SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended July 31, 2005
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to
Commission File No. 0-8190
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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)
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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, 2005. $ 6,745,687
Shares outstanding at September 22, 2005 3,649,735
The following document is incorporated herein by reference
thereto in response to the information required by Part III of
this report (information about officers and directors):
Proxy Statement Relating to Annual Meeting to be held November
5, 2005.
Table of Contents
Part I:
Item 1. Business. . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . 10
Part II:
Item 5. Market for the Registrant's Common Stock
And Related Security Holder Matters. . . 11
Item 6. Selected Financial Data . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis
Of Financial Condition and
Results of Operations . . . . . . . . . 13
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Disagreements on Accounting and
Financial Disclosure . . . . . . . . . . 24
Part III:
Item 10. Directors and Executive Officers of
The Registrant . . . . . . . . . . . . . 24
Item 11. Executive Compensation. . . . . . . . . . . 24
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . 24
Item 13. Certain Relationships and Related
Matters . . . . . . . . . . . . . . . . 24
Item 14. Controls and Procedures . . . . . . . . . . 24
Part IV:
Item 15. Exhibits, Financial Statement Schedules
And Reports on Form 8-K . . . . . . . . 25
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. S.I.P., Inc. of Delaware
(S.I.P.) 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 remained weak
during Fiscal 2005 as steel prices remained high and Congress
still 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
was extremely limited. On August 10, 2005, President George Bush
signed the "Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users" (SAFETEA-LU). This act provides
$244.1 billion for highways, highway safety, and public
transportation funding allocated over the years 2005-2009.
During the year ended July 31, 2005, the Company negotiated a
short-term extension of its lease on its Bessemer, Alabama
facility 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. The Company has a guaranteed
price contract with an auction company to sell the equipment and
pay the proceeds, $410,000, to the landlord under the terms of the
lease. The remaining balance due the landlord has been accrued by
the Company and is included in "Other accrued expenses". The
operations at the plant were terminated and once the auction is
completed and the equipment moved, the lease will be terminated.
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. 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.
B. Financial Information About Industry Segments
The Company's activities are divided into three broad c
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, 2005, 2004, and 2003:
Fiscal Year Ended July 31,
2005 2004 2003
------ ------ ------
Manufacturing 61% 61% 65%
Construction 39% 39% 34%
Other 0% 0% 1%
The percentages of total revenue will continue to change as market
conditions or new business opportunities warrant.
For the year ended July 31, 2005, there were two customers
that accounted for 33% and 17% of consolidated revenues. Two
customers accounted for 55% and 27% of manufacturing revenue and
one customer accounted for 15% of construction revenue. 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 the year ended July 31, 2003, 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. The
Company had obtained raw materials from a variety of sources, on a
competitive basis, and was generally not dependent on any one
source of supply. However, consolidation of the steel industry and
shortages of raw materials needed to make steel has caused
critical reductions in the sources for heavy steel plate and
galvanized steel coils, leaving the Company vulnerable to
disruptions in supplies.
Facilities in this segment are predominately open shop.
Management believes that its labor relations in this segment are
good.
Competition in this segment, based on price, quality and
service, is intense. Revenue derived from any particular customer
fluctuates significantly from year to year. For the year ended
July 31, 2005, two customers accounted for 55% and 27% of
manufacturing revenues. For the year ended July 31, 2004, one
customer accounted for more than 26% of manufacturing revenues.
The Company's bridge girder subsidiary is dependent upon one
supplier of rolled steel plate whose cost accounted for more than
26% of consolidated revenue. The Company's stay-in-place metal
bridge deck company is highly dependent on one vendor of
galvanized rolled steel, whose cost accounted for more than 5% of
the Company's total revenue. The Company maintains good relations
with these vendors, generally receiving orders on a timely basis
at reasonable costs for their markets. If relations with these
vendors were to deteriorate or the vendors were to go out of
business, the Company would have trouble meeting production
deadlines in its contracts. Other major suppliers of these
products have limited excess production available to "new"
customers.
a. Steel Manufacturing
The Company, through its subsidiary, Williams Bridge Company,
operates two 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.
Each plant has immediate rail access and is located near an
interstate highway. Each facility has 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 and paint
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.
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 equipment is
not 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 and 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. For the
year ended July 31, 2005, one customer accounted for 15% of
construction revenues.
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.
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, 2005 the Company had 343 employees, as compared to
July 31, 2004 when there were 385. Included in these totals were
16 and 37 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
$10,000 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
- ------------------------------
During the year ended July 31, 2005, the Company had a "loss
sensitive" workers' compensation insurance program. When the
program was renewed on February 1, 2005, management reverted to a
"conventional" insurance program. Under the "loss sensitive"
programs that were in place for the past several years, the
Company accrued workers' compensation insurance expense based on
estimates of its costs under the programs, and then adjusted these
estimates based on claims experience. Under the "conventional"
insurance program, the Company accrued expense based on rates
applicable to payroll classifications, which are fixed at the time
of the policy issuance.
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, 2005, the Company's backlog was approximately
$39 million, compared to $60 million at July 31, 2004 and $58
million at July 31, 2003. The backlog decreased as the Company's
segments worked on two main projects, the outer loop of the
Woodrow Wilson Bridge and the I-95/395/495 Springfield Interchange
(Springfield) contracts, both outside of Washington DC. Subsequent
to the year ended July 31, 2005, the contract on the Springfield
project was modified, reducing the Company's backlog on that
project by approximately $5 million. The Company has had limited
success in obtaining new projects in bridge girder operation as
the market was depressed by a number of factors, including the
failure of the U.S. Congress to enact a new highway transportation
bill. Subsequent to July 31, 2005, a new highway bill was passed.
Approximately $4.2 million of the $39 million backlog is long term
in nature and not expected to be realized as revenue during the
fiscal year ending July 31, 2006.
5. Working Capital Requirements
The Company's line of credit with United Bank of
approximately $2.5 million matured on May 5, 2005. The Company
subsequently received a Notice of Loan Defaults dated May 12,
2005. As a result of the Notice, the debts to United Bank,
aggregating approximately $5.5 million, were accelerated and
became due and payable in full. The Company entered into a
Forbearance Agreement on June 30, 2005. Under the agreement,
United Bank agreed to forbear from enforcing the original terms of
its Loan and Security Agreement until February 28, 2006, on the
following conditions:
All amounts owing through June 30, 2005, be paid at closing. This
included approximately $200,000 of principal and $100,000 of
interest and fees. Approximately $200,000 was generated through
the sale of property, located in Bedford, Virginia, to the City of
Bedford, under an option granted in July 2004.
The Company agreed to grant United Bank a First Mortgage in its
Wilmington, Delaware property, valued at $750,000, to be recorded
not later than July 15, 2005. Within 60 days, the Lender will
obtain a fair market value appraisal, and to the extent the
appraisal is lower than $750,000, this would constitute an event
of default under the Forbearance Agreement. The Lender agreed that
such default could be cured if Frank E. Williams, Jr. agrees
personally to guarantee the shortfall.
The Williams Family Limited Partnership (WFLP), an affiliated
entity controlled by Frank E. Williams, Jr. and beneficially owned
by Williams family members, including Mr. Williams, Jr. and his
sons, Company President and CEO Frank E. Williams, III and Vice
President H. Arthur Williams, agreed to pledge an additional $1
million of the value of property leased by WFLP to the Company
adjoining the Company's facility near Manassas, Virginia, to the
Lender as additional collateral. The property, assessed for tax
purposes in excess of $1.4 million (the Wellington Parcel), is
leased by the Company with an option to buy 10 of the 17 acres.
The Wellington Parcel is subject to a mortgage in favor of the
Lender on which $400,000 is owed by WFLP. The WFLP has agreed to
the increase of the Deed of Trust to $1.4 million, such instrument
to be recorded not later than July 15, 2005. Within 60 days, the
Lender will obtain a fair value appraisal, and to the extent the
appraisal is lower than $1.4 million, that would constitute an
event of default under the Forbearance Agreement. The Lender
Agreed that such default could be cured if Frank E. Williams, Jr.
agrees personally to guarantee the shortfall.
Subsequent to July 31, 2005, the Company sold its Richmond,
Virginia property to the Company's founder and largest
shareholder, and leased it back with an option to buy it back for
the same price for which it was sold. The sale will be treated as
a financing activity and the gain on sale of approximately $1.7
million will be treated as a liability of the Company. The
proceeds from the sale of $2.75 million were used to pay:
approximately $835,000 on the first mortgage note to Wachovia
Bank, $750,000 to United Bank under the First Amendment to
Forbearance Agreement extending the Company's Forbearance period
to March 6, 2006 and $688,000 for related party notes payable due
to the purchaser of the property. The remaining $477,000 was used
to pay related closing costs and fund the operations of the
Company.
As a result of payment and other alleged defaults,
CitiCapital threatened foreclosure and sale of their collateral on
two heavy lift cranes, one owned and one leased by the Company.
The Company entered into a forbearance agreement providing for
settlement of late charges and personal property taxes, monthly
payments, and reimbursement of legal fees, providing that the
Company pay off the accounts by November 1, 2005, without penalty,
and December 1, 2005, with a 1% penalty. The crane that is owned
has a book value of approximately $970,000 and a note payable of
$870,000. There may be additional liability to the Company on the
leased crane should it be returned to the lessor.
HSBC Business Credit has a suit pending for approximately
$900,000 for non-payment on a lease for a heavy lift crane and a
specialized trailer with a value of approximately $200,000 less
than the amount claimed by the lessor. Trial has been set for
October 24, 2005 The Company is attempting to settle this account
with the lessor on the best terms available.
As a result of payment and other alleged defaults, Provident
Leasing threatened foreclosure and sale of a heavy lift crane
leased by the Company. The Company entered into a forbearance
agreement providing for monthly payments until January 15, 2006,
when the account is due in full. In the event the lessor pursues
its remedies, the Company expects that there may be an additional
liability of up to $100,000 The Company intends to settle this
account with the lessor on the best terms available.
The Company's plan is to find alternate financing to replace
the United Bank Debt. This may include conventional, asset-based
and equity-based instruments. The Company is discussing some of
these alternatives with several lenders. If necessary, the Company
may sell assets including heavy lift cranes and land to raise the
capital needed to meet the debt obligation.
Due to the acceleration of the Company's debt with United
Bank on its line of credit, and other lenders with whom the
Company is in default, the Company had a working capital deficit
of approximately $3.2 million at July 31, 2005.
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.
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, by project managers, who are responsible for each
job, comparing the progress of the work to the budgets originally
prepared by the estimators of the Company, 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. Receivables are considered past due if
the outstanding invoice is more than 45 days old. A receivable is
written off when it is deemed uncollectible. Recoveries of
previously written off receivables are recorded when cash is
received.
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 carry forwards. The Company evaluates the recoverability of
any tax assets recorded on the balance sheet and provides any
allowances 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 ability to realize 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. Due to the Company's losses in the years
ended July 31, 2005, 2004 and 2003, management believed that it
was more likely than not that all of the deferred tax asset would
not be realized in the future and as such, the Company reserved
the Deferred tax asset of $3.1 million in the year ended July 31,
2005.
Workers' Compensation - 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. Prior to
February 2005, the Company had a "loss sensitive" workers'
compensation insurance program. When the program was renewed on
February 1, 2005, management reverted to a "conventional"
insurance program. Under the "loss sensitive" program the Company
accrues workers' compensation insurance expense based on estimates
of its costs under the program, and then adjusts these estimates
based on claims experience. When claims occur, the Company's
safety director works with the insurance companies and the injured
employees to minimize the long-term effect of a claim. Company
personnel review specific claims history and insurance carrier
reserves to adjust reserves for individual claims. Under the
"conventional" insurance program, the Company accrues expense
based on rates applicable to payroll classifications, which are
fixed at the time of the policy issuance.
Item 2. Properties
At July 31, 2005, the Company owned approximately 84 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 18 acres in Bedford, in Virginia's
Piedmont section between Lynchburg and Roanoke. During the year
ended July 31, 2005, the Company sold six acres of its land in
Bedford, Virginia, recognizing a gain of $225,000 shown as other
income on its consolidated statements of operations.
The Company owns and leases numerous large cranes, tractors
and trailers and other equipment. During the year ended July 31,
2005, the Company acquired two cranes it previously leased for
$1.9 million.
Subsequent to July 31, 2005, the Company sold its Richmond,
Virginia property to the Company's founder and largest
shareholder, and leased it back with an option to buy it back for
the same price for which it was sold. The sale will be treated as
a financing activity and the gain on sale of approximately $1.7
million will be treated as a liability of the Company. The
proceeds from the sale of $2.75 million were used to pay:
approximately $835,000 on the first mortgage note to Wachovia
Bank, $750,000 to United Bank under the First Amendment to
Forbearance Agreement extending the Company's Forbearance period
to March 6, 2006 and $688,000 for related party notes payable due
to the purchaser of the property. The remaining $477,000 was used
to pay related closing costs and fund the operations of the
Company.
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. In the opinion of management and the
Company's legal counsel, such proceedings are substantially
covered by insurance, and the ultimate disposition of such
proceedings are not expected to have a material adverse effect on
the Company's consolidated financial position, results of
operations or cash flows.
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.
8/1/03 11/1/03 2/1/04 5/1/04 8/1/04 11/1/04 2/1/05 5/1/05
10/31/03 1/31/04 4/30/04 7/31/04 10/31/04 1/31/05 4/30/05 7/31/05
- ----------------------------------------------------------------------------
$3.76 $5.99 $5.49 $5.48 $4.09 $4.09 $3.89 $3.75
$3.27 $3.21 $3.40 $3.25 $3.32 $3.34 $3.40 $3.31
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, 2005
or 2004. Further, there are certain covenants in the Company's current credit
agreements that prohibit cash dividends without the lenders' permission.
At July 31, 2005, there were 437 holders of record of the Common Stock.
Equity Compensation Plan Information
=============================================================================
Number of Weighted Number of
securities average securities
to be issued exercise price remaining
upon exercise of outstanding available
of outstanding options, for future
options, warrants issuance
warrants and rights
and rights.
=============================================================================
(a) (b) (c)
Equity compensation plans
approved by security holders 200,000 $4.06 113,500 (1)
Equity compensation plans
not approved by security 70,000 $3.83 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,
------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Statements of Operations Data:
Revenue:
Construction $18.8 $20.8 $18.0 $22.2 $22.3
Manufacturing 29.5 32.9 34.4 34.0 27.2
Other Revenue 0.3 0.2 0.3 0.3 1.0
-------- -------- -------- -------- --------
Total Revenue $48.6 $53.9 $52.7 $56.5 $50.5
======== ======== ======== ======== ========
Gross Profit:
Construction $5.0 $5.5 $4.3 $6.4 $8.0
Manufacturing 2.2 10.3 10.8 13.7 9.9
Other 0.3 0.2 0.3 0.3 1.1
-------- -------- -------- -------- --------
Total Gross Profit $7.5 $16.0 $15.4 $20.4 $19.0
======== ======== ======== ======== ========
Other Income: $0.2 $ - $ - $ 0.1 $ 0.1
Expense:
Overhead $6.5 $7.3 $6.8 $6.8 $5.2
General and Administrative 7.3 7.3 7.4 8.8 8.5
Depreciation 2.1 2.0 1.8 1.6 1.6
Interest 0.9 0.7 0.6 0.7 0.8
Income Tax Provision (Benefit) 3.1 (0.5) (0.3) 1.0 0.4
-------- -------- -------- -------- --------
Total Expense $19.9 $16.8 $16.3 $18.9 $16.5
-------- -------- -------- -------- --------
(Loss) Earnings Before Minority
Interest, Equity Earnings
and Extraordinary Item $(12.2) $(0.8) $(0.9) $1.6 $2.6
Minority Interest and
Equity Earnings - - - - (0.1)
-------- -------- -------- -------- --------
(Loss) Earnings Before
Extraordinary Item $(12.2) $(0.8) $(0.9) $1.6 $2.5
Extraordinary Item
Gain on Extinguishment
of Debt 0.8 - - - -
-------- -------- -------- -------- --------
Net (Loss) Earnings $(11.4) $(0.8) $(0.9) $1.6 $2.5
======== ======== ======== ======== ========
(Loss) Earnings Per Share:
Basic:
From Continuing Operations ($3.35) ($0.22) ($0.26) $0.45 $0.70
Extraordinary Item -
Gain on Extinguishment
of Debt $0.23 $ - $ - $ - $ -
-------- -------- -------- -------- --------
(Loss) Earnings Per Share -
Basic: ($3.12) ($0.22) ($0.26) $0.45 $0.70
-------- -------- -------- -------- --------
Diluted:
From Continuing Operations ($3.35) ($0.22) ($0.26) $0.45 $0.70
Extraordinary Item -
Gain on Extinguishment
of Debt $0.23 $ - $ - $ - $ -
-------- -------- -------- -------- --------
(Loss) Earnings Per Share -
Diluted: ($3.12) ($0.22) ($0.26) $0.45 $0.70
======== ======== ======== ======== ========
Balance Sheet Data (at end of year):
Total Assets $35.5 $42.1 $40.5 $42.2 $37.7
Long Term Obligations 3.5 5.2 7.6 7.6 7.0
Total Liabilities 30.5 25.8 23.5 24.3 21.5
Stockholders' Equity 4.9 16.2 16.8 17.7 16.2
* 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.
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 closed one of the leased facilities in Alabama and continued to
operate a second facility there.
The Company has derived a significant portion of its revenues from three
customers. For the year ended July 31, 2005, Archer Western Contractors, LTD.
accounted for 33% of total revenues and 54% of manufacturing revenues;
Virginia Approach Contractors accounted for 17% of total revenues and 27% of
manufacturing revenues; and Southern Iron Works accounted for 15% of
construction revenues.
The year ended July 31, 2005 was very difficult for the Company as it
recorded an $11.4 million loss. While revenues decreased approximately 10%,
gross profit decreased over 53% due to increased material costs in its
manufacturing segment, operational inefficiencies related particularly to one
major contract and increased workers' compensation costs for prior year policy
claims. The delay in enacting a new infrastructure spending bill for the
country limited the number of jobs the Company's bridge girder operation was
able to bid, contributing to the decline in the Company's backlog of $21
million.
Dramatic increases in steel prices continued to create severe hardships
for the Company on its two major projects, the Woodrow Wilson Bridge and
Springfield Interchange. Cash flow considerations became critical.
The Company recognized income of $828,000 on the write-off of debt on
which the statute of limitations had run. The debt was a bank loan, which was
personally obtained by Frank E. Williams, Jr. for the Company, and for which
he was indemnified by the Company. In 1995, Mr. Williams, Jr. was subsequently
released from the loan by the bank, leaving the Company directly liable. The
bank failed to pursue collection of the loan, and in the opinion of counsel,
the bank is now precluded from collection of this debt. In prior periods, the
loan had been carried in "Other liabilities" on the Balance Sheet.
Included in the loss was a $3.1 million increase in the valuation
allowance against the Company's deferred income tax asset. In evaluating the
Company's ability to recover its deferred tax asset, the Company considered
all available positive and negative evidence including its past operating
results, the existence of cumulative losses in the most recent fiscal years
and its forecast of future taxable income. In determining future taxable
income, the Company utilized estimates, 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
estimates require significant judgments consistent with the plans and
estimates the Company uses to manage the underlying businesses. Due to the
Company's continued losses in the current year and its history of losses for
the past three years, the Company increased the valuation allowance on its
deferred tax asset to make the value of the asset zero.
During the year ended July 31, 2005, the Company negotiated a short-term
extension of its lease on its Bessemer, Alabama facility 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. The Company
has a guaranteed price contract with an auction company to sell the equipment
and pay the proceeds, $410,000, to the landlord under the terms of the lease.
The remaining balance due the landlord has been accrued by the Company and is
included in "Other accrued expenses". The operations at the plant were
terminated and once the auction is completed and the equipment moved, the
lease will be terminated.
During the year ended July 31, 2005, the Company had a "loss sensitive"
workers' compensation insurance program. When the program was renewed on
February 1, 2005, management reverted to a "conventional" insurance program.
Under the "loss sensitive" program, the Company accrues workers' compensation
insurance expense based on estimates of its costs under the program, and then
adjusts these estimates based on claims experience. During the year ended July
31, 2005, the Company recorded an additional $1.5 million in expense related
to claims under the "loss sensitive" program. Under the "conventional"
insurance program, the Company records accrued expense based on rates
applicable to payroll classifications, which are fixed at the time of the
policy issuance.
Although not certain, 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. On August 10, 2005,
the President of the United States signed the "Safe, Accountable, Flexible,
Efficient Transportation Equity Act: A Legacy for Users"(SAFETEA-LU), the
countries highway and transportation improvement program for 2005-2009.
Spending under SAFETEA-Lu will support highway programs in the Company's
market areas. At the same time, there is still uncertainty in the price and
availability of raw steel products.
Subsequent to the year ended July 31, 2005, the Company's bridge girder
subsidiary negotiated a change to its contract for the I-95/395/495
Springfield Interchange Project in Virginia to supply girders. The original
contract for $26 million, which was being performed at a loss, was reduced by
$5 million to $21 million. The Company has approximately $5.5 million in cost
remaining on the contract. The Company has recognized the projected loss of
$1.1 million over the remaining life of the contract in its Consolidated
Statements of Operations for the year ended July 31, 2005.
Financial Condition
Between July 31, 2004 and July 31, 2005, the following changes occurred:
The Company's Cash and cash equivalents and Restricted cash decreased
$1.5 million. The Company used cash to fund operations and pay down debt.
Restricted cash decreased $1 million as the Company paid expenses related to
its workers' compensation claims for years prior to February 1, 2005.
Accounts receivable decreased approximately $3 million. Contract
receivables decreased $2.7 million, as the manufacturing segment collected
cash for material purchases and completed work on its two major contracts.
Trade receivables declined by approximately $300,000 related to
maintenance and rehabilitation jobs. These receivables are relatively short-
term contracts. Other receivables increased approximately $300,000.
Additionally, the Company established a contract claim receivable for $650,000
related to contract revenues in the construction segment in the year ended
July 31, 2004. The claim was approved by our customer. The Company believes
this claim will be collected during the year ending July 31, 2006.
Inventory increased by $118,000 as the Company's manufacturing segment
purchased material to complete its major contract, the Woodrow Wilson Bridge
near Washington, DC. While the cost of steel remains high, the Company has
material on hand to meet immediate needs. The Company may face shortages due
to higher steel prices and delivery delays from the steel mills.
Prepaid expenses increased $421,000 as the Company prepaid workers'
compensation insurance premiums during the year.
Property and Equipment, At Cost increased $490,000 as the Company:
refinanced two cranes, previously leased, at a cost of $1.9 million; and
purchased other miscellaneous equipment. The Company retired fully depreciated
equipment with an original cost of $2.2 million.
Deferred income taxes decreased $3.1 million. In evaluating the Company's
ability to recover its deferred tax assets, the Company considered all
available positive and negative evidence including its past operating results,
the existence of cumulative losses in the most recent fiscal years and its
forecast of future taxable income. In determining future taxable income, the
Company utilized estimates, 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 estimates require
significant judgments consistent with the plans and estimates the Company uses
to manage the underlying businesses. Due to the Company's continued losses in
the current year and its history of losses for the past three years, the
Company increased the valuation allowance on its deferred tax assets to reduce
the book value of the asset to zero.
Other assets decreased $286,000 as the Company reclassified costs, which
had previously been deferred, to Property and Equipment, At Cost and reduced
long-term notes receivable by collections and the reclassification of one note
for $136,0000 to current Notes Receivable.
Notes payable increased $2.7 million. The Company borrowed approximately
$7.7 million, $1.8 million of which was used to fund the purchase of two
cranes the Company had previously leased, $841,000 was used to refinance the
Company's Industrial Revenue Bond on its Richmond, Virginia facility and $5.1
million was used to fund short-term operations. The Company paid back $5
million related to short term borrowing, mainly from operations.
Accounts payable increased by $289,000.
Accrued compensation and related liabilities decreased $202,000 related
to the shut down of the manufacturing plant in Alabama and reduced hours
worked in the various plants.
Billings in excess of costs and estimated earnings on uncompleted
contracts, and Costs and estimated earning in excess of billings on
uncompleted contracts, increased a net amount of $2.4 million as a result of
timing of the revenue recognition on a mix of contracts in process.
Other accrued expenses decreased $716,000. The Company wrote off $828,000
of debt on which the statute of limitations had run while it accrued costs in
its subsidiaries related to various obligations.
Stockholders' equity decreased $11.3 million due to operating losses of
$11.4 million. One Company director exercised options to buy 2,500 shares of
stock for approximately $8,000. The Company issued 10,950 shares of stock as
director compensation for $43,200. Finally, employees purchased 1,348 shares
for approximately $8,000 under the Company's Employee Stock Purchase Plan.
Bonding
The Company has traditionally relied on its reputation to acquire work
and will continue to do so. However, the Company recognizes that 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 and Capital Resources
Williams Industries, Incorporated (the Company) is facing a liquidity and
business crisis, after suffering operating losses for several quarters,
tapping its available sources of operating cash, and borrowing in excess of $2
million from its largest shareholder. The Company is operating under a
Forbearance Agreement with its major lender pursuant to which approximately
$4.4 million is scheduled to be repaid by March 6, 2006. In addition, the
Company is in default of nearly all of its other debts and leases by virtue of
failing to make scheduled payments in a timely fashion. Because of the
Company's financial condition and poor market conditions in its areas of
operation, there is a significant risk that the Company may not be able to
book additional work to maintain its level of operations. The Company
operates in an industry where such problems are common, and where there are
large risks related to estimating and performing work and collecting amounts
earned. It is likely that the Company may continue to suffer operating losses
and have difficulty meeting its obligations. Management is pursuing a number
of contingency plans to address these issues and increase the chances that the
Company will survive. These plans include negotiations with lenders and
customers, sale of equipment and real property, asset- and stock-based credit
facilities, and the sale, shut-down reorganization or liquidation of one or
more subsidiaries. Management has not ruled out any measure that may be
necessary to protect the Company's assets and preserve shareholder value.
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 manufacturing and construction segments reported operating losses for
fiscal 2005. The manufacturing segment reported a $7.1 million operating loss
mainly related to steel price increases, the modification of the Company's I-
95/395/495 Springfield Interchange (Springfield) contract and the close down
or the Bessemer, Alabama plant. With the close down of the plant and the
modification of the contract, it is anticipated that the manufacturing segment
may generate positive cash flow from operations in the future. While steel
prices have stabilized, should additional increases be imposed, cash flow
would be affected. The construction segment reported a $366,000 operational
loss, which included the $1.1 million in expense related to workers'
compensation claims for prior years' policies. It is anticipated that the
construction segment may generate positive cash flow from operations in the
short term based on its current backlog and its ability to collect accounts
receivable.
The Company used $1.8 million in cash from operations during the year
ended July 31, 2005. The Company used $1.5 million to fund the purchase of two
cranes, which had previously been leased, for approximately $1.9 million. The
Company provided net cash from financing activities of $2.7 million, $1.8
million related to financing crane purchases. Cash and cash equivalents
decreased approximately $579,000 from $1.3 million at July 31, 2003 to
$764,000 at July 31, 2004.
Due to the current status the outstanding debt with United Bank and
Wachovia Bank, as described below, the Company has negative working capital of
$3.2 million at July 31, 2005. The Company will be required to repay
approximately $5.1 million by the third quarter of fiscal 2006.
For the three years ended July 31, 2005, 2004 and 2003, the Company has
operated at a loss. During the fiscal years 2004 and 2003, the Company
generated cash to cover its operational activities, and along with its
accumulated cash, was able to fund its financing and investing activities.
During fiscal 2005, operations used more cash than it generated requiring the
Company to borrow from various sources including related party loans
approximating $2.4 million.
The Company refinanced its note related to its Industrial Revenue Bond on
its Richmond, Virginia property. The note was in default due to inadequate
debt covenant coverage ratios related to the Company's losses and working
capital. The new note, for approximately $841,000, was financed at the prime
rate of interest plus 3 percent, with monthly payments of $8,000 through
August 2005, at which time the balance on the note was payable in full. The
note is reported in the "Current portion of notes payable" at July 31, 2005.
Subsequent to July 31, 2005, the note was paid in full from the proceeds of
the sale-leaseback of the Company's Richmond, Virginia plant to Frank E.
Williams, Jr. (See Note 17 of the accompanying financial statements -
Subsequent Events)
The Company's line of credit with United Bank of approximately $2.5
million matured on May 5, 2005. The Company subsequently received a Notice of
Loan Defaults dated May 12, 2005. As a result of the Notice, the debts to
United Bank, aggregating approximately $5.4 million, were accelerated and are
now due and payable in full. The Company entered into a Forbearance Agreement
on June 30, 2005. Under the agreement, United Bank agreed to forbear from
enforcing the original terms of its Loan and Security Agreement until February
28, 2006, on the following conditions:
All amounts owing through June 30, 2005, be paid at closing. This included
approximately $200,000 of principal and $100,000 of interest and fees.
Approximately $200,000 was generated through the sale of property, located in
Bedford, Virginia, to the City of Bedford, under an option granted in July
2004.
The Company agreed to grant United Bank a First Mortgage in its Wilmington,
Delaware property, valued at $750,000, to be recorded not later than July 15,
2005. Within 60 days, the Lender will obtain a fair market value appraisal,
and to the extent the appraisal is lower than $750,000, this would constitute
an event of default under the Forbearance Agreement. The Lender agreed that
such default could be cured if Frank E. Williams, Jr. agrees personally to
guarantee the shortfall.
The Williams Family Limited Partnership (WFLP), an affiliated entity
controlled by Frank E. Williams, Jr. and beneficially owned by Williams family
members, including Mr. Williams, Jr. and his sons, Company President and CEO
Frank E. Williams, III and Vice President H. Arthur Williams, agreed to pledge
an additional $1 million of the value of property leased by WFLP to the
Company adjoining the Company's facility near Manassas, Virginia, to the
Lender as additional collateral. The property, assessed for tax purposes in
excess of $1.4 million (the Wellington Parcel), is leased by the Company with
an option to buy 10 of the 17 acres. The Wellington Parcel is subject to a
mortgage in favor of the Lender on which $400,000 is owed by WFLP. The WFLP
has agreed to the increase of the Deed of Trust to $1.4 million, such
instrument to be recorded not later than July 15, 2005. Within 60 days, the
Lender will obtain a fair value appraisal, and to the extent the appraisal is
lower than $1.4 million, that would constitute an event of default under the
Forbearance Agreement. The Lender Agreed that such default could be cured if
Frank E. Williams, Jr. agrees personally to guarantee the shortfall.
The initial forbearance period extends through September 30, 2005. By that
date, the Company intends to pay the Lender $750,000, upon which the Lender
has agreed to extend the forbearance through February 28, 2006. This payment
is personally guaranteed by Frank E. Williams, Jr.
During the Forbearance period, the Lender has agreed to accept monthly
payments of interest only on notes aggregating $4.3 million, while payments on
the remaining debt of approximately $500,000 will continue as if acceleration
had not occurred.
Subsequent to July 31, 2005, the Company entered into a First Amendment
to Forbearance Agreement, which modified the Forbearance Agreement as follows:
(1) The Company paid the sum of $750,000 to United Bank, of which $242,000 was
applied to outstanding payments, including principal, interest, fees and
costs, and $508,000 was applied to principal. The lender agreed to defer the
remainder of the September 30, 2005 principal curtailment until the maturity
of the agreement. The $750,000 principal curtailment was personally guaranteed
by Company founder, largest shareholder and Director Frank E. Williams, Jr.,
whose guaranty continues to apply to the $242,000 payment deferred by the
lender.
(2) The maturity date of the agreement was extended slightly, from February
28, 2006, to March 6, 2006.
The payments to United Bank reduced the amount owed to approximately $4.4
million, of which the Company expects to pay interest only on $4.2 million
through maturity; the balance requires principal payments of approximately
$10,000 per month.
In addition to the specific defaults listed, the Company's construction
segment is in arrears on its payments under substantially all of its notes
payable and leases, although, except as disclosed specifically, the lenders
and lessors have not taken action to accelerate the indebtedness, foreclose on
collateral or terminate the subject leases.
In order to fund the repayment of the United Bank notes, the Company is
pursuing various financing options, including conventional, asset-based, and
equity secured financing. Management realizes that the cost of debt may be
higher than normal market rates. Should other financing options not
materialize, the Company has identified certain assets that could be available
for sale, including ten heavy lift cranes, with an estimated market value of
$3 million, which may generate net proceeds of approximately $600,000. The
Company is reviewing its land, especially in Manassas, Virginia to identify
its highest and best use. Management feels that if the property was to be
sold, enough cash might be generated to pay off debt and allow the Company to
relocate, if necessary. These assets have not been segregated from other
assets and are currently being used in operations.
While the Company feels that operations will provide cash flows in fiscal
2006, conditions in the areas in which it works could create risks where the
Company would have difficulty estimating and performing work, and collecting
amounts earned. The factors discussed previously have raised substantial doubt
about the Company's ability to continue as a going concern. The Company's
plans are detailed in Note 17 of notes to the consolidated financial
statements.
Operations
The Company's manufacturing subsidiaries continued to struggle during the
year ended July 31, 2005. The problem of high steel prices, which doubled in
the past 20 months, limited steel supply sources and losses resulting from
ongoing operations have put a strain on the segment's cash flows and their
ability to operate efficiently. Highway infrastructure spending under state
budgets was limited as Congress continued to delay reauthorizing the
Transportation Equity Act for the 21st Century (TEA 21). This decreased the
number of new projects and depressed contract pricing below acceptable levels
for the Company, thus reducing the contract backlog.
Workers' compensation claims, related to older policy years where the
Company had potential liability, continued to affect operations. Additional
claims expense under these policies exceeded $1.5 million in the year ended
July 31, 2005.
Management expects additional consolidation of resources, including both
personnel and equipment reductions, will occur as the Company strives for a
more efficient configuration for market conditions.
1. Fiscal Year 2005 Compared to Fiscal Year 2004
During the year ended July 31, 2005 the Company continued to feel the
affects of the steel "crisis" which began in December 2003. The Company's
bridge girder subsidiary was most affected as it mainly produced its two major
contracts, the Woodrow Wilson Bridge project and the I-95/395/495 Springfield
Interchange Project in Virginia. These projects were both contracted prior to
the steel price increases. Steel prices doubled contributing approximately
$4.5 million to the loss. The I-95/395/495 Springfield Interchange Project,
which accounted for 56% of manufacturing revenues, operated at a loss for the
year. The Bessemer, Alabama plant, now closed down, recorded a $1.3 million
loss for the fiscal year.
Subsequent to the year ended July 31, 2005, the Company's bridge girder
subsidiary negotiated a change to its contract for the I-95/395/495
Springfield Interchange Project in Virginia to supply girders. The original
contract for $26 million, which was being performed at a loss, was reduced by
$5 million to $21 million. The Company has approximately $5.5 million in cost
remaining on the contract. The Company has recognized the projected loss, over
the remaining life of the contract, of $1.1 million in its Consolidated
Statements of Operations for the year ended July 31, 2005.
The Company lost $11.4 million, or $3.12 per share, on revenues of $48.6
million for the year ended July 31, 2005, compared to a loss of $780,000, or
$0.22 per share, on revenues of $53.9 million for the year ended July 31,
2004.
Revenues decreased by $5.3 million. Manufacturing segment revenues
decreased by $3.4 million due to the closing of the Bessemer, Alabama plant
and because of steel delivery delays affecting the segment's stay-in-place
decking operation. Construction segment revenue decreased $2 million as the
segment's backlog decreased reducing the jobs that were available to work.
Gross Profit decreased approximately $8.5 million. The construction
segment's gross profit decreased $500,000 on decreased revenues and increased
workers' compensation insurance expenses related to prior years' claims. The
manufacturing segment's gross profit decreased approximately $8.1 million due
to increased material costs, inefficiencies due to material shortages, costs
associated with the final close down of the Bessemer, Alabama plant and costs
associated with the I-95/395/495 Springfield Interchange Project in Virginia.
Competition continues to impact the segment's ability to book additional work
to rebuild its backlog.
Overhead decreased by $706,000, mainly related to the manufacturing
segment's close down of its Bessemer, Alabama plant.
General and administrative expenses remained constant.
Depreciation increased $86,000, due to crane purchases in the
construction segment. A portion of the increase was offset by a reduction of
lease expense, which is included in Direct Costs on the Consolidated
Statements of Operations.
Interest expense increased $194,000, due to higher interest rates on
short-term borrowing and increased debt on equipment purchases. The Company,
under its "conventional" workers' compensation insurance program, was required
to finance, approximately, $1.7 million for premiums at February 1, 2005.
Under its prior "loss sensitive" program, costs were paid out of operating
cash flow as expenses were incurred.
Deferred income taxes decreased $3.1 million. In evaluating the Company's
ability to recover its deferred tax assets, the Company considered all
available positive and negative evidence including its past operating results,
the existence of cumulative losses in the most recent fiscal years and its
forecast of future taxable income. In determining future taxable income, the
Company utilized estimates, 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 estimates require
significant judgments consistent with the plans and estimates the Company uses
to manage the underlying businesses. Due to the Company's continued losses in
the current year and its history of losses for the past three years, the
Company increased the valuation allowance on its deferred tax assets by
$500,000 during the Company's second quarter and reserved the remaining
balance in the Company's third quarter to make the value of the asset zero.
The Company recognized income of $828,000 on the write-off of debt on
which the statute of limitations had run. The debt was a bank loan, which was
personally obtained by Frank E. Williams, Jr. for the Company, and for which
he was indemnified by the Company. In 1995, Mr. Williams, Jr. was subsequently
released from the loan by the bank, leaving the Company directly liable. The
bank failed to pursue collection of the loan, and in the opinion of counsel,
the bank is now precluded from collection of this debt. The gain on the write-
off of the debt is shown as Extraordinary Item "Gain on extinguishment of
debt" on the Consolidated Statements of Operations. In prior periods, the debt
had been carried in "Other liabilities" on the Balance Sheet.
2. 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 occurred on five occasions, until new,
comprehensive legislation was passed by Congress, work would 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.
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.
3. 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
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 certain 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 $13,217 $9,705 $1,950 $1,562 $-
Capital Lease Obligation 55 55 - - -
Operating Leases 2,236 852 1,012 372 -
------- ------- ------ ------ ------
Total $15,508 $10,612 $2,962 $1,934 $-
======= ======= ====== ====== ======
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,
2005. 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 facilities in effect at July 31, 2005.
Notes 6 and 13 to the Consolidated Financial Statements contain descriptions
of the Company's credit facilities 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)
2010 and Fair
Year Ending July 31, 2006 2007 2008 2009 After Total Value
------ ------ ------ ------ ------ ------ ------
Variable Rate Notes $5,367 $297 $130 $51 $- $5,845 $5,845
Average Interest Rate 7.94% 7.09% 7.10% 7.25% 0.00% 7.87%
Fixed Rate Notes $4,393 $755 $768 $1,239 $272 $7,427 $7,427
Average Interest Rate 6.86% 6.62% 6.62% 6.62% 6.70% 6.76%
Item 8. Financial Statements and Supplementary Data
(See pages which follow.)
Item 9. Changes in and Disagreements on Accounting and Financial Disclosures.
None
Part III
Pursuant to General Instruction G(3)of Form 10-K, the information
required by Part III (Items 10, 11, 12 and 13) is hereby incorporated by
reference to the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission, pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934, in connection with the Company's
Annual Meeting of Shareholders scheduled to be held November 5, 2005.
Item 14. Controls and Procedures
As of July 31, 2005, 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, 2005. 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, 2005.
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, 2007. Management has begun the documentation
of 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 Reports of Independent Registered Public Accounting Firms.
Report of McGladrey & Pullen, LLP
Report of Aronson & Company
Consolidated Balance Sheets as of July 31, 2005 and 2004.
Consolidated Statements of Operations for the Years Ended
July 31, 2005, 2004, and 2003.
Consolidated Statements of Stockholders' Equity for the Years Ended
July 31, 2005, 2004, and 2003.
Consolidated Statements of Cash Flows for the Years Ended
July 31, 2005, 2004, and 2003.
Notes to Consolidated Financial Statements for the Years Ended
July 31, 2005, 2004, and 2003.
Schedule II -- Valuation and Qualifying Accounts for the Years Ended
July 31, 2005, 2004, and 2003 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 23.1 Consent of Independent Registered Public
Accounting Firm for McGladrey and Pullen, LLP
Exhibit 23.2 Consent of Independent Registered Public
Accounting Firm for Aronson & Company
Exhibit 31.1 Section 302 Certification for Christ H. Manos
Exhibit 31.2 Section 302 Certification for Frank E. Williams, III
Exhibit 32.1 Section 906 Certification for Christ H. Manos
Exhibit 32.2 Section 906 Certification for Frank E. Williams, III
(c) Reports on Form 8K
(1) June 30, 2005
Item 1. Entry into a Material Definitive
Agreement Announcing the execution of a
Forbearance Agreement With United Bank.
Item 9. Forbearance Agreement dated June 30,
2005.
(2) September 27, 2005
Item 2.01. Announcing the sale and lease back
agreement, with Frank E. Williams, Jr., of the
property in Richmond, Virginia.
(3) October 3, 2005
Item 1. Announcing the extension of the
Company's Forbearance Agreement with United Bank
to March 6, 1006.
Item 9. First Amendment to Forbearance
Agreement dated September 29, 2005.
WILLIAMS INDUSTRIES, INCORPORATED
Table of Contents
Reports of Independent Registered Public
Accounting Firms
McGladrey & Pullen LLP 29
Aronson and Company 30
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED JULY 31, 2005, 2004, AND 2003:
Consolidated Balance Sheets as of
July 31, 2005 and 2004 31
Consolidated Statements of Operations for the
Years Ended July 31, 2005, 2004, and 2003 33
Consolidated Statements of Stockholders'
Equity for the Years Ended
July 31, 2005, 2004, and 2003 34
Consolidated Statements of Cash Flows for
the Years Ended July 31, 2005, 2004, and 2003 35
Notes to Consolidated Financial Statements 36
Schedule II - Valuation and Qualifying Accounts 60
Signatures and Certifications 61
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 Sheets of Williams
Industries, Incorporated as of July 31, 2005 and 2004, and the related
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows for
the years then ended. Our audits also included the financial statement
schedule for the years ended July 31, 2005 and 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
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, 2005 and 2004, and the results of its
operations and its cash flows for the years 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 years ended
July 31, 2005 and 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.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 17 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and has a working capital deficit of $3.2 million at
July 31, 2005. The Company has entered into a Forbearance Agreement with one
of its primary lenders, which has accelerated certain debt. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are described in Note
17. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ McGladrey & Pullen LLP
McGladrey & Pullen LLP
Alexandria, Virginia
October 6, 2005
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 Statements of Operations,
Stockholders' Equity and Cash Flows of Williams Industries, Incorporated for
the year ended July 31, 2003. Our audit also included the financial statement
schedule listed in Item 15 for the year ended July 31, 2003. 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 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 results of operations and cash
flows of Williams Industries, Incorporated for the year 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
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2005 AND 2004
($000 Omitted)
ASSETS
----------
2005 2004
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 764 $ 1,343
Restricted cash - 1,003
Accounts receivable, (net of allowances
for doubtful accounts of $1,976
in 2005 and $1,204 in 2004):
Contracts
Open accounts 11,623 14,530
Retainage 424 533
Trade 1,378 1,721
Other 1,007 674
---------- ----------
Total accounts receivable - net 14,432 17,458
---------- ----------
Inventory 5,251 5,133
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,517 1,161
Prepaid expenses 1,834 1,413
---------- ----------
Total current assets 23,798 27,511
---------- ----------
PROPERTY AND EQUIPMENT, AT COST 25,091 24,601
Accumulated depreciation (13,486) (13,486)
---------- ----------
Property and equipment, net 11,605 11,115
---------- ----------
OTHER ASSETS
Deferred income taxes - 3,089
Other 133 419
---------- ----------
Total other assets 133 3,508
---------- ----------
TOTAL ASSETS $ 35,536 $ 42,134
========== ==========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2005 AND 2004
($000 Omitted)
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
2005 2004
---------- ----------
CURRENT LIABILITIES
Current portion of notes payable $ 9,760 $ 5,390
Accounts payable 8,388 8,099
Accrued compensation and related liabilities 595 797
Billings in excess of costs and estimated
earnings on uncompleted contracts 6,343 3,633
Deferred income 9 19
Other accrued expenses 1,872 2,588
Income taxes payable 7 6
---------- ----------
Total current liabilities 26,974 20,532
LONG-TERM DEBT
Notes payable, less current portion 3,512 5,229
---------- ----------
Total liabilities 30,486 25,761
---------- ----------
MINORITY INTERESTS 172 180
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 13) - -
STOCKHOLDERS' EQUITY
Common stock - $0.10 par value,
10,000,000 shares authorized;
3,649,535 and 3,633,655 shares
issued and outstanding 365 363
Additional paid-in capital 16,594 16,537
Accumulated (deficit) earnings (12,081) (707)
---------- ----------
Total stockholders' equity 4,878 16,193
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,536 $ 42,134
========== ==========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2005, 2004 and 2003
($000 omitted except earnings per share)
2005 2004 2003
---------- ---------- ----------
REVENUE:
Construction $ 18,783 $ 20,776 $ 17,968
Manufacturing 29,498 32,884 34,439
Other revenue 291 224 264
---------- ---------- ----------
Total revenue 48,572 53,884 52,671
---------- ---------- ----------
DIRECT COSTS:
Construction 13,805 15,298 13,665
Manufacturing 27,305 22,596 23,627
---------- ---------- ----------
Total direct costs 41,110 37,894 37,292
---------- ---------- ----------
GROSS PROFIT 7,462 15,990 15,379
---------- ---------- ----------
OTHER INCOME 221 - -
---------- ---------- ----------
EXPENSES:
Overhead 6,547 7,253 6,830
General and administrative 7,293 7,301 7,444
Depreciation and amortization 2,074 1,988 1,771
Interest 860 666 614
---------- ---------- ----------
Total expenses 16,774 17,208 16,659
---------- ---------- ----------
LOSS BEFORE INCOME TAXES, MINORITY
INTERESTS AND EXTRAORDINARY ITEM (9,091) (1,218) (1,280)
INCOME TAX PROVISION (BENEFIT) 3,089 (461) (359)
---------- ---------- ----------
LOSS BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM (12,180) (757) (921)
Minority Interest (22) (23) (15)
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (12,202) (780) (936)
EXTRAORDINARY ITEM
Gain on extinguishment of debt 828 - -
---------- ---------- ----------
NET LOSS $(11,374) $ (780) $ (936)
========== ========== ==========
LOSS PER COMMON SHARE:
Basic
Continuing Operations $ (3.35) $ (0.22) $ (0.26)
Extraordinary Item 0.23 - -
---------- ---------- ----------
LOSS PER COMMON SHARE-BASIC $ (3.12) $ (0.22) $ (0.26)
========== ========== ==========
Diluted
Continuing Operations $ (3.35) $ (0.22) $ (0.26)
Extraordinary Item 0.23 - -
---------- ---------- ----------
LOSS PER COMMON SHARE-DILUTED $ (3.12) $ (0.22) $ (0.26)
========== ========== ==========
See Notes To Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 2005, 2004 and 2003
(000 0mitted)
Additional Accumulated
Number Common Paid-In Earnings
of Shares Stock Capital (Deficit) Total
--------- ------ ---------- ---------- ---------
BALANCE, AUGUST 1, 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
Issuance of stock 16 2 57 - 59
Net loss for the year * - - - (11,374) (11,374)
--------- ------ ---------- ---------- ---------
BALANCE, JULY 31, 2005 3,650 $ 365 $16,594 $(12,081) $ 4,878
======== ====== ========== ========== =========
* 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, 2005, 2004 AND 2003
($000 Omitted)
2005 2004 2003
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,374) $ (780) $ (936)
Adjustments to reconcile net loss to net
cash (used in) provided by
operating activities:
Depreciation and amortization 2,074 1,988 1,771
Increase (decrease)
in allowance for doubtful accounts 772 (324) 842
Loss (gain) on disposal of
property, plant and equipment (77) 1 -
Decrease (increase) in
deferred income tax assets 3,089 (465) (378)
Minority interest in earnings 22 23 15
Gain on extinguishment of debt (828) - -
Changes in assets and liabilities:
Decrease (increase) in
open contracts receivable 2,182 (1,181) 656
Decrease (increase) in contract retainage 109 (23) 146
Decrease (increase) in trade receivables 296 528 (714)
(Increase) decrease in other receivables (333) (72) 415
Decrease (increase) in inventory (118) (1,712) 1,445
(Increase) decrease in costs and estimated
earnings in excess of billings on
uncompleted contracts (356) 1,978 (1,630)
Increase (decrease) in billings in excess
of costs and estimated earnings on
uncompleted contracts 2,710 (954) 483
(Increase) decrease in prepaid expenses (421) 354 496
Decrease in other assets 286 181 936
Increase in accounts payable 289 2,689 510
Decrease in accrued compensation
and related liabilities (202) (84) (977)
Decrease in deferred income (10) (9) (72)
(Decrease) increase in
other accrued expenses 112 (947) 73
(Decrease) increase in income taxes payable 1 6 (137)
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (1,777) 1,197 2,944
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property,
plant and equipment (2,712) (3,023) (3,829)
Decrease (increase) in restricted cash 1,003 (952) (1)
Proceeds from sale of
property, plant and equipment 225 1 -
Purchase of subsidiary - - (53)
Purchase of certificates of deposit - - (306)
Maturities of certificates of deposit - 417 594
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,484) (3,557) (3,595)
---------- ---------- ----------
`
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings 7,674 4,187 4,907
Repayments of notes payable (5,021) (2,628) (5,616)
Issuance of common stock 59 151 75
Repurchase of common stock - - (32)
Minority interest dividends (30) (30) (40)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,682 1,680 (706)
---------- ---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (579) (680) (1,357)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,343 2,023 3,380
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 764 $ 1,343 $ 2,023
========== ========== ==========
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, 2005, 2004 AND 2003
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. Areas
that involve the use of management estimates and assumptions, which are more
susceptible to change in the near term, include estimating completion costs
for contracts in progress and estimating claims for workers' compensation.
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, 2005.
(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 years ended July 31, 2002 and
2005. For the years ended July 31, 2003 and 2005, 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.
Management reviews accounts and notes receivable on a current basis and
provides allowances when collections are in doubt. Receivables are considered
past due if the outstanding invoice is more than 45 days old. A receivable is
written off when it is deemed uncollectible. Recoveries of previously written
off receivables are recorded when cash is received.
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 was invested in short-
term, highly liquid investments. Under the term of the Company's Industrial
Revenue Bond (IRB), the Company was required to make monthly payments into an
escrow account, from which the annual payment on the IRB were automatically
made. The Company was 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.
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.
Stock-Based Compensation - At July 31, 2005, 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, 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 and loss
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 per share) 2005 2004 2003
---------- ---------- ----------
Net Loss, as reported $(11,374) $ (780) $ (936)
Deduct: Total stock-based employee
Compensation under fair value
based method for all awards,
net of related tax effects (43) - (34)
---------- ---------- ----------
Pro forma Net Loss $(11,417) $(780) $(970)
========== ========== ==========
Loss per share:
Basic - as reported $(3.12) $(0.22) $(0.26)
========== ========== ==========
Basic - pro forma $(3.12) $(0.22) $(0.27)
========== ========== ==========
Diluted - as reported $(3.12) $(0.22) $(0.26)
========== ========== ==========
Diluted - pro forma $(3.12) $(0.22) $(0.26)
========== ========== ==========
Fair Value of Financial Instruments - The carrying amount of notes
payable approximates the fair value of the notes based upon interest rates for
debt currently available with similar terms and remaining maturities.
Workers' Compensation Claims - 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. Prior to February 2005, the Company had a
"loss sensitive" workers' compensation insurance program. When the program was
renewed on February 1, 2005, management reverted to a "conventional" insurance
program. Under the "loss sensitive" program the Company accrues workers'
compensation insurance expense based on estimates of its costs under the
program, and then adjusts these estimates based on claims experience. When
claims occur, the Company's safety director works with the insurance companies
and the injured employees to minimize the long-term effect of a claim. Company
personnel review specific claims history and insurance carrier reserves to
adjust reserves for individual claims. Under the "conventional" insurance
program, the Company accrues expense based on rates applicable to payroll
classifications, which are fixed at the time of the policy issuance.
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 loss.
RECENT ACCOUNTING PRONOUNCEMENTS:
In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based
Payment" (SFAS 123R). SFAS 123R requires measurement of all employee stock-
based compensation awards using a fair-value method and the recording of such
expense in the consolidated financial statements. In addition, the adoption of
SFAS 123R will require additional accounting related to the income tax effects
and disclosure regarding the cash flow effects resulting from share-based
payment arrangements. In January 2005, the United States Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107, which
provides supplemental implementation guidance for SFAS 123R. SFAS 123R is
effective for the Company's second quarter of fiscal 2006. The Company has
selected the Black-Scholes option-pricing model as the most appropriate fair-
value method for awards and will recognize compensation cost on a straight-
line basis over the awards' vesting periods. The Company expects that the
adoption of SFAS 123R will have a material impact on our results of
operations. However, uncertainties, including the Company's stock-based
compensation strategy, stock price volatility, estimated forfeitures and
employee stock option behavior, make it difficult to determine whether the
stock-based compensation expense that will be incurred in future periods will
be similar to the SFAS 123R pro forma expense disclosed in Note 1 to the
Consolidated Financial Statements
In November 2004, the FASB issued Statement No. 151, "Inventory Costs".
This statement requires that the accounting for abnormal costs, in some
circumstances, be recognized as a current period expense. The implementation
of this guidance is not expected to have any impact on the Company's
consolidated financial statements.
In December 2004, the FASB issued Statement No. 153, "Exchanges of
Nonmonetary Assets", which amends APB Opinion No. 29. This Statement amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. The implementation
of this guidance is not expected to have any impact on the Company's
consolidated financial statements.
In May 2005, the FASB issued Statement No. 154, " Accounting Changes and
Error Corrections". This Statement changes the requirements for the accounting
for and reporting of a change in accounting principle. This Statement requires
retrospective application to prior periods' financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period affected or the cumulative affect of the change. Then the change would
be made prospectively. The implementation of this guidance is not expected to
have any impact on the Company's consolidated financial statements.
1. LOSS PER COMMON SHARE
The Company calculates loss per share in accordance with SFAS No. 128,
"Earnings Per Share". Loss per share was as follows:
Year-ended July 31, 2005 2004 2003
---------- ---------- ----------
Loss Per Share - Basic ($3.12) ($0.22) ($0.26)
Loss Per Share - Diluted ($3.12) ($0.22) ($0.26)
The following is a reconciliation of the amounts used in calculating
the basic and diluted loss per share(in thousands):
Year-ended July 31, 2005 2004 2003
---------- ---------- ----------
Loss - (numerator)
Net loss - basic $(11,374) $(780) $(936)
========== ========== ==========
Shares - (denominator)
Weighted average shares
outstanding - basic 3,643 3,612 3,577
Effect of dilutive securities: Options - - -
---------- ---------- ----------
3,643 3,612 3,577
2. CONTRACT CLAIMS
There was one contract claim receivable for $650,000 at July 31, 2005 and
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, 2006.
3. RELATED-PARTY TRANSACTIONS
Mr. Frank E. Williams, Jr., who owns or controls approximately 45% of the
Company's stock at July 31, 2005, 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.
Revenue earned and costs incurred with these entities during the three years
ended July 31, 2005, 2004 and 2003 are reflected below. In addition, amounts
receivable and payable to these entities at July 31, 2005 and 2004 are
reflected below.
(in thousands) 2005 2004 2003
---------- ---------- ----------
Revenues $1,158 $400 $2,442
Billings to entities $1,099 $380 $1,293
Costs and expenses incurred from $319 $675 $1,478
Balance July 31,
2005 2004
---------- ----------
Accounts receivable $663 $650
Notes payable $667 $188
Accounts payable $400 $77
Billings in excess of costs and estimated
earnings on uncompleted contracts $82 $-
Accrued interest payable $106 $73
In the year ended July 31, 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.
In the year ended July 31, 2005, the Company borrowed $665,000 from Mr.
Williams, Jr. to cover short-term cash requirements. The notes are payable on
demand with interest ranging from the prime rate to the prime rate plus 1%.
Subsequent to the year ended July 31, 2005, the Company sold its
Richmond, Virginia property to Mr. Williams, Jr. and leased it back on a long-
term basis, with an option to buy it back for the same price for which it was
sold.
The Company is obligated to the Williams Family Limited Partnership under
a lease agreement for real property, adjacent to the Company's Manassas,
Virginia facility, with an option to purchase. The partnership is controlled
by individuals who own, directly or indirectly, approximately 49% 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 original
term was extended one year to February 15, 2006. The lease contains an option
to purchase up to ten acres at the "original pro-rata cost" of $567,500. The
Company accrues annual lease payments of approximately $43,000.
During the year ended July 31, 2005, the Company borrowed $1,861,000 from
the partnership and repaid $580,000. Lease and interest expense for the three
years ended July 31, 2005, 2004 and 2003 is reflected below. Additionally,
Notes payable and Accounts payable, representing lease payments, and Accrued
interest payable at July 31, 2005 and 2004 are reflected below.
(in thousands) 2005 2004 2003
---------- ---------- ----------
Lease expense $34 $78 $56
Interest expense $26 $13 $-
Balance July 31,
2005 2004
---------- ----------
Notes payable $1,381 $100
Accounts payable $149 $116
Accrued interest payable $18 $-
Subsequent to the year ended July 31, 2005, the Company borrowed $125,000
from the Williams Family Limited Partnership, payable on demand with interest
at the prime rate.
The Company sold its interest in Construction Insurance Agency, Inc.
(CIA) to George R. Pocock, a former officer of the Company, in 2001 and
recorded a note receivable related to the sale. The note bears interest at
7.5%, is secured by the CIA stock and is due in monthly installments of
installments of $2,374 including principal and interest, with a final payment
of $138,812 due on October 31, 2005. At July 31, 2005 and 2004, the balance
due on the note was $141,797 and $158,946, respectively.
Costs incurred with CIA, for insurance premiums and brokerage fees, for
the years ended July 31, 2005, 2004 and 2003 are reflected below. In addition,
amounts payable at July 31, 2005 and 2004 are also reflected below.
(in thousands) 2005 2004 2003
---------- ---------- ----------
General and administrative costs
incurred from $381 $206 $231
Balance July 31,
2005 2004
---------- ----------
Accounts payable $116 $109
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,
2005, 2004 and 2003 is reflected below. The balance outstanding at July 31,
2005 and 2004, which is reflected below, is included in Note 6, Unsecured:
Installment obligations.
(in thousands) 2005 2004 2003
---------- ---------- ----------
Interest expense $11 $12 $9
Balance July 31,
2005 2004
---------- ----------
Note payable $116 $164
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 had a
labor reimbursement agreement with ASP to provide labor to operate the Gadsden
plant. The labor agreement was terminated during the year ended July 31, 2005.
Directors
At July 31, 2005, the Company owed the non-employee members of the Board
of Directors $72,000 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):
2005 2004
---------- ----------
Costs incurred on uncompleted contracts $34,880 $31,315
Estimated earnings 5,493 10,761
---------- ----------
40,373 42,076
Less: Billings to date, including
outstanding claim receivable of $650,000 (45,199) (44,548)
---------- ----------
$(4,826) $(2,472)
========== ==========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $1,517 $1,161
Billings in excess of costs and estimated
earnings on uncompleted contracts (6,343) (3,633)
---------- ----------
$(4,826) $(2,472)
========== ==========
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):
2005 2004
---------- ----------
Land and buildings $6,088 $6,163
Automotive equipment 1,863 1,811
Cranes and heavy equipment 14,790 13,270
Tools and equipment 491 1,217
Office furniture and fixtures 221 254
Leased property under capital leases 600 600
Leasehold improvements 1,038 1,286
---------- ----------
$25,091 $24,601
Less accumulated depreciation (13,486) (13,486)
---------- ----------
Property and equipment, net $11,605 $11,115
========== ==========
6. NOTES AND LOANS PAYABLE
Notes and loans payable consisted of the following at July 31 (in
thousands):
2005 2004
---------- ----------
Collateralized:
Loans payable to United Bank; collateralized
by all real estate, inventory and equipment;
monthly payments of principal plus interest
at 8.7% fixed; due March 6, 2006 $2,095 $2,264
Total Lines of Credit with United Bank;
collateralized by all real estate, inventory
and equipment; borrowings up to $2,500 available
at July 31, 2005 and 2004 with monthly payments
of interest only at prime plus .5%,
due March 6, 2006 2,498 2,498
Loan payable to Wachovia; collateralized by
Richmond real estate and equipment; monthly
payments of principal plus interest 834 -
Obligations under capital leases;
collateralized by leased property; interest at
8.34% for 2005 and 8.34% to 18.81% for 2004,
payable in monthly installments through 2006 56 123
Installment obligations collateralized by
machinery and equipment or all real estate;
interest ranging to 9.5% for 2005 and to 9.74%
for 2004; payable in varying monthly installments
of principal and interest through 2010 4,693 4,327
Industrial Revenue Bond; collateralized by a
letter of credit which in turn is collateralized
by the Richmond, Virginia property; variable
interest based on third party calculations,
1.52% at July 31, 2004 - 810
Unsecured:
Related party notes; interest from 6.25% to 10.0%
for 2005 and 4.25% to 10% for 2004, due on demand 2,035 288
Installment obligations with interest rates from
5.1% to 6.25% for 2005 and varying to 12% for 2004;
due in varying monthly installments of principal
and interest through 2008 1,061 309
---------- ----------
Total Notes Payable 13,272 10,619
Notes Payable - Long Term (3,512) (5,229)
---------- ----------
Current Portion $9,760 $5,390
========== ==========
The Company's line of credit with United Bank of approximately $2.5 million
matured on May 5, 2005. The Company subsequently received a Notice of Loan
Defaults dated May 12, 2005. As a result of the Notice, the debts to United
Bank, aggregating approximately $5.4 million, were accelerated and are now due
and payable in full. The Company entered into a Forbearance Agreement on June
30, 2005. Under the agreement, United Bank agreed to forbear from enforcing
the original terms of its Loan and Security Agreement until February 28, 2006,
on the following conditions:
All amounts owing through June 30, 2005, be paid at closing. This included
approximately $200,000 of principal and $100,000 of interest and fees.
Approximately $200,000 was generated through the sale of property, located in
Bedford, Virginia, to the City of Bedford, under an option granted in July
2004.
The Company agreed to grant United Bank a First Mortgage in its Wilmington,
Delaware property, valued at $750,000, to be recorded not later than July 15,
2005. Within 60 days, the Lender will obtain a fair market value appraisal,
and to the extent the appraisal is lower than $750,000, this would constitute
an event of default under the Forbearance Agreement. The Lender agreed that
such default could be cured if Frank E. Williams, Jr. agrees personally to
guarantee the shortfall.
The Williams Family Limited Partnership (WFLP), an affiliated entity
controlled by Frank E. Williams, Jr. and beneficially owned by Williams family
members, including Mr. Williams, Jr. and his sons, Company President and CEO
Frank E. Williams, III and Vice President H. Arthur Williams, agreed to pledge
an additional $1 million of the value of property leased by WFLP to the
Company adjoining the Company's facility near Manassas, Virginia, to the
Lender as additional collateral. The property, assessed for tax purposes in
excess of $1.4 million (the Wellington Parcel), is leased by the Company with
an option to buy 10 of the 17 acres. The Wellington Parcel is subject to a
mortgage in favor of the Lender on which $400,000 is owed by WFLP. The WFLP
has agreed to the increase of the Deed of Trust to $1.4 million, such
instrument to be recorded not later than July 15, 2005. Within 60 days, the
Lender will obtain a fair value appraisal, and to the extent the appraisal is
lower than $1.4 million, that would constitute an event of default under the
Forbearance Agreement. The Lender Agreed that such default could be cured if
Frank E. Williams, Jr. agrees personally to guarantee the shortfall.
The initial forbearance period extends through September 30, 2005. By that
date, the Company intends to pay the Lender $750,000, upon which the Lender
has agreed to extend the forbearance through February 28, 2006. This payment
is personally guaranteed by Frank E. Williams, Jr.
During the Forbearance period, the Lender has agreed to accept monthly
payments of interest only on notes aggregating $4.3 million, while payments on
the remaining debt of approximately $500,000 will continue as if acceleration
had not occurred.
Subsequent to July 31, 2005, the Company entered into a First Amendment
to Forbearance Agreement, which modified the Forbearance Agreement as follows:
(1) The Company paid the sum of $750,000 to United Bank, of which $242,000 was
applied to outstanding payments, including principal, interest, fees and
costs, and $508,000 was applied to principal. The lender agreed to defer the
remainder of the September 30, 2005 principal curtailment until the maturity
of the agreement. The $750,000 principal curtailment was personally guaranteed
by Company founder, largest shareholder and Director Frank E. Williams, Jr.,
whose guaranty continues to apply to the $242,000 payment deferred by the
lender.
(2) The maturity date of the agreement was extended slightly, from February
28, 2006, to March 6, 2006.
The payments to United Bank reduced the amount owed to approximately $4.4
million, of which the Company expects to pay "interest only" on $4.2 million
through maturity; the balance requires principal payments of approximately
$10,000 per month.
In addition to the specific defaults listed, the Company's construction
segment is in arrears on its payments under substantially all of its notes
payable, although, except as disclosed specifically, the lenders have
not taken action to accelerate the indebtedness or foreclose on collateral.
Contractual maturities of the above obligations at July 31, 2005 are as
follows:
Year Ending July 31: Amount
- ---------------------- ----------
2006 $9,760
2007 1,052
2008 898
2009 1,290
2010 272
----------
Total $13,272
==========
As of July 31, 2005 and 2004, 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, 2005, has tax loss carryforwards amounting to
approximately $19.1 million. These loss carryforwards will expire from 2009
through 2024. 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 years
ended July 31, 2005, 2004 and 2003, respectively. 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
July 31, 2024 7.3 million
--------------
Total $19.1 million
==============
The Company has, at July 31, 2005 and 2004, 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 (In thousands):
2005 2004 2003
---------- ---------- ----------
Current provision
Federal $ - $ - $ -
State 7 6 20
---------- ---------- ----------
Total current provision 7 6 20
---------- ---------- ----------
Deferred provision (benefit)
Federal 2,466 (369) (302)
State 616 (98) (77)
---------- ---------- ----------
Total deferred provision (benefit) 3,082 (467) (379)
---------- ---------- ----------
Total income tax provision (benefit) $3,089 $(461) $(359)
========== ========== ==========
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):
2005 2004 2003
---------- ---------- ----------
Net Loss Before Income Taxes
and Minority Interests $(8,265) $(1,218) $(1,280)
========== ========== ==========
Benefit at statutory rate $(2,809) $(417) $(435)
State income taxes, net of federal benefit (438) (65) (68)
Permanent differences 52 57 55
Change in valuation allowance,
rate variances and under/(over) accrual
of prior years taxes 6,284 (36) 89
---------- ---------- ----------
$3,089 $(461) $(359)
========== ========== ==========
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, 2005 2004
---------- ----------
(In thousands)
Deferred tax assets:
Accounts receivable allowance $776 $ 472
Accrued Insurance - 404
Net operating loss carry forwards 7,486 4,699
Valuation allowance (8,141) (1,302)
---------- ----------
Total deferred tax asset 121 4,273
---------- ----------
Deferred tax liability
Depreciation (121) (1,085)
Inventory - (99)
---------- ----------
Total deferred tax liability (121) (1,184)
---------- ----------
Net Deferred Tax Asset $ - $ 3,089
========== ==========
8. INVESTMENTS IN S.I.P., INC. OF DELAWARE
During the year ended July 31, 2002, the Company obtained 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 years ended July 31, 2005
and 2004, there were no payments to make. During the year ended July 31, 2003,
the Company made payments to the previous owners, including the current
president of S.I.P., of $26,000.
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, 2005 and 2004, 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, 2005, the Company sold 6 acres of land in
Bedford, Virginia to the City of Bedford. The sales price was $225,000 and the
Company recorded a gain of $221,000, 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.
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.
Year ended July 31, 2005 2004 2003
---------- ---------- ----------
Dividend yield 0.00% 0.00% 0.00%
Volatility rate 51.64% 0.00% 60.31%
Discount rate 1.31% 0.00% 2.74%
Expected term (years) 5 0 5
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
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, 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
Granted 30,000 $4.10
Exercised (2,500) $3.34
Forfeited (22,500) $3.45
----------
Balance at July 31, 2005 123,000 $3.94 $2.78 to $5.61
==========
The following table summarizes information about stock options
outstanding at July 31, 2005. 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 55,000 45,500 22,500 123,000
Weighted average remaining
contractual life (years) 1.57 3.60 1.17 2.25
Weighted average
exercise price $3.22 $4.17 $5.26 $3.94
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):
2005 2004 2003
---------- ---------- ----------
Revenue:
Construction $21,893 $23,824 $20,049
Manufacturing 34,282 33,079 34,751
Other revenue 291 224 264
---------- ---------- ----------
56,466 57,127 55,064
Inter-company revenue:
Construction (3,110) (3,048) (2,081)
Manufacturing (4,784) (195) (312)
---------- ---------- ----------
Total revenue $48,572 $53,884 $52,671
========== ========== ==========
Operating loss:
Construction $(366) $(6) $(1,132)
Manufacturing (7,148) (484) 309
---------- ---------- ----------
Consolidated operating loss (7,514) (490) (823)
General corporate income, net 111 (62) 157
Interest Expense (860) (666) (614)
Income tax (provision) benefit (3,089) 461 359
Minority interests (22) (23) (15)
---------- ---------- ----------
Corporate loss $(11,374) $ (780) $ (936)
========== ========== ==========
Assets:
Construction $15,805 $14,667
Manufacturing 16,870 20,414
General corporate 2,861 7,053
---------- ----------
Total assets $35,536 $42,134
========== ==========
Accounts receivable
Construction $9,199 $9,713
Manufacturing 4,864 7,717
General corporate 369 28
---------- ----------
Total accounts receivable $14,432 $17,458
========== ==========
Capital expenditures:
Construction $2,400 $2,447
Manufacturing 312 530
General corporate - 46
---------- ----------
Total capital expenditures $2,712 $3,023
========== ==========
Depreciation and Amortization:
Construction $981 $821
Manufacturing 920 957
General corporate 173 210
---------- ----------
Total depreciation and amortization $2,074 $1,988
========== ==========
The Company utilizes revenues, operating earnings and assets employed as
measures in assessing segment performance and deciding how to allocate
resources.
Operating loss is total revenue less operating expenses. In computing
operating loss, 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, 2005,
there were two customers that accounted for 17% and 33% of consolidated
revenues. During the year ended July 31, 2004 there was one customer that
accounted for 16% of consolidated revenues. In the year July 31, 2003, there
was no single customer that accounted for more than 10% of consolidated
revenues.
The accounts receivable from the construction segment at July 31, 2005,
2004, and 2003 were due from 222, 216 and 227 unrelated customers, of which 8,
9 and 9 customers accounted for $5,831,000, $6,178,000 and $5,564,000,
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, 2005,
2004, and 2003 were due from 93, 108 and 133 unrelated customers, of which 6,
7 and 9 customers accounted for $3,580,000, $4,895,000 and $4,846,000,
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 and stay-in-place decking subsidiaries are
each dependent upon one supplier of rolled steel plate and galvanized steel
coils, respectively, for its product. The Company maintains good relations
with the vendors, generally receiving orders on a timely basis at reasonable
cost for this market. If the relationships with these vendors were to
deteriorate or the vendors were to go out of business, the Company would have
trouble meeting production deadlines in its contracts, as the other major
suppliers these products have 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,
2005, 2004 and 2003, expenses under the plan amounted to approximately
$376,000, $398,000 and $414,000, 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, 2005, 2004 and 2003, expenses under the plan amounted to
approximately $433,000, $641,000 and $291,000, respectively.
13. COMMITMENTS AND CONTINGENCIES
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
$1,024,000, $1,761,000 and $2,287,000 for the years ended July 31, 2005, 2004,
and 2003, respectively. Future minimum lease commitments required under non-
cancelable leases are as follows (in thousands), including approximately
$25,000 of related party lease commitments due in 2006:
Years ending July 31: Amount
- ---------------------- --------
2006 $1,042
2007 785
2008 683
2009 483
2010 345
2011 38
--------
Total $3,376
========
In addition to the specific defaults listed in Note 17, the Company, in
its construction segment, is in arrears on its payments under substantially
all of its leases, although, except as disclosed specifically, the lessors
have not taken action to terminate the subject leases.
Letters of Credit
One of the Company's banks has issued approximately $330,000 of letters of
credit as collateral for the Company's workers' compensation program secured
by other Company assets.
Insurance
Prior to February 1, 2005, the Company had a "loss sensitive" workers'
compensation insurance program. Under the "loss sensitive" program that were
in place for the past several years, the Company accrues workers' compensation
insurance expense based on estimates of its costs under the programs, and then
adjusts these estimates based on claims experience. Due to unexpected losses
on certain claims, the Company estimated additional liabilities of
approximately $1.5 million due under the "loss sensitive" programs, of which
$700,000 was related to the fourth quarter of fiscal 2005.
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. In the opinion of management and the Company's legal
counsel, such proceedings are substantially covered by insurance, and the
ultimate disposition of such proceedings are not expected to have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year ended July 31,
(In thousands) 2005 2004 2003
------ ------ ------
Income Taxes $6 $20 $178
Interest $811 $655 $610
15. REDEMPTION OF STOCK
In January 2001, the Company's Board of Directors authorized the Company
to repurchase 175,000 shares of its own stock. There were no repurchases of
stock during the years ended July 31, 2005 and 2004. As of July 31, 2005, 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. Quarterly Financial Data - unaudited
Selected quarterly financial information for the years ended July 31,
2005 and 2004 is presented below (in thousands except for per share data).
Quarter ended Year ended
------------------------------------------------ ----------
October 31, January 31, April 30, July 31, July 31,
2004 2005 2005 2005 2005
---------- ---------- ---------- ---------- ----------
Revenues $12,530 $12,526 $12,125 $11,391 $48,572
Gross Profit 3,230 2,807 2,868 $(1,443) $7,462
Net Loss $(577) $(1,359) $(3,822) $(5,616) $(11,374)
Loss Per
Common Share $(0.16) $(0.37) $(1.05) $(1.54) $(3.12)
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)
Subsequent to the year ended July 31, 2005, the Company's bridge girder
subsidiary negotiated a change to its contract for the I-95/395/495
Springfield Interchange Project in Virginia to supply girders. The original
contract for $26 million, which was being performed at a loss, was reduced by
$5 million to $21 million. The Company has recognized the projected loss, over
the remaining life of the contract, of $1.1 million in its Consolidated
Statements of Operations in the year ended July 31, 2005.The adjustment in the
contract values reduced manufacturing gross margin by $2.5 million for the
quarter ended July 31, 2005. The Company also recorded an adjustment, for the
quarter ended July 31, 2005, to its workers' compensation reserves, related to
the "loss sensitive" workers' compensation program, which increased expense by
approximately $700,000. Under the "loss sensitive" workers' compensation
program, on a quarterly basis, management evaluates its workers' compensation
reserves on current claims expenditures and reserves established by the
insurance carriers.
17. Continuing Operations and Subsequent Events
Overview:
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
The Company incurred a loss of $11.4 million for the year ended July 31, 2005
and as of July 31, 2005 had a working capital deficit of $3.2 million. The
Company has entered into a Forbearance Agreement with one of its primary
lenders, which has accelerated certain debt. Additionally, the Company is in
arrears on lease and note payments on several large pieces of construction
equipment and the related vendors are in various stages of foreclosure.
Management recognizes that the Company's continued operations depend on its
ability to generate cash flows from operations and to secure additional debt
or equity financing.
Defaulted credit facilities and forbearance agreements:
The Company's line of credit with United Bank of approximately $2.5
million matured on May 5, 2005. The Company subsequently received a Notice of
Loan Defaults dated May 12, 2005. As a result of the Notice, the debts to
United Bank, aggregating approximately $5.4 million, were accelerated and are
now due and payable in full. The Company entered into a Forbearance Agreement
on June 30, 2005. Under the agreement, United Bank agreed to forbear from
enforcing the original terms of its Loan and Security Agreement until February
28, 2006, on the following conditions:
All amounts owing through June 30, 2005, be paid at closing. This included
approximately $200,000 of principal and $100,000 of interest and fees.
Approximately $200,000 was generated through the sale of property, located in
Bedford, Virginia, to the City of Bedford, under an option granted in July
2004.
The Company agreed to grant United Bank a First Mortgage in its Wilmington,
Delaware property, valued at $750,000, to be recorded not later than July 15,
2005. Within 60 days, the Lender will obtain a fair market value appraisal,
and to the extent the appraisal is lower than $750,000, this would constitute
an event of default under the Forbearance Agreement. The Lender agreed that
such default could be cured if Frank E. Williams, Jr. agrees personally to
guarantee the shortfall.
The Williams Family Limited Partnership (WFLP), an affiliated entity
controlled by Frank E. Williams, Jr. and beneficially owned by Williams family
members, including Mr. Williams, Jr. and his sons, Company President and CEO
Frank E. Williams, III and Vice President H. Arthur Williams, agreed to pledge
an additional $1 million of the value of property leased by WFLP to the
Company adjoining the Company's facility near Manassas, Virginia, to the
Lender as additional collateral. The property, assessed for tax purposes in
excess of $1.4 million (the Wellington Parcel), is leased by the Company with
an option to buy 10 of the 17 acres. The Wellington Parcel is subject to a
mortgage in favor of the Lender on which $400,000 is owed by WFLP. The WFLP
has agreed to the increase of the Deed of Trust to $1.4 million, such
instrument to be recorded not later than July 15, 2005. Within 60 days, the
Lender will obtain a fair value appraisal, and to the extent the appraisal is
lower than $1.4 million, that would constitute an event of default under the
Forbearance Agreement. The Lender Agreed that such default could be cured if
Frank E. Williams, Jr. agrees personally to guarantee the shortfall.
The initial forbearance period extends through September 30, 2005. By that
date, the Company intends to pay the Lender $750,000, upon which the Lender
has agreed to extend the forbearance through February 28, 2006. This payment
is personally guaranteed by Frank E. Williams, Jr.
During the Forbearance period, the Lender has agreed to accept monthly
payments of interest only on notes aggregating $4.3 million, while payments on
the remaining debt of approximately $500,000 will continue as if acceleration
had not occurred.
Subsequent to July 31, 2005, the Company entered into a First Amendment
to Forbearance Agreement, which modified the Forbearance Agreement as follows:
(1) The Company paid the sum of $750,000 to United Bank, of which $242,000 was
applied to outstanding payments, including principal, interest, fees and
costs, and $508,000 was applied to principal. The lender agreed to defer the
remainder of the September 30, 2005 principal curtailment until the maturity
of the agreement. The $750,000 principal curtailment was personally guaranteed
by Company founder, largest shareholder and Director Frank E. Williams, Jr.,
whose guaranty continues to apply to the $242,000 payment deferred by the
lender.
(2) The maturity date of the agreement was extended slightly, from
February 28, 2006, to March 6, 2006.
The payments to United Bank reduced the amount owed to approximately $4.4
million, of which the Company expects to pay interest on $4.2 million through
maturity; the balance requires principal payments of approximately $10,000 per
month.
In order to fund the repayment of the United Bank notes, the Company is
pursuing various financing options, including conventional, asset-based, and
equity secured financing. Management realizes that the cost of debt may be
higher than normal market rates. The Company has received a proposal from an
equity lender for an $8 million facility.
The Company refinanced its note related to its Industrial Revenue Bond on
its Richmond, Virginia property. The note was in default due to inadequate
debt covenant coverage ratios related to the Company's losses and working
capital. The new note, for approximately $841,000, was financed at the prime
rate of interest plus 3 percent, with monthly payments of $8,000 through
August 2005, at which time the balance on the note was payable in full. The
note is reported in the "Current portion of notes payable" at July 31, 2005.
Subsequent to July 31, 2005, the note was paid in full from the proceeds of
the sale-leaseback of the Company's Richmond, Virginia plant to Frank E.
Williams, Jr.
As a result of payment and other alleged defaults, CitiCapital threatened
foreclosure and sale of their collateral on two heavy lift cranes, one owned
and one leased by the Company. The Company entered into a forbearance
agreement providing for settlement of late charges and personal property
taxes, monthly payments, and reimbursement of legal fees, providing that the
Company pay off the accounts by November 1, 2005, without penalty, and
December 1, 2005, with a 1% penalty. The crane that is owned has a book value
of approximately $970,000 and a note payable of $870,000. There may be
additional liability to the Company on the leased crane should it be returned
to the lessor.
HSBC Business Credit has a suit pending for approximately $900,000 for
non-payment on a lease for a heavy lift crane, and a specialized trailer with
a value of approximately $200,000 less than the amount claimed by the lessor.
Trial has been set for October 25, 2005. The Company is attempting to settle
this account with the lessor on the best terms available.
As a result of payment and other alleged defaults, Provident Leasing
threatened foreclosure and sale of a heavy lift crane leased by the Company.
The Company entered into a forbearance agreement providing for monthly
payments until January 15, 2006, when the account is due in full. In the event
the lessor pursues its remedies, the Company expects that there may be an
additional liability of up to $100,000. The Company intends to settle this
account with the lessor on the best terms available.
Management's plans:
Subsequent to July 31, 2005, the Company sold its Richmond, Virginia
property for $2.75 million to the Company's founder and largest shareholder,
and leased it back with an option to buy it back for the same price for which
it was sold. The sale will be treated as a financing activity and the gain on
sale of approximately $1.7 million will be treated as a liability of the
Company. The proceeds from the sale were used to pay: approximately $835,000
on the first mortgage note to Wachovia Bank, $750,000 to United Bank under the
First Amendment to Forbearance Agreement extending the Company's Forbearance
period to March 6, 2006 and paid $688,000 for related party notes payable due
to the purchaser of the property. The remaining $477,000 was used to pay
related closing costs and fund the operations of the Company.
Management believes, based on budgets prepared for fiscal 2006, that the
Company will provide sufficient cash flows to fund operations for the next
twelve months, including its lease obligations. Conditions in the areas in
which the Company works could create risks where it would have difficulty
estimating and performing work, and collecting amounts earned.
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.
Should other financing options not materialize, The Company has
identified certain assets that could be available for sale, including ten
heavy lift cranes, with an estimated market value of $3 million, which may
generate net proceeds of approximately $600,000. The Company is reviewing its
land, especially in Manassas, Virginia to identify its highest and best use.
Management feels that if the property was to be sold, enough cash might be
generated to pay off debt and allow the Company to relocate, if necessary.
These assets have not been segregated from other assets and are currently
being used in operations.
The Company continues to revise its business strategy and will continue
to sell certain of its excess assets, as defined previously, if necessary.
These assets have not been segregated from other assets and are currently
being used in operations. The Company anticipates that it may generate
sufficient cash flows to cover operations for fiscal 2006, based on its
operating budget prepared by management and its current backlog of $39
million. As long as steel prices remain reasonably stable, management
anticipates the Company could generate additional revenues at "normal" profit
margins. Management has and continues to explore, as noted previously,
replacement financing to replace its United Bank debt. Accordingly, the
accompanying consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
Schedule II - Valuation and Qualifying Accounts
Years Ended July 31, 2005, 2004 and 2003
(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, 2005:
Allowance for
doubtful accounts $1,204 - 1,225 (3) (21) (1) $1,976
(432) (2)
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)
(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 14, 2005 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 14, 2005 By: /s/ Frank E. Williams, III
---------------------------------
Frank E. Williams, III
President and Chairman of the Board
Chief Financial Officer
October 14, 2005 By: /s/ Christ H. Manos
---------------------------------
Christ H. Manos
Treasurer and Controller