SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
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(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended:
July 31, 2004
Commission File No. 0-8190
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Williams Industries, Incorporated
(Exact name of Registrant as specified in its charter)
Virginia 54-0899518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8624 J.D. Reading Drive, Manassas, Virginia 20109
(Address of principal executive offices) (Zip Code)
P.O. Box 1770 Manassas, Virginia 20108
(Mailing address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(703) 335-7800
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $0.10 Par Value
(Title of Class)
-----------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES ( X ) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). ( ) Yes ( X ) No
Aggregate market value of voting stock held by non-affiliates of the
Registrant, based on last sale price as reported on January 31, 2004:
$9,765,221
Shares outstanding at October 15, 2004 3,634,687
The following document is incorporated herein by reference thereto in
response to the information required by Part III of this report (information
about officers and directors):
Proxy Statement Relating to Annual Meeting to be held December 11, 2004.
Table of Contents
Part I:
Item 1. Business. . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . 9
Part II:
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters. . . . 9
Item 6. Selected Financial Data . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis
Of Financial Condition and
Results of Operations . . . . . . . . 12
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . 19
Item 8. Financial Statements and Supplementary Data 20
Item 9. Disagreements on Accounting and
Financial Disclosure . . . . . . . . . 20
Part III:
Item 10. Directors and Executive Officers of
The Registrant . . . . . . . . . . . . 20
Item 11. Executive Compensation. . . . . . . . . . . 20
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . 20
Item 13. Certain Relationships and Related
Matters . . . . . . . . . . . . . . . 20
Item 14. Controls and Procedures . . . . . . . . . . 20
Part IV:
Item 15. Exhibits, Financial Statement Schedules
And Reports on Form 8-K . . . . . . . 21
PART I
Item 1. Business
A. General Development of Business
Williams Industries, Incorporated (the Company) is a leader in the
construction services market, providing specialized services to customers in
the commercial, industrial, institutional, and governmental markets. These
services are provided by operating subsidiaries in two segments,
manufacturing and construction.
The Company's manufacturing segment has three operating subsidiaries.
Williams Bridge Company, providing fabricated steel plate girders and rolled
steel beams for bridges, operates plants in Manassas and Richmond, Virginia
and in Bessemer, Alabama. S.I.P., Inc. of Delaware (SIP) manufactures "stay-
in-place" metal bridge decking from plants in Wilmington, Delaware and
Gadsden, Alabama. Piedmont Metal Products, Inc. fabricates light structural
steel and other metal products from its plant in Bedford, Virginia. Demand
for the majority of the Company's products and services has weakened during
Fiscal 2004 as steel prices approximately doubled and Congress failed to pass
an extension of the Transportation Equity Act for the 21st Century (TEA-21).
Without new federal money in the infrastructure pipeline, spending by state
and local governments is extremely limited.
During the year ended July 31, 2004, the Company chose not to renew the
lease for its Bessemer, Alabama facility for an additional three years and is
currently negotiating a short-term extension to allow for an orderly
shutdown. The Company is required by the lease to purchase the plant
equipment, owned by the landlord, for $500,000. When the plant equipment is
purchased, the Company plans to relocate or sell the existing equipment.
Subsequent to July 31, 2004, SIP temporarily shut down its Gadsden,
Alabama facility until adequate materials inventory and additional contracts
can be obtained. At current operating levels, SIP feels it can operate more
efficiently from its Wilmington, Delaware plant.
The Company's construction segment has two operating subsidiaries.
Williams Steel Erection Company, Inc. provides erection and installation
services for structural steel, precast and pre-stressed concrete, and
miscellaneous metals, as well as the rigging and installation of equipment or
components for diverse customers. Williams Equipment Corporation rents cranes
and trucks to the Company's other subsidiaries and to outside customers.
Taken collectively, these subsidiaries are responsible for the majority
of the Company's revenues. However, their efforts are augmented by other
Company subsidiaries, including Insurance Risk Management Group, Inc. and WII
Realty Management. These operations provide support services not only for the
Company but also for outside customers or tenants. The parent company,
Williams Industries, Inc. provides a number of services for all of the
subsidiaries, as well as dealing with financial institutions, shareholders,
and regulatory agencies.
In keeping with the Company's comprehensive long-range plan, the Company
may expand geographically within its core lines of business, either by means
of acquisitions or expansion of its existing businesses, or to take advantage
of opportunities that may present themselves.
B. Financial Information About Industry Segments
The Company's activities are divided into three broad categories: (1)
Construction, which includes industrial, commercial and governmental
construction, construction services such as rigging, the construction, repair
and rehabilitation of bridges and the rental of heavy construction equipment
(2) Manufacturing, which includes the fabrication of metal products; and (3)
Other, which includes risk management operations and parent company
transactions with unaffiliated parties. Financial information about these
segments is contained in Note 11 of the Notes to Consolidated Financial
Statements. The following table sets forth the percentage of total revenue
attributable to these categories for the years ended July 31, 2004, 2003, and
2002:
Fiscal Year Ended July 31,
--------------------------------
2004 2003 2002
------ ------ ------
Manufacturing 61% 65% 60%
Construction 39% 34% 39%
Other 0% 1% 1%
The percentages of total revenue will continue to change as market
conditions or new business opportunities warrant.
For the year ended July 31, 2004, one customer accounted for 16% of
consolidated revenue and 26% of manufacturing revenue. Three other customers
accounted for 17%, 11% and 10% of construction revenue. For each of the years
ended July 31, 2003 and 2002, no single customer accounted for more than 10%
of consolidated revenue.
C. Narrative Description of Business
1. Manufacturing
The Company's fabricated products include welded steel plate girders and
rolled beams used in the construction of bridges and other projects, "Stay-
In-Place" metal bridge deck forms used in bridge construction, and light
structural metal products. In its manufacturing segment, the Company obtains
raw materials from a variety of sources on a competitive basis and is
generally not dependent on any one source of supply. However, consolidation
of the steel industry and the shortage of the raw materials needed to make
steel has caused critical reductions in the sources of heavy steel plate and
left the Company vulnerable to disruptions in supplies and to its
relationship with its major supplier.
Facilities in this segment are predominately open shop. However, during
the year ended July 31, 2003, Williams Bridge Company agreed to a contract
with the United Steelworkers of America for representation of the workforce
at the subsidiary's Bessemer, Alabama manufacturing facility. The covered
employees ratified the agreement on January 28, 2003. The agreement offered
wages and benefits similar to those offered at the Company's other
facilities. Subsequent to July 31, 2004, the agreement expired. The Company
feels there will be no complications from the union when the plant in
Bessemer, Alabama is shut down.
Competition in this segment, based on price, quality and service, is
intense. Revenue derived from any particular customer fluctuates
significantly from year to year. For the year ended July 31, 2004, one
customer accounted for more than 25% of manufacturing revenues.
The Company's bridge girder subsidiary is dependent upon one supplier of
rolled steel plate. The Company maintains good relations with the vendor,
generally receiving orders on a timely basis at reasonable cost for this
market. If the relationship with this vendor were to deteriorate or the
vendor were to go out of business, the Company would have trouble meeting
production deadlines in its contracts, as the other major supplier of steel
plate has limited excess production available to "new" customers.
a. Steel Manufacturing
The Company, through its subsidiary, Williams Bridge Company, operates
three plants for the fabrication of steel girders and other components used
in the construction, repair and rehabilitation of highway bridges and grade
separations.
One of these plants, located near Manassas, Virginia, is a large heavy
plate girder fabrication facility and contains a main fabrication shop,
ancillary shops and offices totaling approximately 46,000 square feet,
together with rail siding.
The second plant, located on 27 acres in Richmond, Virginia, is a full
service fabrication facility and contains a main fabrication shop, ancillary
shops and offices totaling approximately 128,000 square feet.
The third facility, located in Bessemer, Alabama, is a leased facility
with 300,000 square feet of manufacturing space, ancillary shops and offices.
During the year ended July 31, 2004, the Company chose not to renew the lease
for its Bessemer, Alabama facility for an additional three years and expects
to negotiate a short-term extension to allow for an orderly shutdown.
All three shops have immediate rail access and are located near an
interstate highway. All of the facilities have internal and external handling
equipment, modern fabrication equipment and large storage and assembly areas.
Williams Bridge Company maintains American Institute of Steel Construction
certifications for various steel building structures and all bridge structure
classifications.
All facilities are in good repair and designed for the uses to which
they are applied. Since virtually all production at these facilities is for
specific contracts rather than for inventory or general sales, utilization
can vary from time to time.
b. Stay-In-Place Decking
S.I.P. is a steel specialty manufacturer, well known in the construction
industry for fabrication of its sole product, "stay-in-place" steel decking
used in the construction of highway bridges. S.I.P. Inc. of Delaware operates
two manufacturing plants.
One plant, located in Wilmington, Delaware, is located on 7 acres of
land, with a 12,000 square foot manufacturing facility, and a 2,500 square
foot office building.
The second plant is a 25,000 square foot leased facility in Gadsden,
Alabama. This facility has been shut down temporarily until adequate
materials inventory and additional contracts can be obtained.
S.I.P., the leading manufacturer of this type of product in the Mid-
Atlantic and Northeastern United States, has an extensive market area,
including the entire East Coast of the United States from New England
through Florida and the southeastern United States.
c. Light Structural Metal Products
The Company's subsidiary, Piedmont Metal Products, Inc., fabricates
light structural metal products at its facility in Bedford, Virginia. The
subsidiary maintains its American Institute of Steel Construction
certification for Complex Steel Building Structures, which enables the
subsidiary to bid to a wide range of customers.
Piedmont Metal Products, located on ten acres of land in Bedford,
Virginia, is a full service fabrication facility and contains two fabrication
shops totaling 15,000 square feet and a 4,500 square foot office building.
2. Construction
The Company specializes in structural steel erection, installation of
architectural, ornamental and miscellaneous metal products, installation of
precast and prestressed concrete products, and rigging and installation of
equipment for utility and industrial facilities. The Company operates its
construction segment primarily in the Mid-Atlantic region, with emphasis on
the corridor between Baltimore, Maryland and Norfolk, Virginia.
The Company owns and leases a wide variety of cranes and trucks, which
are used to perform its contracts. When this equipment is not being used by
the Company for steel and precast concrete erection or the transportation of
manufactured materials, it is rented or leased to outside customers.
Labor generally is obtained in the area where the particular project is
located; however, labor in the construction segment has been in tremendous
demand in recent years and shortages have occurred. The Company has
developed a number of outreach programs, including an apprenticeship program
as well as language training opportunities, to make employment with the
Company more accessible.
The primary basis on which the Company is awarded construction contracts
is price, since most projects are awarded on the basis of competitive
bidding. While there are numerous competitors for commercial and industrial
construction in the Company's geographic areas, the Company remains one of
the larger and more diversified companies in its areas of operations.
A portion of the Company's work is subject to termination for
convenience clauses in favor of the local, state, or federal government
entities who contracted for the work in which the Company is involved. The
law generally gives government entities the right to terminate contracts, for
a variety of reasons, and such rights are made applicable to government
purchasing by operation of law. While the Company rarely contracts directly
with such government entities, such termination for convenience clauses are
incorporated in the Company's contracts by "flow down" clauses whereby the
Company stands in the shoes of its customers. The Company has not
experienced any such terminations in recent years, and because the Company is
not dependent upon any one customer or project, management feels that any
risk associated with performing work for governmental entities is minimal.
a. Steel Construction
The Company engages in the installation of structural and other steel
products for a variety of buildings, bridges, highways, industrial
facilities, power generating plants and other structures.
Steel construction revenue generally is received on projects where the
Company is a subcontractor to a material supplier (generally a steel
fabricator) or another contractor. When the Company acts as the steel
erection subcontractor, it is invited to bid by the firm that needs the steel
construction services. Consequently, customer relations are important.
b. Concrete Construction
The Company erects structural precast and prestressed concrete for
various structures, such as multi-storied parking facilities and processing
facilities, and erects the concrete architectural facades for buildings. The
business is not dependent upon any particular customer.
c. Rigging and Installation of Equipment
Much of the equipment and machinery used by utilities and other
industrial concerns is so cumbersome that its installation and preparation
for use, and, to some extent, its maintenance, requires installation
equipment and skills not economically feasible for those users to acquire and
maintain. The Company's construction equipment, personnel and experience are
well suited for such tasks, and the Company contracts for and performs those
services. The demand for these services, particularly by utilities, is
relatively stable throughout business cycles.
d. Equipment Rental and Sales
The Company requires a wide range of cranes and trucks in its
construction business, but not all of the equipment is in use at all times.
To maximize its return on investment in equipment, the Company rents cranes
to third parties to the extent possible.
3. Other
a. General
Each segment of the Company is influenced by adverse weather conditions,
although the manufacturing segment is less subject to delays for inclement
weather than is the construction segment. The ability to acquire raw
materials and to ship finished product is, nevertheless, impacted by extreme
weather. It is also possible that the manufacturing segment may have product
ready to ship, but inclement weather could cause delays in construction
timetables that require adjustments by the manufacturing companies. Because
of the cyclicality and seasonality prevalent in the Company's business,
higher revenue typically is recorded in the first (August through October)
and fourth (May through July) fiscal quarters when the weather conditions are
generally more favorable.
Management is not aware of any environmental regulations that materially
impact the Company's capital expenditures, earnings or competitive position.
The Company employs between 250 and 500 employees. Many are employed on
an hourly basis for specific projects, with the actual number varying
according to the seasons and timing of contracts. At July 31, 2004 the
Company had 385 employees, as compared to July 31, 2003 when there were 365.
Included in these totals were 37 and 47 employees, respectively, subject to
collective bargaining agreements. Generally, the Company believes it has a
good relationship with its employees.
b. Insurance
Liability Coverage
Primary liability coverage for the Company and its subsidiaries is
provided by a policy of insurance with limits of $1,000,000 per occurrence
and a $2,000,000 aggregate. The Company also carries an "umbrella" policy
that provides limits of $5,000,000 in excess of the primary. The primary
policy has a $20,000 deductible per occurrence. If additional coverage is
required on a specific project, the Company makes those purchases.
Management routinely evaluates these coverages and expenditures and
makes modifications as necessary.
Workers' Compensation Coverage
The Company has a "loss sensitive" workers' compensation insurance
program, the terms of which are negotiated by the Company on a year-to-year
basis. The Company accrues workers' compensation insurance expense based on
estimates of its costs under the program.
The Company maintains an aggressive safety inspection and training
program, designed to provide a safe work place for employees and minimize
difficulties for employees, their families and the Company, should an
accident occur.
4. Backlog Disclosure
As of July 31, 2004, the Company's backlog was approximately $60
million, compared to $58 million at July 31, 2003 and $48 million at July 31,
2002. The increase in the backlog is primarily due to the Company's
contract in Springfield Virginia, totaling approximately $26 million, on the
I-95/395/495 Springfield Interchange contract outside of Washington DC.
Approximately $25 million of the $60 million backlog is long term in nature
and not expected to be realized as revenue during the fiscal year ending July
31, 2005.
5. Working Capital Requirements
From time to time, the Company will be required to maintain inventory at
increased levels to assure timely delivery of its product and to maintain
manufacturing efficiencies in its plants. Historically, to minimize the use
of the Company's lines of credit, the Company had established special payment
terms, including pay when paid agreements, with many of its principal
suppliers. In the past year, these terms have been modified or eliminated by
many suppliers, placing a strain on the Company's cash flow. However, in many
jurisdictions, the Company is also able to bill for raw materials and for
stored completed products on many projects.
Due to the short-term nature of the Company's debt with United Bank on
its line of credit and Wachovia Bank on its notes, the Company may consider
refinancing some portion of its debt to avail itself of more credit and to
extend the life of its loans to improve its debt ratios.
6. Critical Accounting Policies
The Company's accounting policies are more fully described in the Notes
to Consolidated Financial Statements. As disclosed in the Notes to
Consolidated Financial Statements, the preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions about future events. These estimates and
assumptions affect the amounts of assets, liabilities, revenues and expenses
and the disclosure of gain and loss contingencies at the date of the
Consolidated Financial Statements. The Company's estimates are subject to
change if different assumptions as to the outcome of future events were
made. The Company evaluates its estimates and judgments on an ongoing basis
and predicates those estimates and judgments on historical experience and
various other factors that are believed to be reasonable under the
circumstances. Management makes adjustments to its assumptions and judgments
when facts and circumstances dictate. Since future events and their effects
cannot be determined with absolute certainty, actual results may differ from
the estimates used by the Company in preparing the accompanying Consolidated
Financial Statements. Management believes the following critical accounting
policies encompass the more significant judgments and estimates used in the
preparation of its Consolidated Financial Statements.
Revenue Recognition - Revenues and earnings from contracts are
recognized for financial statement purposes using the percentage-of-
completion method; therefore, revenue includes that percentage of the total
contract price that the cost of the work completed to date bears to the
estimated final cost of the contract. Estimated contract earnings are
reviewed and revised periodically as the work progresses, and the cumulative
effect of any change in estimate is recognized in the period in which the
estimate changes. Retentions on contract billings are minimal and are
generally collected within one year. When a loss is anticipated on a
contract, the entire amount of the loss is provided for in the current
period. Contract claims are recorded as revenue at the lower of excess costs
incurred or the net realizable amount after deduction of estimated costs of
collection. Additional contract revenue from contract claims are recorded
when claims are expected to result in additional contract revenue and the
amount can be reliably estimated. Management considers the following
conditions when determining whether a contract claim can be recorded as
revenue (a) the contract or other evidence provides a legal basis for the
claim; or a legal opinion has been obtained, stating that under the
circumstances there is a reasonable basis to support the claim (b) additional
costs are caused by circumstances that were unforeseen at the contract date
and are not the result of deficiencies in the Company's performance (c) costs
associated with the claim are identifiable or otherwise determinable and are
reasonable in view of the work performed, and (d) The evidence supporting the
claim is objective and verifiable.
Accounts Receivable - The majority of the Company's work is performed on
a contract basis. Generally, the terms of contracts require monthly billings
for work completed. The Company may also perform extra work above the
contract terms and will invoice this work as work is completed. In the
manufacturing segment, in many instances, the companies will invoice for work
as soon as it is completed, especially where the work is being completed for
state governments that allow accelerated billings.
Allowance for Doubtful Accounts - Allowances for uncollectible accounts
and notes receivable are provided on the basis of specific identification.
Management reviews accounts and notes receivable on a current basis and
provides allowances when collections are in doubt.
Inventories - Materials inventory consists of structural steel, steel
plates, and galvanized steel coils. Costs of materials inventory is accounted
for using either the specific identification method or average cost. In the
Company's manufacturing segment, where inventory is bought for a specific
job, the cost is allocated from inventory to work-in-progress based on actual
labor hours worked compared to the estimated total hours to complete a
contract. Management reviews production on a weekly basis and modifies its
estimates as needed.
Deferred Taxes - The company records the estimated future tax effects of
temporary differences between the tax bases of assets and liabilities and
amounts reported in the accompanying Consolidated Balance Sheets, as well as
operating loss and tax credit carryforwards. The Company evaluates the
recoverability of any tax assets recorded on the balance sheet and provides any
necessary allowances as management deems appropriate. The carrying value of the
net deferred tax assets assumes that the Company will be able to generate
sufficient future taxable income, based on estimates and assumptions. If these
estimates and related assumptions change in the future, the Company may be
required to record additional valuation allowances against its deferred tax
assets resulting in additional income tax expense in the Consolidated
Statements of Operations. In assessing the realizability of deferred tax
assets, the Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, carry back opportunities, and tax planning strategies in
making the assessment. The Company evaluates the ability to realize the
deferred tax assets and assesses the need for additional valuation allowances
quarterly. The final outcome of these future tax consequences, tax audits, and
changes in regulatory tax laws and rates could materially impact the Company's
Consolidated Financial Statements.
Item 2. Properties
At July 31, 2004, the Company owned approximately 90 acres of industrial
property, some of which is not developed but may be used for future
expansion. Approximately 39 acres are near Manassas, in Prince William
County, Virginia; 27 acres are in Richmond, Virginia; and 24 acres in
Bedford, in Virginia's Piedmont section between Lynchburg and Roanoke.
The Company owns and leases numerous large cranes, tractors and trailers
and other equipment. During the year ended July 31 2004, the Company
acquired five cranes it previously leased for $1.9 million.
Item 3. Legal Proceedings
General
The Company is party to various claims arising in the ordinary course
of business. Generally, claims exposure in the construction industry
consists of employment claims of various types, workers compensation,
personal injury, products' liability and property damage. The Company
believes that its insurance claims expense accruals, coupled with its
liability coverage, are adequate coverage for such claims.
In prior years, the Company obtained workers' compensation insurance
from an insurance carrier under a "loss sensitive" agreement whereby the
Company paid a flat charge for administrative expenses and minimum insurance
coverage plus additional amounts based on claims experience. Prior to Fiscal
2004, the Company changed carriers because the proposed renewal terms were
unacceptable to Company management. Subsequent to the change of carriers,
the Company's previous carrier asserted various charges and attempted to
change the calculation of amounts due, which the Company disputed. During the
year ended July 31, 2004, the Company received a Bill of Complaint which was
filed in the Prince William County, Virginia Circuit Court, seeking to compel
the Company to post additional collateral to guarantee payments for expenses
alleged to be incurred for existing claims under the policies. The Company
reached a settlement whereby the carrier dropped its demand for additional
collateral and agreed to continue to deduct amounts owed by the Company from
collateral on hand. The settlement had no impact on cash flows or results of
operations and the Company believes that the eventual conclusion of the
program will not have a significant impact on its financial position, results
of operations or cash flows.
The Company and its subsidiary Williams Equipment Corporation were
defendants in a suit in Prince William County, Virginia, by SunTrust Leasing
Corporation ("STL"). In the suit, STL contended that the Company defaulted
on the lease of a crane and that STL was entitled to recover approximately
$1.1 million. Subsequent to the year ended July 31, 2004, the Company
settled this suit through the purchase of the crane under lease for $960,000,
which was financed for 60 months at 6.71%.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The Company's Common Stock trades on the NASDAQ National Market System
under the symbol "(WMSI)". The following table sets forth the high and low
sales prices for the periods indicated, as obtained from market makers in the
Company's stock.
8/1/02 11/1/02 2/1/03 5/1/03 8/1/03 11/1/03 2/1/04 5/1/04
10/31/02 1/31/03 4/30/03 7/31/03 10/31/03 1/31/04 4/30/04 7/31/04
------- ------- ------- ------- -------- ------- ------- -------
$4.40 $4.42 $4.25 $4.24 $3.76 $5.99 $5.49 $5.48
$3.11 $3.33 $3.06 $3.49 $3.27 $3.21 $3.40 $3.25
The prices shown reflect published prices, without retail mark-up,
markdown, or commissions and may not necessarily reflect actual transactions.
The Company paid no cash dividends during the years ended July 31, 2004
or 2003. The Company's board believes that the current best utilization for
cash is in the further development of its business units and strategic
expansion. Further, there are certain covenants in the Company's current
credit agreements that prohibit cash dividends without the lenders'
permission.
At July 31, 2004, there were 464 holders of record of the Common Stock.
Equity Compensation Plan Information
=============================================================================
Number of securities Weighted average Number of securities
to be issued upon exercise price remaining available
exercise of of outstanding for future issuance
outstanding options, options, warrants
warrants and rights. and rights.
=============================================================================
Equity compensation plans
approved by security holders 200,000 $3.82 113,500 (1)
=============================================================================
Equity compensation plans
not approved by security 70,000 $3.54 0 (2) (3)
holders
=============================================================================
Total 270,000 $3.67 113,500
=============================================================================
(1) Plan approved by shareholders in November 1996
(2) The options granted to non-employee directors and the shares issued upon
exercise of these options are issued pursuant to Rule 144 of the 1933
Securities Act.
(3) The Company's non-employee directors receive a stock grant of
restricted stock equal to $600 per month to be calculated monthly,
using the current share price at the end of the month, with the shares to
be accumulated and transferred once a year in January.
Item 6. Selected Financial Data
The following table sets forth selected financial data for the Company
and is qualified in its entirety by the more detailed financial statements,
related notes thereto, and other statistical information appearing elsewhere
in this report.
SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except per share data)
YEAR ENDED JULY 31,
-------------------------------------------
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
Statements of Operations Data:
Revenue:
Construction $20.8 $18.0 $22.2 $22.3 $20.8
Manufacturing 32.9 34.4 34.0 27.2 21.3
Other 0.2 0.3 0.3 1.0 0.8
------ ------ ------ ------ ------
Total Revenue $53.9 $52.7 $56.5 $50.5 $42.9
====== ====== ====== ====== ======
Gross Profit:
Construction $5.5 $4.3 $6.4 $8.0 $7.4
Manufacturing 10.3 10.8 13.7 9.9 7.1
Other 0.2 0.3 0.3 1.1 0.8
------ ------ ------ ------ ------
Total Gross Profit $16.0 $15.4 $20.4 $19.0 $15.3
====== ====== ====== ====== ======
Other Income: $ - $ - $0.1 $0.1 $0.1
Expense:
Overhead $7.3 $6.8 $6.8 $5.2 $4.4
General and Administrative 7.3 7.4 8.8 8.5 6.5
Depreciation 2.0 1.8 1.6 1.6 1.2
Interest 0.7 0.6 0.7 0.8 0.9
Income Tax (Benefit) Provision (0.5) (0.3) 1.0 0.4 0.9
------ ------ ------ ------ ------
Total Expense $16.8 $16.3 $18.9 $16.5 $13.9
------ ------ ------ ------ ------
(Loss) Earnings Before Minority
Interest and Equity Earnings $(0.8) $(0.9) $1.6 $2.6 $1.5
Minority Interest and
Equity Earnings - - - (0.1) -
------ ------ ------ ------ ------
Net (Loss) Earnings $(0.8) $(0.9) $1.6 $2.5 $1.5
====== ====== ====== ====== ======
(Loss) Earnings Per Share:
Basic * $(0.22) $(0.26) $0.45 $0.70 $0.41
====== ====== ====== ====== ======
Diluted $(0.22) $(0.26) $0.45 $0.70 $0.41
====== ====== ====== ====== ======
Balance Sheet Data (at end of year):
Total Assets $42.1 $40.5 $42.2 $37.7 $35.0
Long Term Obligations 5.2 7.6 7.6 7.0 7.7
Total Liabilities 25.8 23.5 24.3 21.5 21.3
Stockholders' Equity 16.2 16.8 17.7 16.2 13.7
* No dividends were paid on Common Stock during the above five year period.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The subsidiaries of Williams Industries, Inc. provide specialized
services and products for the construction industry. They operate in the
commercial, industrial, governmental and infrastructure construction markets,
with the operating components divided into construction and manufacturing
segments. The services provided include: steel, precast concrete and
miscellaneous metals erection and installation; crane rental and rigging;
fabrication of welded steel plate girders, rolled beams; "stay-in-place"
bridge decking, and light structural and other metal products.
Management continually reviews the Company's allocation of assets to
each subsidiary and makes adjustments as necessary to enhance the Company's
ability to take advantage of opportunities in the marketplace. Since Fiscal
1996, the Company has increased its emphasis on its Manufacturing Segment.
Manufacturing, which was 37% of the Company's business in Fiscal 1996,
comprised 61% of revenues in Fiscal 2004. This increase is due in part to the
expansion of the Company into leased facilities in Alabama and the purchase
of the majority interest in its subsidiary, S.I.P. of Delaware, Inc., in
Fiscal 2001.
During the year ended July 31, 2004, the Company chose not to renew the
lease for its Bessemer, Alabama facility for an additional three years and is
currently negotiating a short-term extension to allow for an orderly shutdown
and liquidation. The Company is required by the lease to purchase the plant
equipment, owned by the landlord, for $500,000. When the plant equipment is
purchased, the Company plans to relocate or sell the existing equipment.
Management anticipates growth in the next four to five years in the
Company's manufacturing segment due to increased governmental demand for
highway projects, and due to opportunities occurring in the industrial and
institutional construction markets. However, this growth may be tempered by
the current delay in an extension of the Transportation Equity Act for the
21st Century as well as the uncertainty in the price and availability of raw
steel products.
The amount of commercial, institutional, and governmental construction
activity in the Mid-Atlantic region, where the Company traditionally has
focused its efforts, continues to be higher than in many other regions in
recent years, but budgetary problems continue to plague the states, including
Maryland and Virginia.
Although demand for the Company's products and services related to
government spending on infrastructure remained strong during the year ended
July 31, 2004, inclement weather, steel price increases and surcharges, raw
material delivery delays and a decline in new contracts by government
agencies affected the Company's ability to perform work.
There was a slowing in demand for the Company's bridge girders and
"stay-in-place" decking, due in part to uncertainty with the governmental
spending related to the TEA-21 program extension. However, the Company's
bridge girder company was successful in its bid on the contract for the
I95/395/495 Springfield Interchange Project in Virginia to supply girders.
This contract totals approximately $26 million and will extend over the next
two years.
During the fiscal year ended July 31, 2003, the Company took action to
curtail continuing losses associated with the activities of the Company's
former Sales and Services' segment. Essential activities previously performed
by the sales and services segment were consolidated into the Company's
construction segment. For many years, the Company has rented cranes and
related heavy construction equipment to third parties in the construction
industry. During the past 24 months, revenues from such rentals declined. The
Company intends to sell equipment that is not necessary for its own
operations, and is attempting to renegotiate or cancel leases. The Company
has financed the purchase of five cranes, which had been previously leased,
at a cost of $1.9 million.
The Company's construction activities are focused in Maryland, Virginia,
and the District of Columbia. The Company continues to service areas on the
east coast and southeastern United States from its manufacturing facilities.
The Company intends to close one of the leased facilities in Alabama but
intends to continue to operate a second facility there.
The Company's long-range plan calls for the continued leverage of
existing subsidiaries to produce the most cost-effective and customer-
responsive combination of manufacturing and construction capabilities. The
Company's ability to offer a turnkey approach for its customers, thereby
increasing its competitiveness on some contracts, continues to be a strength.
Effective January 1, 2003, the Company changed its worker's compensation
insurance carrier. The new program offers significantly better cash flow and
slightly lower fixed costs. In the past, the Company paid in advance for its
entire worker's compensation costs for the year. Under the new program, there
are no upfront payments required. The carrier's base fee, which is a portion
of the total program cost, is paid out over the policy year. All other
costs, paid by the carrier, are reimbursed by the Company on a monthly basis,
resulting in improved cash flow during the year.
Financial Condition
Between July 31,2003 and July 31, 2004, the following changes occurred:
The Company's Cash and cash equivalents, Restricted cash and
Certificates of deposit decreased $145,000. The Company used cash to fund
operations and pay down debt. Restricted cash increased $952,000 as the
Company purchased certificates of deposit for $500,000 and transferred
$400,000 of existing certificates of deposit as security on letters of credit
supporting its workers' compensation insurance program.
Accounts receivable increased approximately $1.1 million. Contract
receivables increased $1.5 million, as the construction segment started
contracts delayed from the prior fiscal year. As maintenance and
rehabilitation work remained strong, trade receivables related to this work
declined by approximately $500,000. These receivables are related to short-
term contracts. Other receivables increased approximately $70,000. The
Company collected approximately $400,000 of the $490,000 claim receivable
from Fiscal 2003. The balance was written off. Additionally, the Company set
up a new contract claim receivable for $650,000 related to contract revenues
in the construction segment. The claim has been approved by our customer. The
Company believes this claim will be collected during the year ending July 31,
2005.
Inventory increased approximately $1.7 million. The company purchased
significant amounts of steel for its large contracts. The cost of steel
nearly doubled during Fiscal 2004. The Company has material on hand to meet
immediate needs but may face shortages due to higher steel prices and
delivery delays from the steel mills.
Prepaid expenses decreased $354,000 as the Company expensed workers'
compensation insurance premiums during the year.
Property and Equipment, At Cost increased $2.4 million as the Company:
refinanced five cranes which it had previously leased at a cost of $1.9
million; capitalized plant equipment costs at its manufacturing segment
facilities; and purchased other miscellaneous equipment. The Company retired
fully depreciated equipment with an original cost of $538,000.
Deferred income taxes increased $465,000 due to the income tax benefit
on the Company's loss for the year.
Other assets decreased $181,000 as the Company reclassified costs, which
had previously been deferred, to Property and Equipment, At Cost and reduced
long-term notes receivable by collections made during the period.
Notes payable increased $1.5 million. The Company borrowed approximately
$4.1 million, $1.8 million of which was used to fund the purchase of five
cranes the Company had previously leased, $566,000 was used to fund long term
plant and equipment purchases and $1.7 million was used to fund short-term
operations. The Company paid back $2.6 million related to short term
borrowing, mainly from operations.
Accounts payable increased $2.7 million. In the manufacturing segment,
payables increased $1.5 million mainly on the purchase of steel for work on
existing projects. The additional $1.2 million increase is due to work being
performed in the construction segment.
Billings in excess of costs and estimated earnings on uncompleted
contracts, and Costs and estimated earning in excess of billings on
uncompleted contracts, decreased a net amount of $1 million as a result of
timing of the revenue recognition on a mix of contracts in process.
Other accrued expenses decreased $947,000 as the Company reduced its
workers compensation insurance liability by approximately $450,000, reduced
its sales tax liability by approximately $300,000 and reduced other
liabilities by approximately $200,000.
Stockholders' equity decreased $629,000 primarily due to operating
losses of $780,000. The Company's officers and directors exercised options to
buy 31,500 shares of stock for approximately $96,000. The Company issued
10,359 shares of stock as director compensation for $37,000. Finally,
employees purchased 5,272 shares for approximately $18,000.
Bonding
The Company has traditionally relied on its reputation to acquire work
and will continue to do so. However, the Company recognizes that, as it
expands its geographic range for providing goods and services, it may be
necessary to provide bonds to customers unfamiliar with the Company. The
Company does not have a comprehensive bonding program with a primary
underwriter. Although the Company's ability to bond work is somewhat limited,
management believes it has not lost any work due to bonding limitations.
Liquidity
The Company requires significant working capital to procure materials
for contracts to be performed over relatively long periods, and for purchases
and modifications of specialized equipment. Furthermore, in accordance with
normal payment terms, the Company's customers often retain a portion of
amounts otherwise payable to the Company as a guarantee of project
completion. To the extent the Company is unable to receive progress payments
in the early stages of a project, the Company's cash flow could be adversely
affected. Collecting progress payments is a common problem in the
construction industry as are short-term cash considerations.
The Company generated $1.2 million in cash from operations during the
year ended July 31, 2004. The Company used $3.6 million to fund investing
activities including the purchase of five cranes, which had previously been
leased, for approximately $1.9 million. The Company provided net cash from
financing activities of $1.7 million, which mainly related to financing the
crane purchase for $1.8 million. Cash and cash equivalents decreased
approximately $700,000 from $2 million at July 31, 2003 to $1.3 million at
July 31, 2004.
The Company paid $26,000 to former shareholders of S.I.P. Inc. of
Delaware under the terms of its purchase agreement for a 100% interest in
that company.
Management believes that operations will generate sufficient cash to
fund activities. However, as revenues increase, it may become necessary to
increase the Company's credit facilities to handle short-term cash
requirements. Management, therefore, is focusing on the proper allocation of
resources to ensure stable growth.
The Company is not in compliance with one of the covenants contained in
its agreements with United Bank and with Wachovia Bank. The agreements state
that the Company must maintain a "debt service coverage ratio" of 1.3 or
greater. Due to the Company's loss for the year ended July 31, 2004, that
ratio was .38. The Company has obtained a waiver, with no conditions from
United Bank, and a waiver from Wachovia Bank that requires the Company to
achieve earnings performance as follows: produce a net profit of $23,000 for
the quarter ending October 31, 2004, a net profit of $38,000 through the six
months ending January 31, 2005, a net profit of $98,000 through the nine
months ending April 30, 2005 and a net profit of $186,000 for the year ending
July 31, 2005. The Company has considered some of its liabilities under the
previously mentioned loan agreements to be current liabilities in the
accompanying balance sheet at July 31, 2004. The United Bank line of credit
is due by agreement on May 5, 2005. The Letter of Credit backing the Wachovia
notes expires March 31, 2005. Should the Company not meet the conditions in
the Wachovia Bank waiver agreement, Wachovia Bank could accelerate the
balance and demand the repayment of amounts due at any time.
Operations
The Company's manufacturing subsidiaries have been negatively impacted
by the rise in steel prices, the availability of raw steel products and the
fact that state budgets are in distress and infrastructure funds are tied up
in Congress pending the reauthorization of the Transportation Equity Act for
the 21st Century (TEA-21), which should have occurred in September 2003.
Demand for the manufacturing segment's products and services declined in the
last six months. The construction segment has performed work, which had been
previously delayed, and continues to maintain a variety of work on commercial
and governmental projects.
Additional consolidation of resources, including both personnel and
equipment, will occur as the Company strives for the most efficient
configuration for market conditions.
1. Fiscal Year 2004 Compared to Fiscal Year 2003
The year ended July 31, 2004 was filled with much uncertainty. In
September, 2003, Hurricane Isabel hit the central Atlantic area, closing the
Company's Richmond plant for more than a week. In December, 2003, the steel
"crisis" began with steel prices doubling over the next eight months and
deliveries being delayed as demand exceeded supply. During the fiscal year,
the Transportation Equity Act for the 21st Century (TEA-21) expired. This
bill was the major source of spending on infrastructure throughout the United
States, contributing to the bridge operation's success. Although modest
infrastructure spending extensions have occurred on five occasions, until
new, comprehensive legislation is passed by Congress, work will continue to
be slow in the bridge market.
The Company was awarded a contract to fabricate, deliver and erect steel
for the I95/395/495 Springfield Interchange Project in Virginia, valued at
approximately $26 million. This contract was awarded at a time when steel
prices began to rise, creating much uncertainty due to material price
volatility. Most of the Company's subsidiaries will perform work on this
project.
The Company recorded a loss of $780,000, or $0.22 per share, on revenues
of $53.9 million for the year ended July 31, 2004, compared to a loss of
$936,000, or $0.26 per share, on revenues of $52.7 million for the year ended
July 31, 2003.
Revenues increased by $1.2 million. Manufacturing revenues decreased by
$1.6 million while construction revenues increased $2.8 million. Construction
segment revenue increased as the segment was able to start work, which had
been previously delayed, from fiscal 2003. Manufacturing segment revenues
declined due to steel delivery delays and equipment vandalism in the
Wilmington, Delaware plant.
Gross Profit increased approximately $600,000. The construction
segment's gross profit increased $1.1 million on increased revenues and
higher profit jobs as the gross profit percentage increased 2.5%. The net
results of the segment's equipment rental operation improved mainly due to a
decline in equipment rental expense of approximately $500,000 from Fiscal
2003. The manufacturing segment's gross profit decreased approximately
$500,000 due to increased material costs, inefficiencies due to material
shortages, and an increase in the segment's workers' compensation insurance
cost. Competition continues to impact the segment's profit margins as it
tries to build its backlog.
Overhead increased over $400,000, mainly related to the construction
segment's increasing work.
General and administrative expenses decreased $143,000, due mainly to
decreases in expenses in the construction segment.
Depreciation increased by approximately $200,000, due to property and
plant additions in the manufacturing segment in fiscal 2003 and crane
purchases in fiscal 2004.
Interest expense increased $52,000, due to higher interest rates on
short-term borrowing and increased debt on new equipment purchases.
The Income tax (benefit) provision increased $102,000 due primarily to
the Company's losses.
2. Fiscal Year 2003 Compared to Fiscal Year 2002
The year ended July 31, 2003 was a difficult year. Record snows and
above average rain delayed material shipments and starting dates on jobs. The
former sales and services segment, due to declining revenues and increasing
losses, was downsized and consolidated with the construction segment. The
Company continued expansion of the manufacturing segment with the opening of
the Gadsden, Alabama facility and the completion of an addition to the
Bedford, Virginia plant. Finally, during the year, the Company was awarded
contracts aggregating approximately $30 million for the Woodrow Wilson Bridge
project. The work for this project will involve most of the Company's
subsidiaries.
The Company recorded a loss of $936,000, or $0.26 per share, on revenues
of $52.7 million for the year ended July 31, 2003, compared to a profit of
$1.6 million, or $0.45 per share, on revenues of $56.5 million for the year
ended July 31, 2002.
Revenues decreased by $3.8 million. Manufacturing revenues increased by
$.4 million while construction revenues decreased $4.2 million. Construction
segment revenue was adversely impacted by project delays due to inclement
weather and by the downsizing of crane rental operations.
Gross Profit declined $4.9 million as gross profit percentages
decreased. The construction segment's gross margin decreased 4% mainly due to
increased competition. The manufacturing segment's gross profit decreased
approximately 9%, due also to increased competition, and the fact that during
the last ten months of Fiscal 2002, the Bessemer, Alabama plant was working
on time and material contracts that were residual to the plant's former
owner. These contracts were produced at higher margins than those currently
in the plant because the customer supplied the material.
While overhead increased slightly, overhead in the construction segment
decreased by more than $400,000 due to the downsizing of the crane rental
operation. This decrease was offset by increases in the manufacturing segment
related to increased revenues.
General and administrative expenses decreased by $1.3 million due mainly
to a decrease in incentive compensation of $1 million.
Depreciation increased $200,000 due to property and plant additions,
mainly in the manufacturing segment.
Interest expense decreased $101,000 due to lower interest rates on
short-term borrowing and reduced debt.
The income tax (benefit) provision decreased $1.3 million for the year
ended July 31, 2003 due primarily to the Company's losses.
3. Fiscal Year 2002 Compared to Fiscal Year 2001
Expansion in the Company's manufacturing segment dominated Fiscal 2002,
with the segment showing a 25% increase in revenues when compared to Fiscal
2001. While a portion of this improvement was due to the addition of the
leased facility in Bessemer, Alabama, the bulk of the increase was due to
higher sales in existing markets. This was particularly significant because
Williams Bridge Company's strongest traditional customers, the states of
Virginia and Maryland, did not bid much work due to severe budgetary
concerns. Williams Bridge Company not only produced more work, but also
produced higher profit margins when the years are compared. It is also
significant to note that the addition of the Bessemer plant was responsible
for approximately $600,000 in increased G&A costs for the subsidiary;
overhead increasing accordingly.
The construction segment revenues remained constant when the years ended
July 31, 2002 an 2001 are compared. While the segment's erection operations'
revenue increased, the increases were offset by decreases in revenues in
crane rental operations. Direct costs increased $839,000 due to workers'
compensation expenses due to a series of accidents, and because the segment
had substantial fixed-cost expenses, such as crane leases. Profit margins
declined sharply on reduced revenues.
Part of the equipment rental operation's difficulties stemmed from new
competition in the marketplace, but concerns involved accidents, the
segment's inability to sell underperforming assets and changes in the
segment's sales staff.
Off-Balance Sheet Arrangements
Except as shown below in Aggregate Contractual Obligations and in Note
13, Leases, the Company has no off balance sheet arrangements.
Aggregate Contractual Obligations
The table below summarizes the payment timetable for all contractual
obligations of the Company.
(Amounts in thousand $) Payments Due By Period
-----------------------------------------
Less Than 1-3 3-5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
- ------------------------- -------- -------- -------- ------- -------
Long Term Debt $10,496 $5,267 $2,289 $2,035 $905
Capital Lease Obligation 123 123 - - -
Operating Leases 4,617 1,291 2,049 1,277 -
-------- -------- -------- ------- -------
Total $15,236 $6,681 $4,338 $3,312 $905
======== ======== ======== ======= =======
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 that are other than
statements of historical facts. Such forward-looking statements may be
identified, without limitation, by the use of the words "anticipates,"
"estimates," "expects," "intends," and similar expressions. From time to
time, the Company or one of its subsidiaries individually may publish or
otherwise make available forward-looking statements of this nature. All such
forward-looking statements, whether written or oral, and whether made by or
on behalf of the Company or its subsidiaries, are expressly qualified by
these cautionary statements and any other cautionary statements which may
accompany the forward-looking statements. In addition, the Company disclaims
any obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
Forward-looking statements made by the Company are subject to risks and
uncertainties that could cause actual results or events to differ materially
from those expressed in, or implied by, the forward-looking statements.
These forward-looking statements may include, among others, statements
concerning the Company's revenue and cost trends, cost-reduction strategies
and anticipated outcomes, planned capital expenditures, financing needs and
availability of such financing, and the outlook for future construction
activity in the Company's market areas. Investors or other users of the
forward-looking statements are cautioned that such statements are not a
guarantee of future performance by the Company and that such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in, or implied by, such
statements. Some, but not all of the risk and uncertainties, in addition to
those specifically set forth above, include general economic and weather
conditions, market prices, environmental and safety laws and policies,
federal and state regulatory and legislative actions, tax rates and policies,
rates of interest and changes in accounting principles or the application of
such principles to the Company.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Williams Industries, Inc. uses fixed and variable rate notes payable and
a tax-exempt bond issue to finance its operations. These on-balance sheet
financial instruments, to the extent they provide for variable rates of
interest, expose the Company to interest rate risk, with the primary interest
rate exposure resulting from changes in the prime rates or Industrial Revenue
Bond (IRB) rate used to determine the interest rates that are applicable to
borrowings under the Company's vendor credit facility and tax exempt bond.
The information below summarizes Williams Industries, Inc.'s sensitivity
to market risks associated with fluctuations in interest rates as of July 31,
2004. To the extent that the Company's financial instruments expose the
Company to interest rate risk, they are presented in the table below. The
table presents principal cash flows and related interest rates by year of
maturity of the Company's credit facility and tax-exempt bond in effect at
July 31, 2004. Notes 6 and 13 to the Consolidated Financial Statements
contain descriptions of the Company's credit facilities and tax-exempt bond
and should be read in conjunction with the table below.
Interest Rate Sensitivity on Notes Payable
Financial Instruments by Expected Maturity Date
(In thousands except interest rate)
2009 and Fair
Year Ending July 31, 2005 2006 2007 2008 After Total Value
------ ------ ------ ------ ------ ------ ------
Variable Rate Notes $1,668 $2,974 $297 $130 $50 $5,119 $5,100
Average Interest Rate 3.48% 5.47% 5.33% 5.33% 5.25% 4.72%
Fixed Rate Notes $1,225 $788 $727 $747 $2,013 $5,500 $5,500
Average Interest Rate 7.83% 7.21% 7.27% 7.30% 7.08% 8.70%
Item 8. Financial Statements and Supplementary Data
(See pages which follow.)
Item 9. Changes in and Disagreements on
Accounting and Financial Disclosures.
On March 11, 2004, the Company notified Aronson & Company (Aronson) that
it was dismissing Aronson as the Company's principal independent certifying
accountant. Neither of Aronson's reports for the past two fiscal years
contained an adverse opinion or disclaimer of opinion, nor was either of
such reports qualified or modified as to uncertainty, scope, or accounting
principles.
On March 30, 2004, the Company engaged McGladrey & Pullen LLP as the
Company's principal independent certifying accountant.
The decision to change accountants was made and approved by the
Company's Audit Committee and was reported to the Company's Board of
Directors.
Part III
Pursuant to General Instruction G(3)of Form 10-K,information required by
Part III (Items 10, 11, 12 and 13) is hereby incorporated by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission, pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, in connection with the Company's Annual
Meeting of Shareholders scheduled to be held December 11, 2004.
Item 14. Controls and Procedures
As of July 31, 2004, an evaluation was performed under the supervision
and with the participation of the Company's management, including Chief
Executive Officer (CEO) and Controller, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. Based on
that evaluation, the Company's management, including the CEO and Controller,
concluded that the disclosure controls and procedures were effective as of
July 31, 2004. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect
internal controls subsequent to July 31, 2004.
Disclosure controls and procedures are designed to ensure that
information, required to be disclosed by the Company in the reports that are
filed or submitted under the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it
files under the Exchange Act are accumulated and communicated to management,
including the principal executive officers and principal financial officer,
as appropriate to allow timely decisions regarding required disclosure.
The Company is required to comply with Section 404 of the Sarbanes-Oxley
Act with the year ended July 31, 2005. Management is tasked with establishing
key controls for the operation of the Company as part of having an effective
control environment over disclosure and financial reporting. These controls,
and management's assessment of these controls, will be audited by the
Company's independent auditing firm, who will issue their opinion of the
controls and the control environment.
Part IV
Item 15. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
The following documents are filed as a part of this report:
1. Consolidated Financial Statements of Williams Industries, Incorporated
and Independent Auditors' Reports.
Report of McGladrey & Pullen, LLP
Report of Aronson and Company
Report of the Audit Committee
Consolidated Balance Sheets as of July 31, 2004 and 2003.
Consolidated Statements of Operations for the Years Ended
July 31, 2004, 2003, and 2002.
Consolidated Statements of Stockholders' Equity for the Years Ended
July 31, 2004, 2003, and 2002.
Consolidated Statements of Cash Flows for the Years Ended
July 31, 2004, 2003, and 2002.
Notes to Consolidated Financial Statements for the Years Ended
July 31, 2004, 2003, and 2002.
Schedule II -- Valuation and Qualifying Accounts for the Years Ended
July 31, 2004, 2003, and 2002 of Williams Industries, Incorporated.
(All included in this report in response to Item 8.)
2. (a) Schedules to be Filed by Amendment to this Report
NONE
(b) Exhibits:
Exhibit 3 Articles of Incorporation and By-Laws
Articles of Incorporation: incorporated by reference
to Exhibit 3(a) of the Company's 10-K for the
fiscal year ended July 31, 1989.
By-Laws: incorporated by reference to Exhibit 3 of
the Company's 8-K filed September 4, 1998.
Exhibit 14 Code of Ethics
Exhibit 21 Subsidiaries of the Company (see below)
Exhibit 31.1 Section 302 Certification for Christ H. Manos
Exhibit 31.2 Section 302 Certification for Frank E. Williams, III
Exhibit 32 Section 906 Certifications
Exhibit 99 Press Release Dated October 21, 2004
Exhibit 21 Subsidiaries of the Company:
Name State of
Incorporation
-------------------------------------- --------
Insurance Risk Management Group, Inc. VA
Piedmont Metal Products, Inc. VA
S.I.P. Inc. of Delaware DE
Williams Bridge Company VA
Williams Equipment Corporation DC
WII Realty Management, Inc. VA
Williams Steel Erection Company, Inc. VA
WILLIAMS INDUSTRIES, INCORPORATED
Table of Contents
Report of Independent Registered Public Accounting Firm
McGladrey & Pullen LLP 24
Aronson and Company 25
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED JULY 31, 2004, 2003, AND 2002:
Consolidated Balance Sheets as of
July 31, 2004 and 2003 26
Consolidated Statements of Operations for the
Years Ended July 31, 2004, 2003, and 2002 28
Consolidated Statements of Stockholders'
Equity for the Years Ended
July 31, 2004, 2003, and 2002 29
Consolidated Statements of Cash Flows for
the Years Ended July 31, 2004, 2003, and 2002 30
Notes to Consolidated Financial Statements 31
Schedule II - Valuation and Qualifying Accounts 51
Signatures and Certifications 52
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Williams Industries, Incorporated
Manassas, Virginia
We have audited the accompanying Consolidated Balance Sheet of Williams
Industries, Incorporated as of July 31, 2004, and the related Consolidated
Statement of Operations, Stockholders' Equity and Cash Flows for the year
then ended. Our audit also included the financial statement schedule for the
year ended July 31, 2004 listed in the Index at Item 15. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Williams
Industries, Incorporated as of July 31, 2004, and the results of its
operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule for the year ended
July 31, 2004, when considered in relation to the basic consolidated
financial statements, taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ McGladrey & Pullen LLP
- --------------------------
McGladrey & Pullen LLP
Bethesda, Maryland
September 17, 2004
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Williams Industries, Incorporated
Manassas, Virginia
We have audited the accompanying Consolidated Balance Sheet of Williams
Industries, Incorporated as of July 31, 2003, and the related Consolidated
Statements of Operations, Stockholders' Equity and Cash Flows for each of the
two years in the period ended July 31, 2003. Our audits also included the
financial statement schedule listed in Item 15. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Williams
Industries, Incorporated as of July 31, 2003, and the results of its
operations and its cash flows for each of the two years in the period ended
July 31, 2003 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, the financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ Aronson & Company
- ---------------------
Aronson & Company
Rockville, Maryland
September 5, 2003
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2004 AND 2003
($000 Omitted)
ASSETS
--------
2004 2003
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 1,343 $ 2,023
Restricted cash 1,003 51
Certificates of deposit - 417
Accounts receivable, (net of allowances
for doubtful accounts of $1,204
in 2004 and $1,528 in 2003):
Contracts
Open accounts 14,530 13,025
Retainage 533 510
Trade 1,721 2,249
Other 674 602
-------- --------
Total accounts receivable - net 17,458 16,386
-------- --------
Inventory 5,133 3,421
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,161 3,139
Prepaid expenses 1,413 1,767
-------- --------
Total current assets 27,511 27,204
-------- --------
PROPERTY AND EQUIPMENT, AT COST 24,601 22,242
Accumulated depreciation (13,486) (12,160)
-------- --------
Property and equipment, net 11,115 10,082
-------- --------
OTHER ASSETS
Deferred income taxes 3,089 2,624
Other 419 600
-------- --------
Total other assets 3,508 3,224
-------- --------
TOTAL ASSETS $42,134 $40,510
======== ========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2004 AND 2003
($000 Omitted)
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------
2004 2003
-------- --------
CURRENT LIABILITIES
Current portion of notes payable $ 5,390 $ 1,490
Accounts payable 8,099 5,410
Accrued compensation and related liabilities 797 881
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,633 4,587
Deferred income 19 28
Other accrued expenses 2,588 3,535
Income taxes payable 6 -
-------- --------
Total current liabilities 20,532 15,931
LONG-TERM DEBT
Notes payable, less current portion 5,229 7,570
-------- --------
Total liabilities 25,761 23,501
-------- --------
MINORITY INTERESTS 180 187
-------- --------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock - $0.10 par value, 10,000,000
shares authorized; 3,633,655 and 3,586,880
shares issued and outstanding 363 359
Additional paid-in capital 16,537 16,390
Accumulated (deficit) earnings (707) 73
-------- --------
Total stockholders' equity 16,193 16,822
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $42,134 $40,510
======== ========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2004, 2003 and 2002
($000 omitted except earnings per share)
2004 2003 2002
-------- -------- --------
REVENUE:
Construction $20,776 $17,968 $22,245
Manufacturing 32,884 34,439 33,978
Other revenue 224 264 281
-------- -------- --------
Total revenue 53,884 52,671 56,504
-------- -------- --------
DIRECT COSTS:
Construction 15,298 13,665 15,872
Manufacturing 22,596 23,627 20,228
-------- -------- --------
Total direct costs 37,894 37,292 36,100
-------- -------- --------
GROSS PROFIT 15,990 15,379 20,404
-------- -------- --------
OTHER INCOME - - 96
-------- -------- --------
EXPENSES:
Unallocated overhead 7,253 6,830 6,851
General and administrative 7,301 7,444 8,778
Depreciation and amortization 1,988 1,771 1,553
Interest 666 614 715
-------- -------- --------
Total expenses 17,208 16,659 17,897
-------- -------- --------
(LOSS) EARNINGS BEFORE INCOME TAXES
AND MINORITY INTERESTS (1,218) (1,280) 2,603
INCOME TAX (BENEFIT) PROVISION (461) (359) 962
-------- -------- --------
(LOSS) EARNINGS BEFORE MINORITY INTERESTS (757) (921) 1,641
Minority Interests in
consolidated subsidiaries (23) (15) (28)
-------- -------- --------
NET (LOSS) EARNINGS $ (780) $ (936) $ 1,613
======== ======== ========
(LOSS) EARNINGS PER COMMON SHARE:
(LOSS) EARNINGS
PER COMMON SHARE-BASIC $ (0.22) $ (0.26) $ 0.45
======== ======== ========
(LOSS) EARNINGS
PER COMMON SHARE-DILUTED $ (0.22) $ (0.26) $ 0.45
======== ======== ========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 2004, 2003 and 2002
(000 0mitted)
Additional Accumulated
Number Common Paid-In Earnings
of Shares Stock Capital (Deficit) Total
-----------------------------------------------------
BALANCE, AUGUST 1, 2001 3,601 $ 360 $16,458 $ (604) $16,214
Issuance of stock 18 2 75 - 77
Repurchase of stock (45) (4) (185) - (189)
Net earnings for the year* - - - 1,613 1,613
-----------------------------------------------------
BALANCE, JULY 31, 2002 3,574 358 16,348 1,009 17,715
Issuance of stock 19 2 73 - 75
Repurchase of stock (6) (1) (31) - (32)
Net loss for the year* - - - (936) (936)
-----------------------------------------------------
BALANCE, JULY 31, 2003 3,587 359 16,390 73 16,822
Issuance of stock 47 4 147 151
Net loss for the year * (780) (780)
-----------------------------------------------------
BALANCE, JULY 31, 2004 3,634 $ 363 $16,537 $ (707) $16,193
=====================================================
* There were no items of other comprehensive income during the year.
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
($000 Omitted)
2004 2003 2002
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (780) $ (936) $ 1,613
Adjustments to reconcile
net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization 1,988 1,771 1,553
(Decrease) increase in allowance
for doubtful accounts (324) 842 331
Loss on disposal of property,
plant and equipment 1 - 5
(Increase) decrease in
deferred income tax assets (465) (378) 821
Minority interest in earnings 23 15 28
Gain on disposal
of consolidated subsidiary - - (83)
Changes in assets and liabilities:
Decrease (increase)
in open contracts receivable (1,181) 656 (5,007)
(Increase) decrease
in contract retainage (23) 146 256
Decrease (increase)
in trade receivables 528 (714) 270
(Increase) decrease
in other receivables (72) 415 95
(Increase) decrease in inventory (1,712) 1,445 (1,247)
Decrease (increase) in costs and
estimated earnings in excess of
billings on uncompleted contracts 1,978 (1,630) 984
(Decrease) increase in billings in
excess of costs and estimated
earnings on uncompleted contracts (954) 483 1,202
Decrease (increase) in prepaid expenses 354 496 (1,112)
Decrease (increase) in other assets 181 936 (808)
Increase in accounts payable 2,689 510 733
(Decrease) increase in accrued
compensation and related liabilities (84) (977) 229
Decrease in deferred income (9) (72) (25)
(Decrease) increase
in other accrued expenses (947) 73 345
(Decrease) increase
in income taxes payable 6 (137) 160
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,197 2,944 343
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for
property, plant and equipment (3,023) (3,829) (1,392)
Increase in restricted cash (952) (1) (1)
Proceeds from sale of
property, plant and equipment 1 - 1
Sale of subsidiary - - 100
Cash of subsidiary sold - - (262)
Purchase of subsidiary - (53) (86)
Purchase of certificates of deposit - (306) (17)
Maturities of certificates of deposit 417 594 5
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,557) (3,595) (1,652)
`
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings 4,187 4,907 8,246
Repayments of notes payable (2,628) (5,616) (7,145)
Issuance of common stock 151 75 77
Repurchase of common stock - (32) (189)
Minority interest dividends (30) (40) (48)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,680 (706) 941
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (680) (1,357) (368)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,023 3,380 3,748
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,343 $ 2,023 $ 3,380
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (SEE NOTE 14)
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDED
JULY 31, 2004, 2003 AND 2002
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Business - Williams Industries, Incorporated operates in the commercial,
industrial, institutional, governmental and infrastructure construction
markets, primarily in the Mid-Atlantic region of the United States.
The Company has two main lines of business, manufacturing and
construction. Construction includes the erection and installation of steel,
precast concrete and miscellaneous metals as well as rigging and crane rental.
In manufacturing, the Company fabricates welded steel plate girders, rolled
steel beams, steel decking, and light structural and other metal products.
Prior to October 1, 2001, the Company was also in the business of selling
insurance, safety and related services through Construction Insurance Agency,
Inc. (Note 3).
Basis of Consolidation - The consolidated financial statements include
the accounts of Williams Industries, Inc. and all of its majority-owned
subsidiaries (the "Company").
All material intercompany balances and transactions have been eliminated
in consolidation.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and Amortization - Property and equipment are recorded at
cost and are depreciated over the estimated useful lives of the assets using
the straight-line method of depreciation for financial statement purposes,
with estimated lives of 25 to 30 years for buildings and 3 to 15 years for
equipment, vehicles, tools, furniture and fixtures. Leasehold improvements are
amortized over the lesser of 10 years or the remaining term of the lease.
Ordinary maintenance and repair costs are charged to expense as incurred
while major, life-extending renewals and improvements are capitalized. Upon
the sale or retirement of property and equipment, the cost and accumulated
depreciation are removed from the respective accounts and any gain or loss is
recognized.
Impairment of Long-Lived Assets - In accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
evaluates the potential impairment of long-lived assets based on projections
of undiscounted cash flows whenever events or changes in circumstances
indicate that the carrying value amount of an asset may not be fully
recoverable. Management believes no material impairment of its assets exists
at July 31, 2004.
(Loss) Earnings Per Common Share - "(Loss) Earnings Per Common Share-
Basic" is based on the weighted average number of shares outstanding during
the year. "(Loss) Earnings Per Common Share-Diluted" is based on the shares
outstanding and the weighted average of common stock equivalents outstanding,
which consisted of stock options during the year ended July 31, 2002. For the
year ended July 31, 2003, loss per common share - diluted does not include
common stock equivalents since the effect would be anti-dilutive. For the year
ended July 31, 2004, there were no stock equivalents issued, and the effect,
if included, would be anti-dilutive.
Revenue Recognition - Revenues and earnings from contracts are recognized
for financial statement purposes using the percentage-of-completion method;
therefore, revenue includes that percentage of the total contract price that
the cost of the work completed to date bears to the estimated final cost of
the contract. Estimated contract earnings are reviewed and revised
periodically as the work progresses, and the cumulative effect of any change
in estimate is recognized in the period in which the estimate changes.
Retentions on contract billings are minimal and are generally collected within
one year. When a loss is anticipated on a contract, the entire amount of the
loss is provided for in the current period. Contract claims are recorded as
revenue at the lower of excess costs incurred or the net realizable amount
after deduction of estimated costs of collection.
Revenues and earnings on non-contract activities are recognized when
services are provided or goods delivered.
Overhead - Overhead includes the variable, non-direct costs such as shop
salaries, consumable supplies, and certain unallocated vehicle and equipment
costs incurred to support the revenue generating activities of the Company.
Advertising - The Company's policy is to expense advertising costs as
they are incurred. Generally, advertising costs are insignificant to the
Company's operations.
Inventories - Materials inventory consists of structural steel, steel
plates, and galvanized steel coils. Costs of materials inventory is accounted
for using either the specific identification method or average cost. The cost
of supplies inventory is accounted for using the first-in, first-out, (FIFO)
method. No material amount of inventory is tied up in long-term contracts.
Accounts Receivable - The majority of the Company's work is performed on
a contract basis. Generally, the terms of the contracts require monthly
billings for work completed, on which the Company performs. The Company may
also perform extra work above the contract terms. The Company will invoice for
this work as the work is completed. In the manufacturing segment, in many
instances, the segments companies will invoice for work as soon as it is
completed, especially where the work is being completed for state governments
that allow such accelerated billings.
Allowance for Doubtful Accounts - Allowances for uncollectible accounts
and notes receivable are provided on the basis of specific identification.
Income Taxes - Williams Industries, Inc. and its subsidiaries file
consolidated federal income tax returns. The provision for income taxes has
been computed under the requirements of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Under SFAS No. 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and the tax basis of assets and liabilities,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. The Company includes a valuation allowance as part of
this calculation against any gross deferred tax assets when it is more likely
than not that the asset or a portion of the asset cannot be realized in the
future.
Cash and Cash Equivalents - For purposes of the Balance Sheet and the
Statements of Cash Flows, the Company considers all highly liquid instruments
and certificates of deposit with original maturities of less than three months
to be cash equivalents. From time to time, the Company maintains cash deposits
in excess of federally insured limits. Management does not consider this to
represent a significant risk.
Restricted Cash - The Company's restricted cash is invested in short-
term, highly liquid investments. Under the term of the Company's Industrial
Revenue Bond (IRB), the Company is required to make monthly payments into an
escrow account, from which the annual payment on the IRB is automatically
made. The Company is also required to maintain letters of credit backed by
certificates of deposit to support the Company's workers' compensation
programs. These certificates of deposit total approximately $950,000 at July
31, 2004. The carrying amount approximates fair value because of the short-
term maturity of these investments.
Certificates of Deposit - The Company's certificates of deposit have
original maturities greater than 90 days, but not exceeding one year.
Stock-Based Compensation - At July 31, 2004, the Company had two stock-
based compensation plans, which are described more fully in Note 10. The
Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. No stock-based employee compensation cost is
reflected in net (loss) earnings, as all options granted under those plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net (loss)
earnings and (loss) earnings per share if the Company had applied the fair
value recognition provisions of FASB Statement No. 123, Accounting for Stock-
Based Compensation, to stock-based employee compensation.
(in thousands except (loss) earnings per share) 2004 2003 2002
------ ------ ------
Net (Loss) Earnings, as reported $(780) $(936) $1,613
Deduct: Total stock-based employee compensation
under fair value based method for all awards,
net of related tax effects - (34) (88)
------ ------ ------
Pro forma Net (Loss) Earnings $(780) $(970) $1,525
====== ====== ======
(Loss) Earnings per share:
Basic - as reported $(0.22) $(0.26) $0.45
====== ====== ======
Basic - pro forma $(0.22) $(0.27) $0.43
====== ====== ======
Diluted - as reported $(0.22) $(0.26) $0.45
====== ====== ======
Diluted - pro forma $(0.22) $(0.26) $0.43
====== ====== ======
Reclassifications - Certain reclassifications of prior years' amounts
have been made to conform to the current years' presentation. These
reclassifications had no effect on the prior years' reported net income.
RECENT ACCOUNTING PRONOUNCEMENTS:
During the year ended July 31, 2002, the Accounting Standards Board
issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." During the year ended July 31, 2003, the Accounting Standards
Board issued SFAS No. 148, "Accounting for Stock Based Compensation-Transition
and Disclosure." During the year ended July 31, 2004, the Accounting Standards
Board issued Statement No. 132 (revised 2003), "Employers' Disclosure about
Pensions and Other Postretirement Benefits," Interpretation No. 46 (revised
2003), "Consolidation of Variable Interest Entities," and Staff Position
No.106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003."
`
SFAS No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a restructuring)." Under Issue No. 94-3, a liability for an
exit cost as defined in Issue 94-3 was recognized at the date of an entity's
commitment to an exit plan. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair market value only when the liability is incurred and not
when management adopted the plan. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December
31, 2002. The Company adopted this new Standard during the year ended July 31,
2003. The Board of Directors has not adopted any formal plans associated with
the exit or disposal of an activity, although the Bessemer, Alabama plant of
the manufacturing segment has been scheduled for shut down. Certain severance
and vacation costs of approximately $110,000 were accrued in the Consolidated
Statements of Operations for the year ended July 31, 2004 since the scheduled
shut-down was communicated to affected employees prior to July 31, 2004.
SFAS No.148 amends SFAS No. 123, Accounting for Stock - Based
Compensation and provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation from the intrinsic method. In addition, this statement amends
the disclosure requirements of Statement No. 124 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on the reported results. The Company utilizes the intrinsic method
and has adopted the disclosure requirements of this standard. The Company has
not adopted the fair value method for the year ended July 31, 2004.
In December 2003, the FASB issued Statement No. 132 (revised 2003),
"Employers' Disclosure about Pensions and Other Postretirement Benefits." The
standard requires that companies provide more details on an annual basis about
their plan assets, benefit obligations, cash flows, benefit costs and other
relevant information. This standard requires companies to report the various
elements of pension and other postretirement costs on a quarterly basis. The
Company believes this standard will have no impact on the Company.
In December 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (revised 2003), "Consolidation of Variable Interest
Entities," which addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other than
voting rights and accordingly should consolidate the entity. FIN 46R replaces
Interpretation 46, "Consolidation of Variable Interest Entities," which was
issued in January 2003. The Company will be required to apply FIN 46R to
variable interests in VIEs created after December 31, 2003. For variable
interests in VIEs created before January 1, 2004, the Interpretation will be
applied beginning on January 1, 2005. For any VIEs that must be consolidated
under FIN 46R that were created before January 1, 2004, the assets,
liabilities and non-controlling interests of the VIE initially would be
measured at their carrying amounts with any difference between the net amount
added to the balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change. If determining
the carrying amounts is not practicable, fair value at the date FIN 46R first
applies may be used to measure the assets, liabilities and non-controlling
interest of the VIE. The Company does not expect Interpretation No. 46 or FIN
46R to have any impact on the consolidated financial statements.
In May 2004, the FASB issued Staff Position No.106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003", which superseded FASB Staff Position No. 106-
1, "Accounting and Disclosure Requirements related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003." The
implementation of this guidance is not expected to have any impact on the
Company's consolidated financial statements.
1. (LOSS) EARNINGS PER COMMON SHARE
The Company calculates (loss) earnings per share in accordance with SFAS
No. 128, "Earnings Per Share". (Loss) earnings per share were as follows:
Year-ended July 31, 2004 2003 2002
-------- -------- --------
(Loss) Earnings Per Share - Basic ($0.22) ($0.26) $0.45
(Loss) Earnings Per Share - Diluted ($0.22) ($0.26) $0.45
The following is a reconciliation of the amounts used in calculating
the basic and diluted (loss) earnings per share (in thousands):
Year-ended July 31, 2004 2003 2002
-------- -------- --------
(Loss) earnings - (numerator)
Net (loss) earnings - basic $(780) $(936) $1,613
======== ======== ========
Shares - (denominator)
Weighted average shares
outstanding - basic 3,612 3,577 3,578
Effect of dilutive securities: Options - - 10
-------- -------- --------
$3,612 $3,577 $3,588
======== ======== ========
2. 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 believes it is
entitled to reimbursement by the owner, general contractor, or other
participants. These claims are recorded as revenue at the lower of excess
costs incurred or the estimated net realizable amount after deduction of
estimated costs of collection.
There was one contract claim receivable for $650,000 at July 31, 2004.
The claim represents the amount to be paid the Company by its customer upon
final settlement of all change orders and claims by the customer with the
owner of the project. The Company believes the claim will be collected during
the fiscal year ending July 31, 2005. For the $490,000 contract claim
receivable at July 31, 2003, the Company collected approximately $400,000. The
Company chose to accept a lesser payment rather than wait an indeterminate
amount of time for full payment of the original claim. The remaining balance
was written off, reducing revenues.
3. RELATED-PARTY TRANSACTIONS
Mr. Frank E. Williams, Jr., who owns or controls approximately 40% of the
Company's stock at July 31, 2004, and is a director of the Company, also owns
controlling interests in the outstanding stock of Williams Enterprises of
Georgia, Inc., and Structural Concrete Products, LLC. Additionally, Mr.
Williams, Jr. owns a substantial interest in Bosworth Steel Erectors, Inc.
(formerly Williams and Beasley Company). Revenue earned and costs incurred
with these entities during the three years ended July 31, 2004, 2003 and 2002
are reflected below. In addition, amounts receivable and payable to these
entities at July 31, 2004 and 2003 are reflected below.
(in thousands) 2004 2003 2002
-------- -------- --------
Revenues $400 $2,442 $2,681
Billings to entities $380 $1,293 $2,931
Costs and expenses incurred from $675 $1,478 $2,007
Balance July 31,
2004 2003
-------- --------
Accounts receivable $650 $1,680
Costs and estimated earnings in excess of
billings on uncompleted contracts $ - $ -
Accounts Payable $77 $303
Billings in excess of costs and estimated
earnings on uncompleted contracts $ - $ 3
In July 2003, the Company purchased a 30 ton overhead crane from Mr.
Williams, Jr. for approximately $28,000. The purchase was reviewed and
approved by the independent directors of the Company's Board of Directors,
prior to finalizing the payment.
In July 2004, the Company borrowed $100,000 from Mr. Williams, Jr. to
cover short-term cash requirements. The note is payable on demand with
interest at the prime rate.
Subsequent to the year ended July 31, 2004, the Company borrowed an
additional $200,000 from Mr. Williams, Jr., payable on demand with interest
at the prime rate.
The Company is obligated to the estate of F. Everett Williams, a former
director of the Company, for a Demand Note Payable of approximately $88,000.
The note, at 10% simple interest, is not secured. The Company recognized
interest expense for the three years ended July 31, 2004, 2003 and 2002 as
follows:
(in thousands) 2004 2003 2002
-------- -------- --------
Interest Expense $9 $9 $9
Balance July 31,
2004 2003
-------- --------
Note Payable $88 $88
Accrued interest payable $73 $64
The Company is obligated to the Williams Family Limited Partnership under
a lease agreement for real property with an option to purchase. The
partnership is controlled by individuals who own, directly or indirectly,
approximately 44% of the Company's stock. The lease, which has an original
term of five years and an extension option for five years, commenced February
15, 2000. The lease contains an option to purchase up to ten acres at the
"original pro-rata cost" of $567,500. The Company pays annual lease payments
of approximately $56,000 plus real estate taxes of $11,000 per year. The
Company recognized lease expense for the three years ended July 31, 2004, 2003
and 2002 as follows:
(in thousands) 2004 2003 2002
-------- -------- --------
Lease Expense $78 $56 $56
Balance July 31,
2004 2003
-------- --------
Note Payable 100 -
Accounts payable $116 $37
Subsequent to the year ended July 31, 2004, the Company borrowed $100,000
from the Williams Family Limited Partnership, payable on demand with interest
at prime.
On October 1, 2001, the Company sold its entire 64% interest in
Construction Insurance Agency, Inc. (CIA) to George R. Pocock, an officer of
the Company, for $300,000 and realized a gain of $82,646, which is included in
Other Income in the Consolidated Statements of Earnings for the year ended
July 31, 2002. The Company received $100,000 in cash and a $200,000 note
bearing interest at 7.5%, which is due October 1, 2005 and is secured by the
CIA stock. The note is to be paid in 47 equal installments of $2,374
including interest and principal, and a single payment of $138,812. At July
31, 2004 and 2003, the balance due on the note was $158,946 and $174,860,
respectively. In addition, the sale agreement included a provision for the
purchaser to continue providing risk management services to the Company for a
period of four years. Mr. Pocock maintains the right to terminate this
provision at any time with 90 days notice. For the years ended July 31, 2004
and 2003, respectively, the Company paid $63,000 and $64,000 to Mr. Pocock
for risk management services. In the year ending July 31, 2005, the Company
has agreed to pay $61,000 for such risk management services.
Costs incurred with CIA, for insurance premiums and brokerage fees, for
the years ended July 31, 2004, 2003 and 2002 are reflected below. In addition,
amounts payable at July 31, 2004 and 2003 are also reflected below.
(in thousands) 2004 2003 2002
-------- -------- --------
Costs incurred from $206 $231 $273
Balance July 31,
2004 2003
-------- --------
Accounts Payable $109 $44
Directors Frank E. Williams, Jr. and Stephen N. Ashman are shareholders
and directors of a commercial bank from which the Company obtained a $240,000
note payable on December 23, 2002. The note is payable in sixty equal monthly
payments of principal of $4,000 plus interest at 5.75% or the current Prime
rate, whichever is greater. The note, which replaced an existing note payable
that had a higher interest rate and payment, was negotiated at arms length
under normal commercial terms. Interest expensed for the years ended July 31,
2004 and 2003 is reflected below. The balance outstanding at July 31, 2004 and
2003, which is reflected below, is included in Note 6, Unsecured: Installment
obligations.
(in thousands) 2004 2003 2002
-------- -------- --------
Interest Expense $12 $ 9 $ -
Balance July 31,
2004 2003
-------- --------
Note Payable $164 $212
During the year ended July 31, 2002, the Company entered into an
agreement with Alabama Structural Products (ASP), Inc., a subsidiary of a
company controlled by Frank E. Williams, Jr., a Director of the Company, to
lease a 21,000 square foot building in Gadsden, Alabama for the expansion of
S.I.P. The lease payment is $2,500 per month. Additionally, the Company has a
labor reimbursement agreement with ASP to provide labor to operate the Gadsden
plant. Subsequent to the year ending July 31, 2004, the labor agreement was
terminated.
Directors
At July 31, 2004, the Company owed the non-employee members of the Board
of Directors $35,000 for director and consulting fees.
4. CONTRACTS IN PROCESS
Comparative information with respect to contracts in process consisted of
the following at July 31 (in thousands):
2004 2003
-------- --------
Costs incurred on uncompleted contracts $31,315 $26,877
Estimated earnings 10,761 10,583
-------- --------
42,076 37,460
Less: Billings to date (44,548) (38,908)
-------- --------
$(2,472) $(1,448)
======== ========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $1,161 $3,139
Billings in excess of costs and estimated
earnings on uncompleted contracts (3,633) (4,587)
-------- --------
$(2,472) $(1,448)
Billings are based on specific contract terms that are negotiated on
an individual contract basis and may provide for billings on a unit price,
percentage-of-completion or milestone basis.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31 (in
thousands):
2004 2003
---------------------- ----------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
-------- ------------ -------- ------------
Land and buildings $ 6,163 $ 2,871 $ 6,102 $ 2,694
Automotive equipment 1,811 1,517 1,793 1,480
Cranes and heavy equipment 13,270 6,523 10,810 5,573
Tools and equipment 1,217 1,040 1,332 979
Office furniture and fixtures 254 178 238 127
Leased property
under capital leases 600 580 600 520
Leasehold improvements 1,286 777 1,367 787
-------- ------------ -------- ------------
$24,601 $ 13,486 $22,242 $12,160
======== ============ ======== ============
6. NOTES AND LOANS PAYABLE
Notes and loans payable consisted of the following at July 31 (in
thousands):
2004 2003
Collateralized: ------ ------
Loan payable to United Bank; collateralized by real estate,
inventory and equipment; monthly payments of principal
plus interest at 8.7% fixed; due April 1, 2014 $1,913 $2,033
Loan payable to United Bank; collateralized by real estate,
inventory and equipment; monthly payments of principal
plus interest at 8.7% fixed; due April 1,2009 351 413
Total Lines of Credit; collateralized by real estate,
inventory and equipment; borrowings up to $2,500
available at July 31, 2004 and 2003 with monthly payments
of interest only at prime plus .5%, due in 2005 2,498 1,982
Obligations under capital leases; collateralized by leased
property; interest from 8.34% to 18.81% for 2004 (one
$8,000 capital lease at 18.81%); and 8.34% to 18.81% for
2003, payable in varying monthly installments through 2005 123 224
Installment obligations collateralized by machinery and
equipment or real estate; interest ranging to 9.74% for
2004 and to 11.3% for 2003; payable in varying monthly
installments of principal and interest through 2009 4,327 3,160
Industrial Revenue Bond; collateralized by a letter of
credit which in turn is collateralized by real estate;
principal payable in 2005 due to covenant failure; variable
interest based on third party calculations, 1.52% at
July 31, 2004 and 1.31% at July 31, 2003 810 885
Unsecured:
Related party notes; interest from 4.25% to 10.0% for 2004
and at 10% for 2003 288 88
Installment obligations with varying interest rates to 12%
for 2004 and 5.85% for 2003; due in varying monthly
installments of principal and interest through 2008 309 275
------ ------
Total Notes Payable 10,619 9,060
Notes Payable - Long Term (5,229) (7,570)
------ ------
Current Portion $5,390 $1,490
====== ======
Included in Current Portion of Notes Payable for July 31, 2004 is $3.3 million
related to obligations that would otherwise be included in Note Payable - Long
Term. This includes the United Bank Line of Credit of $2.5 million, which is
due on May 5, 2005, and Wachovia Bank Notes payable of $800,000, which are due
on March 31, 2005. Should the Company not meet the conditions in the Wachovia
Bank waiver agreement, Wachovia Bank could demand the repayment of amounts due
at any time.
Due to the short-term nature of the Company's debt with United Bank on
its line of credit and Wachovia Bank on its notes, the Company may consider
refinancing some portion of its debt to avail itself of more credit and to
extend the life of its loans to improve its debt ratios.
Contractual maturities of the above obligations at July 31, 2004 are as
follows:
Year Ending July 31: Amount
- --------------------- --------
2005 $5,390
2006 1,265
2007 1,024
2008 877
2009 953
2010 and after 1,110
--------
Total $10,619
=======
As of July 31, 2004 and 2003, the carrying amounts reported above for
long-term notes and loans payable approximate fair value based upon interest
rates for debt currently available with similar terms and remaining
maturities.
7. INCOME TAXES
As a result of tax losses incurred in current and prior years, the
Company at July 31, 2004 has tax loss carryforwards amounting to approximately
$11.8 million. These loss carryforwards will expire from 2009 through 2023.
Under SFAS No. 109, the Company is required to recognize the value of these
tax loss carryforwards if it is more likely than not that they will be
realized. Due to current year losses, for federal income tax purposes, the
Company did not utilize any of these tax losses for the year ended July 31,
2004. The Company utilized approximately $2.8 million of the benefit
available from its tax loss carryforwards during the year ended July 31, 2002.
The remaining tax loss carryforwards will expire as follows:
July 31, 2009 $ 1.3 million
July 31, 2010 1.8 million
July 31, 2011 0.1 million
July 31, 2022 0.8 million
July 31, 2023 7.8 million
-------
Total $ 11.8 million
=======
The Company has, at July 31, 2004 and 2003, certain other deferred tax assets
and liabilities. Because it is not more likely than not that a portion of
these deferred assets will be realized, the Company has provided a valuation
allowance against the gross assets.
The components of the income tax provision (benefit) are as follows for
the years ended July 31:
2004 2003 2002
-------- -------- --------
(In thousands)
Current provision
Federal $- $ - $ -
State 6 20 141
-------- -------- --------
Total current provision 6 20 141
-------- -------- --------
Deferred (benefit) provision
Federal (369) (302) 654
State (98) (77) 167
-------- -------- --------
Total deferred (benefit) provision (467) (379) 821
-------- -------- --------
Total income tax (benefit) provision $(461) $(359) $962
-------- -------- --------
The differences between the tax (benefit) provision calculated at the
statutory federal income tax rate, and the actual tax (benefit) provision for
each year ended July 31 are as follows (in thousands):
2004 2003 2002
-------- -------- --------
Net (Loss) Income Before Income Taxes
and Minority Interests $(1,218) $(1,280) $2,603
======== ======== ========
(Benefit) Provision at statutory rate $(417) $(435) $885
State income taxes, net of federal
(benefit) provision (65) (68) 137
Permanent differences 57 55 47
Change in valuation allowance, rate
variances and under/(over) accrual of
prior years taxes (36) 89 (107)
-------- -------- --------
$(461) $(359) $962
======== ======== ========
The primary components of temporary differences, which give rise to the
Company's net deferred tax asset, are shown in the following table.
As of July 31, 2004 2003
-------- --------
(In thousands)
Deferred tax assets:
Investment in subsidiary $ - $1,296
Accounts receivable allowance 472 603
Accrued Insurance 404 582
Net operating loss carry forwards 4,699 1,682
Valuation allowance (1,302) (569)
-------- --------
Total deferred tax asset 4,273 3,594
-------- --------
Deferred tax liability
Depreciation (1,085) (772)
Inventory (99) (198)
-------- --------
Total deferred tax liability (1,184) (970)
-------- --------
Net Deferred Tax Asset $3,089 $2,624
======== ========
In evaluating the Company's ability to recover our deferred tax assets,
we consider all available positive and negative evidence including our past
operating results, the existence of cumulative losses in the most recent
fiscal years and our forecast of future taxable income. In determining future
taxable income, the Company is responsible for assumptions utilized including
the amount of state and federal pre-tax operating income, the reversal of
temporary differences and the implementation of feasible and prudent tax
planning strategies. These assumptions require significant judgment about the
forecasts of future taxable income and are consistent with the plans and
estimates the Company is using to manage the underlying businesses.
8. INVESTMENTS IN S.I.P., INC. OF DELAWARE
During the year ended July 31, 2002, the Company purchased 20 shares or
approximately 2% of the outstanding stock of S.I.P. for $44,000, bringing the
total investment to approximately $2,389,000 through July 31, 2002, which gave
the Company 100% ownership of S.I.P.'s operations.
The stock purchase agreements provide for additional payments to be made
annually based upon the net earnings of S.I.P through July 31, 2006. Because
S.I.P. was not profitable for the year ended July 31, 2004, there was no
payment to make. During the years ended July 31, 2003 and 2002, the Company
made payments to the previous owners, including the current president of
S.I.P., of $26,000 and $71,000, respectively.
The purchase has been accounted for and any additional payments will be
accounted for under the purchase method of accounting. S.I.P's financial
information has been consolidated in the accompanying Consolidated Balance
Sheet as of July 31, 2004 and 2003, and the related Consolidated Statements of
Operations, Stockholders' Equity and Cash Flows for all periods subsequent to
August 1, 2001, the date the Company acquired its controlling interest.
9. DISPOSITION OF ASSETS
During the year ended July 31, 2002, the Company sold its entire 64%
interest in Construction Insurance Agency, Inc. to George R. Pocock, an
officer of the Company. The sales price was $300,000 and the Company recorded
a gain of $83,000, which is included in "Other Income" on the Consolidated
Statement of Operations.
10. COMMON STOCK OPTIONS
At the November 1996 annual meeting, the shareholders approved the
establishment of a new Incentive Compensation Plan (1996 Plan) to provide an
incentive for maximum effort in the successful operation of the Company and
its subsidiaries by their officers and key employees and to encourage
ownership of the common shares of the Company by those persons. Under the
1996 Plan, 200,000 shares were reserved for issue.
The Company may issue options to non-employee directors on an annual
basis. The options and the shares, issued upon exercise of these director
options, are issued pursuant to Rule 144 of the 1933 Securities Act.
The options that have been approved and issued by the Company's Board of
Directors for the last five years are as follows:
2000 2001 2002 2003 2004 Total
------ ------ ------ ------ ------ ------
Board of Directors/
Section 144 Issue 12,500 12,500 12,500 15,000 - 52,500
Officers/Key Employees
1996 Plan 18,500 19,000 22,500 20,000 - 80,000
------ ------ ------ ------ ------ ------
31,000 31,500 35,000 35,000 - 132,500
====== ====== ====== ====== ====== =======
Stock options expire five years from the date of the grant and have
exercise prices ranging from the quoted market value to 110% of the quoted
market value on the date of the grant. The Company accounts for its options
under the intrinsic value method of APB No. 25.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Year ended July 31, 2003 2002
Dividend yield 0.00% 0.00%
Volatility rate 60.31% 57.56%
Discount rate 2.74% 2.89%
Expected term (years) 5 5
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, the existing
models may not be a reliable single measure of the fair value of its stock
options.
Stock option activity and price information follows:
Weighted
Average Exercise
Number Exercise Price Range
of Shares Price Per Share
----------- ----------- --------------
Balance at August 1, 2001 134,000 $3.46 $2.75 to $4.68
Granted 35,000 $4.97
Exercised -
Forfeited -
-----------
Balance at July 31, 2002 169,000 $3.77 $2.75 to $5.61
Granted 35,000 $3.61
Exercised (7,000) $2.79
Forfeited (27,000) $4.25
-----------
Balance at July 31, 2003 170,000 $3.58 $2.75 to $5.61
Granted -
Exercised (31,500) $3.07
Forfeited (20,500) $3.88
-----------
Balance at July 31, 2004 118,000 $3.79 $2.78 to $5.61
===========
The following table summarizes information about stock options outstanding at
July 31, 2004. All options outstanding are exercisable.
Ranges Total
- ------------------------------- -------------------------------- ---------
Range of exercise prices $2.78 to $3.75 to $4.70 to $2.78 to
$3.70 $4.65 $5.61 $5.61
- ------------------------------- -------------------------------- ---------
Options outstanding 80,000 15,500 22,500 118,000
Weighted average remaining
contractual life (years) 1.95 2.88 2.92 2.26
Weighted average
exercise price $3.25 $4.29 $5.26 $3.79
11. SEGMENT INFORMATION
The Company and its subsidiaries operate principally in two segments
within the construction industry: construction and manufacturing.
Operations in the construction segment include steel, precast concrete and
miscellaneous metals erection and installation, rigging and crane rental.
Operations in the manufacturing segment include fabrication of welded steel
plate girders, rolled steel beams, metal bridge decking and light structural
and other metal products.
Information about the Company's operations in its different segments for
the years ended July 31, is as follows (in thousands):
2004 2003 2002
-------- -------- --------
Revenue:
Construction $23,824 $20,049 $23,932
Manufacturing 33,079 34,751 34,410
Other revenue 224 264 281
-------- -------- --------
57,127 55,064 58,623
Inter-company revenue:
Construction (3,048) (2,081) (1,687)
Manufacturing (195) (312) (432)
-------- -------- --------
Total revenue $53,884 $52,671 $56,504
======== ======== ========
Operating (loss) earnings:
Construction $ (6) $(1,132) $ 44
Manufacturing (484) 309 3,147
-------- -------- --------
Consolidated operating (loss) earnings (490) (823) 3,191
General corporate income, net (62) 157 127
Interest Expense (666) (614) (715)
Income tax benefit (provision) 461 359 (962)
Minority interests (23) (15) (28)
-------- -------- --------
Corporate (loss) earnings $(780) $(936) $1,613
======== ======== ========
Assets:
Construction $14,667 $11,861 $11,748
Manufacturing 20,414 21,548 22,572
General corporate 7,053 7,101 7,936
-------- -------- --------
Total assets $42,134 $40,510 $42,256
======== ======== ========
Accounts receivable
Construction $9,713 $8,714 $8,175
Manufacturing 7,717 7,578 9,402
General corporate 28 94 154
-------- -------- --------
Total accounts receivable $17,458 $16,386 $17,731
======== ======== ========
Capital expenditures:
Construction $2,447 $1,190 $307
Manufacturing 530 2,599 689
General corporate 46 40 396
-------- -------- --------
Total capital expenditures $3,023 $3,829 $1,392
======== ======== ========
Depreciation and Amortization:
Construction $821 $731 $734
Manufacturing 957 775 620
General corporate 210 265 199
-------- -------- --------
Total depreciation and amortization $1,988 $1,771 $1,553
======== ======== ========
The Company utilizes revenues, operating earnings and assets employed as
measures in assessing segment performance and deciding how to allocate
resources.
Operating (loss) earnings is total revenue less operating expenses. In
computing operating (loss) earnings, the following items have not been added
or deducted: general corporate expenses, interest expense, income taxes and
minority interests.
Identifiable assets by segment are those assets that are used in the
Company's operations in each segment. General corporate assets include
investments, some real estate, and certain other assets not allocated to
segments.
The majority of revenues have historically been derived from projects on
which the Company is a subcontractor of a material supplier, other contractor
or subcontractor. Where the Company acts as a subcontractor, it is invited to
bid by the firm seeking construction services or materials; therefore,
continuing favorable business relations with those firms that frequently bid
on and obtain contracts requiring such services or materials are important to
the Company. Over a period of years, the Company has established such
relationships with a number of companies. During the year ended July 31, 2004,
there was one customer that accounted for 16% of consolidated revenues. During
each of the years ended July 31, 2003 and 2002, there was no single customer
that accounted for more than 10% of consolidated revenues.
The accounts receivable from the construction segment at July 31, 2004,
2003, and 2002 were due from 216, 227 and 215 unrelated customers, of which 9,
9 and 6 customers accounted for $6,178,000, $5,564,000 and $4,434,000,
respectively. The amounts due from these customers are expected to be
collected in the normal course of business.
The accounts receivable from the manufacturing segment at July 31, 2004,
2003, and 2002 were due from 108, 133 and 105 unrelated customers, of which 7,
9 and 8 customers accounted for $4,895,000, $4,846,000 and $5,162,000,
respectively. The amounts due from these customers are expected to be
collected in the normal course of business.
The Company does not normally require its customers to provide collateral
for outstanding receivable balances.
The Company's bridge girder subsidiary is dependent upon one supplier of
rolled steel plate for its product. The company maintains good relations with
the vendor, generally receiving orders on a timely basis at reasonable cost
for this market. If the relationship with this vendor were to deteriorate or
the vendor were to go out of business, the Company would have trouble meeting
production deadlines in its contracts, as the other major supplier of steel
plate has limited excess production available to "new" customers.
12. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution retirement savings plan covering
substantially all employees. The Plan provides for optional Company
contributions as a fixed percentage of salaries. The Company contributes 3% of
each eligible employee's salary to the plan. During the years ended July 31,
2004, 2003 and 2002, expenses under the plan amounted to approximately
$398,000, $414,000 and $381,000, respectively.
The Company, through its subsidiary Williams Steel Erection Company,
Inc., has a retirement plan where contributions are made for prevailing wage
work performed under a public contract subject to the Davis-Bacon Act or to
any other federal, state or municipal prevailing wage law. During the years
ended July 31, 2004, 2003 and 2002, expenses under the plan amounted to
approximately $641,000, $291,000 and $315,000, respectively.
13. COMMITMENTS AND CONTINGENCIES
Industrial Revenue Bond
In the year ended July 31, 2000, the Company renegotiated its Industrial
Revenue Bond with the City of Richmond backed by a Letter of Credit issued by
Wachovia Bank, secured by the Company's Richmond manufacturing facility. The
Company is current in all of its financial obligations under the IRB. The
Company was not in compliance with one covenant contained in the agreement but
Wachovia issued a waiver for the period ended July 31, 2004. The waiver added
an additional covenant that the Company make a net profit of $23,000 for the
quarter ending October 31, 2004, a net profit of $38,000 through the six
months ending January 31, 2005, a net profit of $98,000 through the nine
months ending April 30, 2005 and a net profit of $186,000 for the year ending
July 31, 2005. As of July 31, 2004, the outstanding balance was $810,000,
which is shown as a current Note Payable on the Company's Balance sheet for
the year ending July 31, 2004. Should the Company not meet the conditions in
the Wachovia Bank waiver agreement, Wachovia Bank could accelerate the balance
and demand the repayment of amounts due at any time.
Leases
The Company leases certain property, plant and equipment under operating
lease arrangements, including leases with a related party discussed in Note 3,
that expire at various dates though 2010. Lease expenses approximated
$1,761,000, $2,287,000 and $2,048,000 for the years ended July 31, 2004, 2003,
and 2002, respectively. Future minimum lease commitments required under non-
cancelable leases are as follows (in thousands):
Year ended July 31: Amount
- ----------------------- --------
2005 $1,291
2006 1,156
2007 893
2008 774
2009 386
Thereafter 117
--------
Total $4,617
--------
During Fiscal 2004, the Company refinanced five cranes, which it had
previously leased, at a cost of $1.9 million.
Letters of Credit
The Company's banks have issued approximately $1.7 million of letters of
credit as collateral for the Company's workers' compensation program, secured
by certificates of deposit and other Company assets.
Insurance
The Company obtained worker's compensation insurance from an insurance
carrier for a number of years under a "loss sensitive" agreement whereby the
Company paid a flat charge for the cost of doing business plus an additional
amount based on claims experience. During the year ended July 31, 2003, the
Company changed carriers because the previous carrier's proposed renewal terms
were unacceptable to Company management. Subsequent to the change of
carriers, the Company's previous carrier asserted various charges and
attempted to change terms of the calculation of amounts due, which the Company
disputed. The Company settled this claim with the carrier on February 12, 2004
with no adverse affect to the operations of the Company.
Other
The Company is party to various claims arising in the ordinary course of
its business. Generally, claims exposure in the construction industry
consists of workers' compensation, personal injury, products' liability and
property damage. The Company believes that its insurance accruals, coupled
with its liability coverage, are adequate coverage for such claims.
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year ended July 31,
(In thousands) 2004 2003 2002
------ ------ ------
Income Taxes $20 $178 $59
Interest $655 $610 $710
During the year ended July 31, 2002, the Company sold its 64% interest in
Construction Insurance Agency, Inc. A summary of the sale is as follows:
Assets sold:
- -------------------------
Current assets $827
Net property and equipment 43
------
Total assets $870
======
Liabilities assumed by purchaser:
- ---------------------------------
Current liabilities $523
Long-term liabilities 16
------
Total liabilities $539
------
Net equity (329)
Less: Minority share (112)
------
Net investment (217)
Sales price 300
------
Gain on sale $83
------
15. REDEMPTION OF STOCK
In January 2001, the Company's Board of Directors authorized the Company
to repurchase 175,000 shares of it's own stock. As of July 31, 2004, the
Company had repurchased 49,522 shares for $210,000. The company has reissued
19,925 shares of this stock for the redemption of stock options and the
issuance of stock under the Company's Employees' Stock Purchase Plan.
16. SUBSEQUENT EVENTS
The Company and its subsidiary Williams Equipment Corporation were
defendants in a suit in Prince William County, Virginia, by SunTrust Leasing
Corporation ("STL"). In the suit, STL contended that the Company defaulted on
the lease of a crane and that STL was entitled to recover approximately $1.1
million. Subsequent to the year ended July 31, 2004, the Company settled this
suit through the purchase of the crane under lease for $960,000, which was
financed for 60 months at 6.71%.
17. Quarterly Financial Data - unaudited
Selected quarterly financial information for the years ended July 31,
2004 and 2003 is presented below (in thousands except for per share data).
Quarter ended Year ended
--------------------------------------------------
October 31, January 31, April 30, July 31, July 31,
2003 2004 2004 2004 2004
-------- -------- -------- -------- --------
Revenues $13,618 $12,027 $14,867 $13,372 $53,884
Gross Profit 4,971 3,633 5,160 $2,226 $15,990
Net Earnings (Loss $227 $(667) $119 $(459) $(780)
Earnings (Loss)
Per Common Share $0.06 $(0.18) $0.03 $(0.13) $(0.22)
Quarter ended Year ended
--------------------------------------------------
October 31, January 31, April 30, July 31, July 31,
2002 2003 2003 2003 2003
-------- -------- -------- -------- --------
Revenues $14,891 $11,797 $12,249 $13,734 $52,671
Gross Profit $4,292 $3,396 $3,791 $3,900 $15,379
Net Earnings $62 $(618) $(356) $(24) $(936)
Earnings (Loss)
Per Common Share $0.02 $(0.17) $(0.10) $(0.01) $(0.26)
Schedule II - Valuation and Qualifying Accounts
Years Ended July 31, 2004, 2003 and 2002
(in thousands)
Column A Column B Column C Column D Column E
- -------------------- ----------- -------------------- ---------- ---------
Additions
Charged Charged
Balance at to Costs to Other Balance
Beginning and Accounts- Deductions- at End
Description of Period Expenses Describe Describe of Period
- -------------------- ----------- -------------------- ---------- ---------
July 31, 2004:
Allowance for
doubtful accounts $1,528 - 583 (3) (70) (1) $1,204
(837) (2)
July 31, 2003:
Allowance for
doubtful accounts $1,406 - 575 (3) (159) (1) $1,528
(294) (2)
July 31, 2002:
Allowance for
doubtful accounts $1,075 - 1,063 (3) (550) (1) $1,406
(182) (2)
(1) Collections of accounts previously reserved.
(2) Write-off from reserve accounts deemed to be uncollectible.
(3) Reserve of billed extras charged against corresponding revenue account.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
WILLIAMS INDUSTRIES, INCORPORATED
October 20, 2004 By: /s/ Frank E. Williams, III
---------------------------
Frank E. Williams, III
President and Chairman of the Board
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
WILLIAMS INDUSTRIES, INCORPORATED
October 20, 2004 By: /s/ Frank E. Williams, III
---------------------------
Frank E. Williams, III
President and Chairman of the Board
Chief Financial Officer
October 20, 2004 By: /s/ Christ H. Manos
---------------------------
Christ H. Manos
Treasurer and Controller