SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
FOR QUARTER ENDED April 30, 1998
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 (IRS Employer
incorporation or organization) Identification No.)
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 Section 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
3,574,754
Number of Shares of Common Stock Outstanding at April 30, 1998
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
April 30, July 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents 855,486 1,867,144
Restricted Cash 33,794 252,412
Accounts and notes receivable 11,651,307 10,322,033
Inventories 2,119,417 2,727,814
Costs and estimated earnings in
excess of billings on
uncompleted contracts 263,260 845,325
Investments in unconsolidated affiliates 955,769 1,770,940
Property and equipment, net of
accumulated depreciation and
amortization of $9,253,729
and $9,387,155 9,608,959 10,686,243
Prepaid expenses and other assets 1,531,544 1,217,808
Deferred income taxes 1,670,000 1,800,000
TOTAL ASSETS 28,689,536 31,489,719
LIABILITIES
Notes payable 10,958,535 12,638,056
Accounts payable 4,369,534 4,842,837
Accrued compensation, payroll taxes
and amounts withheld from employees 616,621 694,634
Billings in excess of costs and
estimated earnings on uncompleted
contracts 2,396,731 2,972,587
Other accrued expenses 2,440,895 3,531,599
Income taxes payable 141,000 108,000
Total Liabilities 20,923,316 24,787,713
Minority Interests 187,979 170,237
STOCKHOLDERS' EQUITY
Common stock - $0.10 par value,
10,000,000 shares authorized:
3,574,754 and 2,839,756 shares
issued and outstanding 357,476 283,976
Additional paid-in capital 16,376,958 15,705,430
Accumulated deficit (9,156,193) (9,457,637)
Total Stockholders' Equity 7,578,241 6,531,769
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 28,689,536 31,489,719
</TABLE>
See notes to condensed consolidated financial statements.
</PAGE>
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUE
Construction 5,254,976 5,933,637 12,296,047 16,886,654
Manufacturing 2,396,992 3,113,824 7,323,085 7,989,642
Other 194,949 267,637 644,116 1,115,331
Total Revenue 7,846,917 9,315,098 20,263,248 25,991,627
DIRECT COSTS
Construction 2,962,243 3,796,929 7,070,061 10,715,221
Manufacturing 1,534,718 2,267,868 5,475,359 5,576,172
Total Direct
Costs 4,496,961 6,064,797 12,545,420 16,291,393
GROSS PROFIT 3,349,956 3,250,301 7,717,828 9,700,234
OTHER INCOME - - 564,051 60,065
EXPENSES
Overhead 767,842 783,294 2,238,844 2,487,569
General and
Administrative 1,580,524 1,477,101 3,727,263 4,603,206
Depreciation 301,020 263,417 912,076 766,246
Interest 326,387 466,110 947,239 1,182,427
Total Expenses 2,975,773 2,989,922 7,825,422 9,039,448
PROFIT BEFORE
INCOME TAXES, EQUITY
EARNINGS AND MINORITY
INTERESTS 374,183 260,379 456,457 720,821
INCOME TAX (BENEFIT)
PROVISION 109,400 (1,752,000) 168,800
(1,684,000)
PROFIT BEFORE EQUITY
IN EARNINGS AND
MINORITY
INTERESTS 264,783 2,012,379 287,657 2,404,821
Equity in (loss)
earnings of
unconsolidated
affiliates 19,400 9,380 (770,471) 14,690
Minority interest
in income of
consolidated
subsidiaries (4,168) (10,079) (24,742) (38,663)
PROFIT BEFORE
EXTRAORDINARY ITEM 280,015 2,011,680 (507,556) 2,380,848
EXTRAORDINARY ITEM
Gain on
extinguishment
of debt - 3,189,000 809,000 3,189,000
NET PROFIT 280,015 5,200,680 301,444 5,569,848
PROFIT PER
COMMON SHARE-PRIMARY
(Loss) Profit before
extraordinary item 0.08 0.77 (0.16) 0.92
Extraordinary item - 1.23 0.26 1.23
PROFIT PER COMMON
SHARE-PRIMARY 0.08 2.00 0.10 2.15
PROFIT PER COMMON SHARE-
ASSUMING DILUTION
(NOTE 9)
Profit before
extraordinary item 0.08 0.75 (0.13) 0.95
Extraordinary item - 1.15 0.22 1.15
PROFIT PER COMMON SHARE-
ASSUMING DILUTION 0.08 1.90 0.09 2.10
</TABLE>
See notes to condensed consolidated financial
statements.
</PAGE>
<PAGE>
<TABLE>
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
April 30, April 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit 301,444 5,569,848
Adjustments to reconcile net cash
used in operating activities:
Depreciation and amortization 912,076 766,246
Interest expense related to
convertible debentures - 269,937
Gain on extinguishment of debt (809,000) (3,189,000)
Gain on disposal of property,
plant and equipment (777,045) (337,214)
Decrease (increase) in deferred
income taxes 130,000 (1,800,000)
Minority interests in earnings 24,742 38,663
Equity in loss (earnings) of
unconsolidated affiliates 770,471 (14,690)
Changes in assets and liabilities:
Increase in accounts and notes
receivable (1,329,274) (579,457)
Decrease (increase) in inventories 608,397 (380,401)
Decrease in costs and estimated
earnings related to billings
on uncompleted contracts (net) 6,209 1,014,055
Increase in prepaid expenses and
other assets (313,736) (266,700)
Increase (decrease) in accounts
payable 299,556 (1,119,423)
Decrease in accrued compensation,
payroll taxes, and amounts
withheld from employees (78,013) (72,527)
Decrease in other accrued expenses (277,168) (611,840)
Increase in income taxes payable 33,000 44,018
NET CASH USED IN OPERATING ACTIVITIES (568,341) (641,485)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property,
plant and equipment (916,906) (2,512,351)
Proceeds from sale of property,
plant and equipment 1,859,159 595,846
Decrease in restricted cash 218,618 -
Minority interest dividends (7,000) (9,998)
Dividends from unconsolidated
affiliate 44,700 50,288
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,198,571 (1,876,215)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 3,523,583 8,171,851
Repayments of notes payable (5,310,499) (5,297,593)
Issuance of common stock 145,028 141,275
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,641,888) 3,015,533
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,011,658) 497,833
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,867,144 1,300,867
CASH AND CASH EQUIVALENTS,
END OF PERIOD 855,486 1,798,700
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Income taxes 8,400 71,982
Interest 921,682 849,778
</TABLE>
See notes to condensed consolidated financial
statements.
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998
1. 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, 1997. 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
April 30, 1998 and the results of operations for the three and
nine months ended April 30, 1998 and 1997, and cash flows for
the
nine months ended April 30, 1998 and 1997.
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
WII Realty Management, Inc. 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 Group, Inc. 100
Piedmont Metal Products, Inc. 80
</TABLE>
All material intercompany balances and transactions have
been eliminated in consolidation.
2. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
Accounts and notes receivable consist of the following:
<CAPTION>
April 30, July 31,
1998 1997
<S> <C> <C>
Accounts Receivable:
Contracts:
Open accounts $ 9,368,097 $ 7,940,532
Retainage 488,246 563,730
Trade 1,650,052 1,642,121
Contract claims 1,000,000 534,025
Other 350,505 188,567
Allowance for doubtful
accounts (1,378,071) ( 758,141)
Total accounts receivable 11,478,829 10,110,834
Notes Receivable 172,478 211,199
Total Accounts and Notes
Receivable $11,651,307 $10,322,033
</TABLE>
The "Contract claims" receivable category reflects an
increase resulting from the settlement of a claim. Subsequent
to
April 30, 1998, the Company collected $1 million under the
settlement.
Included in the totals above at April 30, 1998 is
approximately $139,700 that is not expected to be received
within
one year.
3. NOTES PAYABLE
A. CIT: The Company's primary credit facility is with CIT
Group/Credit Finance, Inc., under a Loan and Security Agreement
for a line of credit of approximately $3 million. This loan
requires monthly principal payments as well as interest at prime
plus 2.5%. The loan has a three year term and is due March
2000.
This loan is secured by the Company's equipment and receivables
as
well as subordinate deeds of trust on certain real estate.
As of April 30, 1998, approximately $1,953,000 was owed
under the terms of this agreement.
B. NationsBank/Franklin National Bank: On April 30, 1998, the
Company closed a transaction regarding its loan from NationsBank
with the assignment and modification of the balance to Franklin
National Bank of Washington, D. C. The transaction resulted in
the interest rate being reduced from 11% to 9.5% fixed for five
years, with monthly payments calculated on a fifteen year
amortization and a five year balloon payment. As of April 30,
1998, the balance of the loan was $1 million.
C. Pribyla: The Company continues to make $8,000 monthly
payments under a promissory note to Mrs. Karen Pribyla. The
"present value" of the note if it were paid off as of April 30,
1998 was approximately $475,000. Payments are current.
D. Industrial Revenue Bond: The Company has a Letter of
Credit
with Wachovia Bank, N.A., the successor to Central Fidelity
National Bank, which serves as collateral for the Industrial
Revenue Bond issue, secured by real estate in the City of
Richmond. As of April 30, 1998, the outstanding balance was
approximately $1,265,000. Principal payments are due in
increasing amounts through the maturity of the bonds in 2007. A
portion of the property covered by the Industrial Revenue Bond
is
leased by a non-affiliated third party.
4. INVENTORIES
Inventory of equipment held for resale, materials and
supplies are valued at the lower of cost or estimated market
value, as follows:
<TABLE>
<CAPTION>
April 30, July
31,
1998 1997
<S> <C> <C>
Equipment held for resale $ 777,670 $ 761,565
Materials, structural steel, metal
decking, and steel cable 966,937 1,551,742
Supplies 374,810 414,507
---------- ----------
$2,119,417 $2,727,814
========== ==========
5. RELATED-PARTY TRANSACTIONS
Certain shareholders owning 14.3% of the outstanding stock
of the Company own controlling interest in the outstanding stock
of Williams Enterprises of Georgia, Inc. Billings to this
entity
and other affiliates were approximately $779,000 and $1,173,000
for the three and nine months ended April 30, 1998. Billings
to
this entity and other affiliates were approximately $341,000 and
$941,000 in the three and nine months ended April 30, 1997.
Certain shareholders owning 10.2% of the outstanding stock
of the Company own 100% of the stock of Williams and Beasley
Company. Billings from this entity during the three and nine
months ended April 30, 1998 were approximately $0 and $57,000.
Billings from this entity during the three and nine months ended
April 30, 1997 were $43,000 and $414,000.
During the quarter ended April 30, 1998, the Company
borrowed $75,000 from an officer, which was repaid on May 14,
1998. The money was used to redeem one of the FDIC debentures.
COMMITMENTS/CONTINGENCIES
A: INDUSTRIAL REVENUE BOND: The Company has a Letter of Credit
with Wachovia Bank, N.A., the successor to Central Fidelity
National Bank, which serves as collateral for the Industrial
Revenue Bond issue, secured by real estate in the City of
Richmond. As of April 30, 1998, the outstanding balance was
approximately $1,265,000. Principal payments are due in
increasing amounts through the maturity of the bonds in 2007. A
portion of the property covered by the Industrial Revenue Bond
is
leased by a non-affiliated third party.
B: PRECISION COMPONENTS CORPORATION: The Company received a
favorable decision in this case, and judgment in favor of the
Company was entered on March 4, 1998 by the Circuit Court for
the
City of Richmond. The plaintiffs, Industrial Alloy Fabricators,
Inc. and Precision Components Corp., have noted an appeal to the
Supreme Court of Virginia. The appeal, against Williams
Industries, Inc. and IAF Transfer Corporation, deals with the
plaintiffs suit for $300,000 plus interest and fees arising from
a product liability claim against the Company. Management
believes the ultimate outcome will not have a material adverse
impact on the Company's financial position, results of
operations or cash flows.
C: FALLS CHURCH PROPERTY At the time of the sale of this
property, January 28, 1998, the Company entered into a
lease-back
arrangement for three buildings in the complex. Maximum future
lease payments for the Falls Church property are $32,800,
$132,500, $135,000, and $91,000 for the fiscal years ending July
31, 1998, 1999, 2000, and 2001, respectively.
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.
7. RECENT ACCOUNTING PRONOUNCEMENTS
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 to issued 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.
8. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended April 30, 1998, NationsBank, N.A.
converted its $410,000 Convertible Debenture into the previously
agreed upon 16.4% of the Company's common stock outstanding and
committed at the time of conversion. On February 6, 1998, a
certificate for 77,596 unrestricted shares and a certificate for
543,170 restricted shares of the Company's stock were delivered
to
NationsBank. There are legal stipulations restricting the
transfer of the bank's shares. The holder can sell no more
than
1/8th of the shares during each quarter commencing April 1,
1997.
Due to the cancellation of other commitments to issue stock,
explained elsewhere in this document, as of April 30, 1998,
NationsBank, N.A. owned 17.36% of the Company's outstanding
common
stock. As a result of the NationsBank conversion, additional
paid-in capital in the Company increased by approximately
$453,000, note payable decreased by $410,000, and interest
expense
of $43,000 was recorded.
On March 2, 1998, the Company redeemed its outstanding
$90,000 Convertible Debenture with the Federal Deposit Insurance
Corporation (FDIC) at its face value. The FDIC did not give
notice of conversion for the debenture, which would have
converted
into 3.6% of the Company's common stock outstanding or
approximately 136,000 shares.
On April 3, 1998, the Company redeemed at face value a
second debenture from the FDIC for $75,000. If this debenture
had
converted, 110,294 shares of the Company's common stock would
have been issued.
During the nine months ended April 30, 1998, the Company
entered into several financing agreements to acquire assets with
a
cost of approximately $423,000.
9. EARNINGS PER SHARE
SFAS 128 "Earnings per Share", which became effective for
financial statement periods ending after December 15, 1997,
requires that a reconciliation of the numerators and the
denominators of the basic and diluted per-share computations for
income from continuing operations be presented for each period
for
which the income statement is presented. Reconciliations for
the
three months and nine months ended April 30, 1998 and 1997 are
presented herein.
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended April 30,
1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Profit before
Extraordinary Item $280,015
Basic EPS
Profit available
to common stockholders 280,015 $3,528,489 $0.08
=======
Effect of Dilutive
Securities
Convertible debentures 0 145,607
---------
Diluted EPS
Profit available to
common stockholders
+ assumed conversions $280,015 3,674,096 $0.08
======== ========== ======
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended April 30,
1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Loss Before
Extraordinary Item (507,556)
Basic and Diluted EPS
Loss available
to common stockholders (507,556) 3,092,578 ($0.16)
========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended April 30,
1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Profit before
extraordinary item $2,011,680
Basic EPS
Profit available
to common stockholders 2,011,680 2,600,800 $0.77
=====
Effect of Dilutive Securities
Convertible debentures 269,669 441,710
Diluted EPS
Profit available to
common stockholders
+ assumed conversions $2,281,349 3,042,510 $0.75
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended April 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Profit before
extraordinary item $2,380,848
Basic and Diluted EPS
Profit available
to common stockholders 2,380,848 2,585,908 $0.92
========= ========= =====
</TABLE>
During the quarter ended April 30, 1998, the Company issued
620,766 shares to NationsBank N.A. upon conversion of their
debenture. The Company redeemed two debentures from the FDIC
for
$165,000 and therefore did not have to issue at least 246,560
shares reserved for the FDIC and previously noted as dilutive
securities.
The objective of the basic EPS is to measure the
performance
of an entity over the reporting period. Basic EPS is computed
by
dividing the income available to common stockholders (the
numerator) by the weighted-average number of common shares
outstanding (the denominator) during the period. Shares issued
during the period and shares reacquired during the period are
weighted for the portion of the period that they were
outstanding.
10. YEAR 2000
The Company is developing a plan to assure that its
computers are Year 2000 complaint and has begun converting its
computer systems to be Year 2000 complaint. The plan calls for
the conversion efforts to be completed by the end of the Fiscal
Year ending July 31, 1999. The Year 2000 issues are result from
some computer programs being written using two digits rather
than
four to define applicable years. The maximum total cost of the
conversion project is estimated to be $200,000 and will be
funded
through operating cash flows and financing.
Item 2. Management's Discussion and Analysis
Financial Condition and Results of Operations
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 forward-looking statements are
cautioned that such statements are not a guarantee of future
performance by the Company and that such forward-looking
statements are subject to risks and uncertainties that could
cause
actual results to differ materially from those expressed in, or
implied by, such statements. Some, but not all of the risks and
uncertainties, in addition to those specifically set forth
above,
include general economic and weather conditions, market prices,
environmental and safety laws and policies, federal and state
regulatory and legislative actions, tax rates and policies,
rates
of interest and changes in accounting principles or the
application of such principles to the Company.
General
The third quarter of Fiscal 1998 was marked by several
significant events for the Company, including relisting on the
Nasdaq National Market system, the completion of the Company's
five year debt restructuring program and the settlement of some
old, major claims. These items enhanced both the Company's
third
quarter results and its visibility.
Having achieved its goals of debt restructuring and Nasdaq
relisting, the Company now has a strong financial and
operational
base from which its subsidiaries, either through internal growth
or strategic acquisitions, can grow and enhance future financial
results.
Financial Condition
As explained in Note 3 in the accompanying Notes to
Condensed Financial Statements, the Company refinanced with
Franklin National Bank the residual of the corporate debt
formerly
held by NationsBank. Franklin acquired the existing loan
package
in its entirety. The refinancing, which carries a lower
interest
rate and payments on a longer amortization, provides significant
cash flow advantages for the Company.
During the quarter ended April 30, 1998, the Company
settled a claim receivable, which resulted in a cash receipt of
$1,000,000. The cash, which was received after the quarter
close,
significantly improves the Company's financial position. In
addition to the cash influx, the Company recognized a $465,000
gain on the settlement, which is included in the accompanying
financial statements for the quarter ended April 30, 1998 in
construction revenues.
Operating activity for the third quarter was also very
strong and margins have improved, due in part to the overall
improvement in the construction marketplace. While the
Company's
operating subsidiaries have been extremely busy, they also
continue to book new, profitable work and the backlog remains
high. As of April 30, 1998, the Company's backlog was
approximately $23.6 million.
During the quarter, the Company also redeemed convertible
debentures which, if not redeemed, were convertible into
approximately 7% or 246,000 shares of its stock. The
redemption
removed the potential dilution which would have occurred on
conversion. Also during the quarter, NationsBank converted its
debentures to 620,766 shares of the Company's stock. All of the
Company's commitments to issue stock have now been satisfied.
The impact of the redemption of the debentures is reflected in
the Company's earnings per share for the quarter and nine months
ended April 30, 1998.
Based on accounting rules, the Company, during the quarter
ended April 30, 1997, incurred charges and interest expense of
approximately $600,000 on the issuance of the FDIC convertible
debentures since the market price of the stock was greater than
the face value of the debentures. Even though the debentures
were redeemed at face value of $165,000, accounting rules did
not
permit the Company to recognize income when it redeemed the
debentures in the quarter ended April 30, 1998.
As a result of these transactions, future interest expense
should be reduced.
For the three months ended April 30, 1998, the Company had
a
net profit of $280,015 or $0.08 per share. This compares to
$5,200,680 or $1.80 per share profit for the comparable quarter
in
Fiscal 1997. However, for purposes of like comparison, it
should
be noted that the third quarter of Fiscal 1997 contained a
series
of unusual items, such as $3,189,000 in Gain on Extinguishment
of
Debt relating to the Company's satisfaction of its old Bank
Group
Debt and a $1,800,000 income tax benefit. A comparison from the
accompanying Condensed Consolidated Statements of Operations
between the "Profit before Income Taxes, Equity Earnings and
Minority Interests" for the two years , $374,183 for the Quarter
Ended April 30, 1998 as compared to $260,379 for the Quarter
Ended
April 30, 1997, is more useful to understand the Company's
success in improving operating results.
From an operating perspective, the eight cents per share
results for the third quarter of Fiscal 1998 are much stronger
than those traditionally achieved by the Company. Historically,
the Company's average operational earnings per share for the
third quarter are one or two cents. Management views these
results, coupled with the significant increases in backlog, as
clear indications that the Company's financial condition and
future prospects are substantially stronger than they have been
in years.
As of April 30, 1998, the Company is in compliance with
all
of its debt covenants and all debt service payments on its notes
are current.
Bonding
The Company's ability to furnish payment and performance
bonds has improved along with its financial condition. For
example, the Company now has a commitment from one of its
bonding
companies for a $6.5 million bridge job. While historically,
because of its strong reputation, most of the Company's projects
have been obtained without providing bonds, the Company
recognizes
that as it expands its geographic range for providing goods and
services, it will be necessary to provide bonds to clients
unfamiliar with the Company. This is not anticipated to present
a
problem.
Liquidity
The Company continues to generate sufficient cash to
sustain
its operational activities. As revenues increase during the
spring and summer building season, operations are expected to
continue to use cash. Management is keeping a close eye on
cash
needs to ensure that adequate liquidity is maintained. To
address this concern, credit availability under the CIT facility
has been expanded. In addition, the claim settlement and
subsequent collection of $1 million in cash provide the Company
with reserves which are expected to meet the anticipated needs.
Cash Flows Used In Operating Activities for the nine
months
ended April 30 were $568,341, which was caused largely by the
increase in accounts and notes receivable of $1,329,274. This
in
turn is attributable to the increase in operating activities as
construction activities began their seasonal upswing, in
addition
to the claim settlement discussed elsewhere.
Cash Flows From Investing Activities were positive due to
the sale of the Company's Falls Church real estate and some
older equipment. Expenditures for property, plant and equipment
were kept low as the Company has been updating its crane fleet
primarily though operating leases. Management feels that
leasing
instead of more traditional buying and borrowing offers cash
flow
and balance sheet advantages.
Cash Flows From Financing Activities were reduced as the
Company continued its successful efforts to reduce overall debt.
Going forward, management believes that operations will
continue to generate sufficient cash to fund activities.
However,
as revenues increase, operations will continue to use net cash.
Management, therefore, is focusing on the proper allocation of
resources to ensure stable growth.
Operations
Operations, which had experienced a decline in the second
quarter of Fiscal 1998 as well as the first half of the third
quarter, surged during the latter weeks of the third quarter as
weather improved and projects which had been delayed for months
were finally able to proceed. Profit margins, due to on-going
cost containment measures as well as an overall improvement in
the
construction marketplace, continued to improve.
Emphasis on improving revenue in the Company's
construction
and manufacturing subsidiaries remained a priority and new, more
efficient equipment was acquired to support the commercial
construction boom now occurring throughout the Company's
marketplaces. The Company is also focusing its operations to
benefit from the $206 billion transportation package recently
authorized by the U.S. Congress.
1998 Quarter Compared to 1997 Quarter
Each of the Company's five operating subsidiaries,
Greenway
Corporation, Piedmont Metal Products, Williams Bridge Company,
Williams Equipment Corporation, and Williams Steel Erection
Company, produced a profit in third quarter of Fiscal 1998.
However, the construction companies (Greenway, Equipment and
Steel) experienced weather related difficulties at the beginning
of the quarter which caused their results to be slightly behind
those of the comparable period of Fiscal 1997, which was a very
good quarter due to mild, dry weather and several large projects
which were under construction simultaneously.
As the Condensed Consolidated Statements of Operations
shows, overall construction revenue went from $5,933,637 in the
third quarter of Fiscal 1997 to $5,254,976 in the comparable
quarter of Fiscal 1998. What the statement does not show,
however, is that in 1998, more than 40 percent of this revenue
occurred in April as the subsidiaries were finally able to get
to
jobs which had been consistently postponed because of weather.
Operations have also been successful in continuing their
cost reduction programs, as shown a comparison of direct cost.
Direct costs declined from $6,064,797 in the three months ended
April 30, 1997 to $4,496,961 in the three months ended April 30,
1998. While a portion of this decline can be attributed to the
difference in revenue, it is important to note that these
reductions occurred despite substantial increases in the price
of steel. Total expenses were slightly reduced, going from
$2,989,922 in the three months ended April 30, 1997 to
$2,975,773
in the three months ended April 30, 1998. However, significant
expense reductions occurred in Interest Expense, which was
reduced
by the Company's sale of its Falls Church real estate and the
subsequent reduction of debt and interest.
The decline in manufacturing revenues, mentioned above, is
attributable to several factors. First, Williams Bridge Company
has entered into several contracts where the materials have been
purchased by the customer rather than by Williams Bridge. Both
Williams Bridge Company and Piedmont Metal Products have been
affected by shortages in raw materials being produced by the
steel
industry. Despite this, the gross profits produced by the
Company's manufacturing activities grew from $845,000 in the
quarter ended April 30, 1998 to $860,000 in the quarter ended
April 30, 1998.
The Company's subsidiaries continue to diversify both
their
geographic marketplaces as well as their customer base. In
contrast to the three months ended April 30, 1997 when much of
the
Company's work was in the Greater Washington metropolitan area,
the Company's subsidiaries are now working for customers not
only
in Virginia, Maryland and the District of Columbia, but also in
Pennsylvania, New Jersey, and Delaware.
Nine Months Ended April 30, 1998 Compared to Nine Months Ended
April 30, 1997
For the nine months ended April 30, 1998, the Company had
revenues of $20,263,248, compared to $25,991,627 for the nine
months ended April 30, 1997. A substantial portion of the
difference between years is due to several large projects, such
as
the Dominion Semiconductor micro-chip plant in Manassas and the
MCI Arena, which were underway in Fiscal 1997. In contrast, the
large projects which are currently in the Company's backlog have
not yet begun production.
As was the case in the quarter-to-quarter comparisons, it
is
important to remove extraordinary items when comparing the nine
months of operations.
Unusual items in Fiscal Year 1997 included the following:
a
$3,189,000 Gain on Extinguishment of Debt related to the
Company's
debt restructuring; expenses of approximately $400,000 relating
to the Pribyla litigation; revenues of approximately
$400,000 from insurance proceeds; and an income tax benefit of
approximately $1,800,000.
Unusual items in the current Fiscal Year through April 30,
1998 included the following: income from the Beasley bankruptcy
of $809,000; an expense of $810,000 for the write-down of the
Company's interest in Atlas Machine and Iron Works; the gain on
the sale of the Falls Church real estate of $564,000; expenses
relating to the Cigna insurance settlement of approximately
$550,000; and a $565,000 gain on settlement of a claim.
BACKLOG
Although the Company's subsidiaries worked through a
tremendous amount of prior backlog during the third quarter of
Fiscal 1998, the backlog nevertheless increased as the Company's
subsidiaries continued to acquire significant new work. The
Company's backlog of work under contract or otherwise believed
to
be firm as of April 30, 1998 was approximately $23,600,000,
which
is even higher than the prior quarter. The prior quarter
backlog
of $21,800,000 was the highest it had been since January 1994,
when Williams Industries was a much larger corporation with more
subsidiaries contributing to the backlog. Even more
significant
is the fact that the current backlog is nearly double the
backlog
of April 30, 1997. The improvement is attributed to several
factors, including overall increases in work available for bid
as
well as the Company's increased focus on sales and marketing.
The backlog primarily represents work at Williams Steel Erection
Company and Williams Bridge Company. Both Greenway Corporation
and Williams Equipment Corporation perform work on a rapid
response basis. Therefore only a small portion of their work is
included in the backlog.
Most of the backlog will be completed within the next 12
months if contract schedules are followed. Management believes
that the level of work is sufficient to allow the Company to
have
adequate work well into Fiscal Year 1999. Management believes
that if this backlog can be maintained, the Company will be able
to achieve consistently profitable results.
Management
Having achieved all of its restructuring goals, the
Company
is now focusing on the future. Management is concentrating on
consistently improving consolidated results while simultaneously
planning for expansion into new markets or slightly different
products or services. A new strategic plan, which will replace
the five-year restructuring document that was the Company's road
map for the past several years, is in process. It will include
long-range goals for growth and acquisition, as well as focusing
on issues relating to profitability in existing activities.
Increased emphasis is also being placed on developing strong
institutional investors for the Company's stock; possibly as
part
of a "micro-cap" infrastructure fund.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Precision Components Corp.
The Company received a favorable decision in this case,
and
judgment in favor of the Company was entered on March 4, 1998 by
the Circuit Court for the City of Richmond. The plaintiffs,
Industrial Alloy Fabricators, Inc. and Precision Components
Corp.,
have noted an appeal to the Supreme Court of Virginia. The
appeal, against Williams Industries, Inc. and IAF Transfer
Corporation, deals with the plaintiffs suit for $300,000 plus
interest and fees arising from a product liability claim against
the Company. Management believes the ultimate outcome will not
have a material adverse impact on 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.
ITEM 2. Changes in Securities
During the quarter, NationsBank, N.A. notified the Company
it wished to convert its $410,000 debenture into the previously
agreed upon 16.4% of the Company's common stock outstanding and
committed after conversion. The actual conversion into shares
occurred February 5, 1998. The conversion is reflected in the
total number of shares issued and outstanding as of April 30,
1998.
The Federal Deposit Insurance Corporation (FDIC), as
receiver for two commercial banks, did not convert its two
Convertible Debentures, which would have been convertible into
approximately 7% of the Company's common stock or
approximately
246,560 shares. The Company redeemed these debentures during
the
quarter ended April 30, 1998. The anti-dilutive impact of
these
transactions is explained in Note 9 in the accompanying Notes to
Financial Statements.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
On March 3, 1998, the Company received notification that
it had been accepted for listing on the Nasdaq National Market
System. Trading on Nasdaq commenced on March 5, 1998 at the
opening of the market.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
An 8-K filing occurred on April 15, 1998.
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
June 8, 1997 /s/ Frank E. Williams, III
Frank E. Williams, III
President, Chairman of the
Board
Chief Financial Officer
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