its revenues, improving by more than 45% when the second
quarter of Fiscal 1997 is compared to the second quarter of Fiscal 1996. The
greatest improvement in gross profit margins, however, came at Williams
Equipment Corporation, which saw a 49% improvement in Fiscal 1997 when the
second quarters are compared.
Gross profit margins improved at all the core subsidiaries despite the fact
that one, Williams Bridge Company, the Company's major manufacturing arm, had
a slight decline in overall revenue for the second quarter of Fiscal 1997
when compared to the second quarter of Fiscal 1996. Williams Bridge had a
small pre-tax loss, but continues to see an improvement in both its backlog
and gross margins.
The remaining two core companies, Greenway Corporation and Piedmont Metal
Products, both had improved results in revenues, gross profit and pre-tax
profit. Greenway's gross profit improved by nearly 42%, while Piedmont's
gross profit went up by more than 27% when the second quarter of Fiscal 1997
is compared to that of Fiscal 1996. Each of these operations also
experienced significant increases in pre-tax profits.
Management believes that all the core companies will continue to benefit
from the improvements in the construction marketplace which are occurring in
all the Company's traditional market areas. The core companies will also
benefit from the removal of the Bank Group debt. Once that obligation is
satisfied, the Company should be able to obtain better financing terms,
which in turn should allow the subsidiaries 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. However, 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.
Six Months Ended January 31, 1997 Compared to Comparable 1996 Period
The year-to-date comparisons are similar to those for the quarterly
comparisons in that each of the core companies, with one exception, experienced
an improvement in revenues, gross profit and pre-tax profit when the six
months ended January 31, 1997 are compared to the six months ended
January 31, 1996.
For the six months ended January 31, 1997, Williams Steel Erection Company
had a significant improvement in revenue which translated into increases in
both gross profit and pre-tax profit. A portion of this increase is
attributed to the subsidiary's decision to enter into joint venture
arrangements with another local company to bid on major projects. One such
joint venture was successful in obtaining the steel erection work for the
MCI Center, a major new sports complex, in Washington, D. C.
The Company's two smallest core subsidiaries, Greenway Corporation and
Piedmont Metal Products, have both had outstanding results when the six
months ended January 31, 1997 is compared to the six months ended January 31,
1996. While Greenway's revenues increased by less than ten percent, its
gross profit level improved by more than 30 percent. At Piedmont, both revenue
and gross profit improved by approximately 33 percent.
Although management recognizes that the improved weather and market
conditions of 1997 played a significant role in all of these improvements, it
is also believed that the core companies have all become more effective in
bidding and obtaining quality work while simultaneously developing cost-saving
methods to produce the work once it is obtained. This belief is reflected by
the reduction in costs in a number of significant areas, such as the purchase
of raw materials, management of existing assets and the acquisition of
replacement assets at highly competitive rates and terms.
Total revenue for the six months ended January 31, 1997 improved for both
construction and manufacturing when compared to the six months ended January
31, 1996. Manufacturing costs, however, actually declined on the higher
revenue, which serves to illustrate management's belief that a number of
factors besides weather and improved market conditions are contributing to
the Company's overall profits.
It is also relevant to note that the results for the six months ended January
31, 1996 include the $2.2 million gain from the real estate transaction
described in the quarter to quarter comparison and an additional $348,000 in
gain on extinguishment of debt, which occurred as a result of debt
forgiveness from the Bank Group. The results for the six months ended
January 31, 1997 include no unusual items and only a third as much "Other"
revenue when compared to the prior year.
BACKLOG
The Company's backlog of work under contract or otherwise believed to be
firm as of January 31, 1997 was $17,040,369. 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 believes that the level of work in the core companies is sufficient
to allow the Company to have adequate work for the remainder of the fiscal
year and that most of the backlog will be completed within the next 12 months
if contract schedules are followed.
Management
Management 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 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 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 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 payments to the judgment creditor under
a forbearance agreement.
On September 15, 1996, Mr. Pribyla died. The Company reached an agreement
with the judgment holder to settle the dispute, provided a number of conditions
are met. This agreement has been informally extended and management expects
that the judgment holder will close the settlement in connection with the
Bank Group settlement and Asset Based Loan discussed elsewhere. 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.
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. 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. 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 agreed 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 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. The FDIC rejected the Company's proposal. Management has
decided to go forward with the settlement as previously agreed. It is
expected that the settlement will be concluded during the third quarter.
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 seafasten 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
relevant because the agreement between Foss and Williams Enterprises was that
Williams Enterprises would be a named insured on the Cargo Insurance policy with
a "waiver of subrogation" endorsement. Because 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. Management believes that the ultimate outcome will not have a
material adverse impact upon 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
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 was been granted.
Additional extension documents have been executed. The Company and the
Bank Group continue 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 January 31, 1997. No action to accelerate the obligation
has been taken by the lender.
ITEM 4. Submission of Matters to a Vote 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 7,976
Frank E. Williams, III 2,140,360 7,934
</TABLE>
The shareholders also voted for the adoption of the 1996 Incentive Compensation
Plan. The vote was as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <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.
ITEM 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
March 10, 1997 /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> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 1,074,866
<SECURITIES> 0
<RECEIVABLES> 11,028,398
<ALLOWANCES> (736,826)
<INVENTORY> 2,570,942
<CURRENT-ASSETS> 0
<PP&E> 19,020,926
<DEPRECIATION> (9,533,075)
<TOTAL-ASSETS> 28,325,415
<CURRENT-LIABILITIES> 0
<BONDS> 15,372,903
0
0
<COMMON> 259,817
<OTHER-SE> (2,064,813)
<TOTAL-LIABILITY-AND-EQUITY> 28,325,415
<SALES> 0
<TOTAL-REVENUES> 16,736,564
<CGS> 0
<TOTAL-COSTS> 10,226,596
<OTHER-EXPENSES> 5,333,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 716,317
<INCOME-PRETAX> 460,442
<INCOME-TAX> 68,000
<INCOME-CONTINUING> 392,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 369,168
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
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