UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For quarterly period ended October 31, 2007
Commission File No. 0-8190
WILLIAMS INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 54-0899518
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8624 J.D. Reading Drive, Manassas, Virginia 20109
(Address of principal executive offices)
P.O. Box 1770, Manassas, VA 20108
(Mailing address of principal executive offices)
(703) 335-7800
(Registrant's telephone number, including area code)
Not Applicable
(Former names, former addresses and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for 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 whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "large
accelerated filer and accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer X
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). YES _ NO X
At January 31, 2007, the Registrant had outstanding 3,662,757 shares of
Common Stock.
WILLIAMS INDUSTRIES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2007
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets - October 31, 2007
and July 31, 2007 (Unaudited)........................... 1
Condensed Consolidated Statements of Operations - Three
months ended October 31, 2007 and 2006 (Unaudited)......... 2
Condensed Consolidated Statements of Cash Flows -
Three months ended October 31, 2007 and 2006 (Unaudited)... 3
Notes to Condensed Consolidated Financial Statements
(Unaudited).............................................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS 19
ITEM 4T. CONTROLS AND PROCEDURES 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................... 21
ITEM 1A. RISK
FACTORS............................................................. 21
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES
AND USE OF PROCEEDS............................................. 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................ 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 22
ITEM 5. OTHER INFORMATION.......................................... 22
ITEM 6. EXHIBITS.................................................. 22
CERTIFICATIONS AND
SIGNATURES......................................................... 23
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands except share data)
ASSETS
October 31, July 31,
2007 2007
---------- ----------
CURRENT ASSETS
Cash and restricted cash $ 645 $ 694
Accounts receivable, net 14,806 13,988
Inventory 2,255 2,105
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,361 2,602
Prepaid and other assets 949 787
---------- ----------
Total current assets 21,016 20,176
---------- ----------
PROPERTY AND EQUIPMENT, AT COST 22,114 22,010
Accumulated depreciation (14,816) (14,485)
---------- ----------
Property and equipment, net 7,298 7,525
---------- ----------
OTHER ASSETS 112 99
---------- ----------
TOTAL ASSETS $ 28,426 $ 27,800
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable
Unaffiliated third parties $ 5,678 $ 5,907
Related parties 3,793 3,323
Accounts payable 7,668 6,831
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,176 1,308
Financing obligations resulting from
sale-leaseback transactions 246 314
Other liabilities 2,971 2,894
---------- ----------
Total current liabilities 21,532 20,577
LONG-TERM LIABILITIES
Notes payable, less current portion
Unaffiliated third parties 382 403
Financing obligations resulting from
sale-leaseback transactions 3,961 3,957
---------- ----------
Total Liabilities 25,875 24,937
---------- ----------
MINORITY INTERESTS 171 168
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - 3,666,850 shares
issued and outstanding 366 366
Additional paid-in capital 16,638 16,638
Accumulated deficit (14,624) (14,309)
---------- ----------
Total stockholders' equity 2,380 2,695
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,426 $ 27,800
========== ==========
See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except share data)
Three Months Ended
October 31,
2007 2006
---------- ----------
REVENUE
Manufacturing $ 6,935 $ 6,708
Construction 3,858 3,195
Other 11 115
---------- ----------
Total revenue 10,804 10,018
---------- ----------
DIRECT COSTS
Manufacturing 4,557 4,777
Construction 3,009 2,114
---------- ----------
Total direct costs 7,566 6,891
---------- ----------
GROSS PROFIT 3,238 3,127
---------- ----------
EXPENSES
Overhead 1,246 1,132
General and administrative 1,629 1,746
Depreciation 355 379
Interest 320 227
---------- ----------
Total expenses 3,550 3,484
---------- ----------
LOSS BEFORE INCOME TAXES
AND MINORITY INTERESTS (312) (357)
INCOME TAX BENEFIT - -
LOSS BEFORE MINORITY INTERESTS (312) (357)
Minority interests (3) (11)
---------- ----------
NET LOSS $ (315) $ (368)
========== ==========
LOSS PER COMMON SHARE- BASIC $ (0.09) $ (0.10)
LOSS PER COMMON SHARE- DILUTED $ (0.09) $ (0.10)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC 3,666,850 3,655,929
---------- ----------
DILUTED 3,666,850 3,655,929
---------- ----------
See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Three Months Ended
October 31,
2007 2006
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES $ (76) $ (85)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for
property, plant and equipment (129) (348)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (129) (348)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,401 992
Repayments of notes payable (3,245) (714)
Issuance of common stock - 7
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 156 285
---------- ----------
NET DECREASE IN CASH AND RESTRICTED CASH (49) (148)
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD 694 952
---------- ----------
CASH AND RESTRICTED CASH, END OF PERIOD $ 645 $ 804
========== ==========
See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2007
1. INTERIM FINANCIAL STATEMENTS AND COMPANY LIQUIDITY
This document includes unaudited interim financial statements that
should be read in conjunction with the Company's latest audited annual
financial statements. However, in the opinion of management, these financial
statements contain all adjustments, consisting only of normal recurring
items, necessary for a fair presentation of the Company's financial position
as of October 31, 2007 and July 31, 2007 and the results of its operations
and its cash flows for the three months ended October 31, 2007 and 2006,
respectively. Operating results for the three months ended October 31, 2007
are not necessarily indicative of the results expected for the full fiscal
year. For further information, refer to the consolidated financial statements
and footnotes included in the Company's Annual Report on Form 10-K for the
year ended July 31, 2007.
During its regular meeting on March 7, 2007, the Williams Industries
Board of Directors, after reviewing the current and future costs of remaining
a public corporation, approved the appointment of a committee of independent
directors to explore the possibility of taking the company private.
Additional information will be forthcoming as appropriate.
Williams Industries, Incorporated (the Company) continues to face a
liquidity and business crisis, after suffering operating losses for several
years, tapping its available sources of operating cash, and borrowing in
excess of $3 million from its largest shareholder. The Company is operating
under a Forbearance Agreement with its major lender, United Bank, pursuant to
which approximately $3 million is scheduled to be repaid by December 31,
2007. In addition, the Company is in default of nearly all of its other
debts and leases. Because of the Company's financial condition and uncertain
market conditions in its areas of operation, there remains 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 there are
large risks related to estimating and performing work and collecting amounts
earned. The Company may continue to suffer operating losses and have
difficulty meeting its obligations.
In view of the Company's liquidity problems and in order to fund the
repayment of the United Bank notes, the Company is pursuing various financing
options, including conventional and asset-based financing, and exploring its
strategic options relative to the sale of individual assets or subsidiaries.
For example, the Company's present use of its land in Manassas, Virginia may
not be its "highest and best" use. Based on the sale price of the 3-acre
parcel sold in June 2006, the value of the Company's real property in
Manassas, Virginia may exceed $15 million. Management has not ruled out any
measure that may be necessary to protect the Company's assets and preserve
shareholder value.
2. RELATED-PARTY TRANSACTIONS
The Company is obligated to the Williams Family Limited Partnership
(WFLP) under a lease agreement for real property, located in Manassas,
Virginia. WFLP is controlled by individuals who own, directly or indirectly,
approximately 55% of the Company's stock. The lease, which had an original
term of five years and an extension option for five years, commenced February
15, 2000. The original term was extended, by agreement, one year to February
2006, and subsequently, on July 31, 2006, the agreement was modified as
follows: (i) the Agreement was extended through February 2010, (ii) unpaid
rent aggregating approximately $200,000 was deferred until September 30,
2007, (iii) Rent payments due after August 1, 2006 (approximately $6,000 per
month), if delinquent, will be subject to a 5% penalty on the payment amount
and will accrue interest at prime plus 3%; (iv) the option to purchase the
property which the Company had under the original lease was terminated and
replaced with an equity sharing formula which in the event of the sale of the
property would yield payment to the Company of 75% of the gain on the ten
acres previously subject to the option; and (v) in the event of a sale,
Williams Bridge shall have the option to continue its lease of the portion of
the property which has been cleared (approximately 2 acres) for the duration
of the lease term. The Company will incur annual rent expense of
approximately $72,000. The Company has not made payments to WFLP for rent
during the fiscal year ended July 31, 2007 and the three months ended October
31, 2007, therefore those balances incurred a five percent penalty and will
accrue interest at the prime interest rate plus three percent.
During the three months ended October 31, 2007, the Company borrowed
$338,000 from WFLP while repaying $69,000.
Lease and interest expense for the three months ended October 31, 2007
and 2006 are reflected below. Additionally, at October 31, 2007 and July 31,
2007, Notes Payable and Accounts Payable, representing lease payments, to
WFLP are reflected below.
Three Months Ended
October 31,
(in thousands) 2007 2006
---------- ----------
Lease Expense $13 $11
Interest Expense $79 $58
Balance Balance
October 31, July 31,
2007 2007
---------- ----------
Notes Payable $3,593 $3,323
Accounts Payable $ 520 $ 659
During the year ended July 31, 2006, the notes payable owed to the WFLP
were extended by agreement to September 30, 2007. As of October 31, 2007, the
Company had not reached agreement with the WFLP on the disposition of amounts
due at September 30, 2007.
During the year ended July 31, 2006, in order to resolve loan and lease
defaults, the Company sold seven previously owned or leased cranes to
FlexLease, LLC, an entity owned by Director Frank E. Williams, Jr., his son
H. Arthur Williams, President of Williams Steel Erection Company, Inc. and
General Counsel Daniel K. Maller, also a Vice President of Williams Bridge
Company. During the quarter ended October 31, 2006, one additional crane
which was previously leased by the Company, was acquired by FlexLease. The
crane was subsequently sold to the Company for $165,000 with the Company
entering into a note to FlexLease for three years at the prime rate of
interest plus one percent (currently 8.5%). The Company has the right to buy
each crane for the amount paid by FlexLease plus a fee of 1%-3% depending on
when such right is exercised. These transactions, which were approved by the
Company's independent directors and offered on better terms than available
from unrelated lenders and lessors, include buy-back provisions, which will
allow the Company to pursue alternate financing. These cranes support the
construction activities of the Company. The Company entered into short-term
"lease/purchase" agreements on six cranes, one of which was subsequently sold
to a non-affiliated third party during the year ended July 31, 2006, and a
financing agreement on two cranes. Lease and interest expense for the three
months ended October 31, 2007 and 2006 are reflected below. Additionally,
Notes payable and Accounts payable, representing lease payments at October
31, 2007 and July 31, 2007 are reflected below.
Three Months Ended
October 31,
(in thousands) 2007 2006
---------- ----------
Lease Expense $65 $73
Interest Expense $31 $ -
Balance Balance
October 31, July 31,
2007 2007
---------- ----------
Financing obligation resulting from
sale-leaseback transaction $1,048 $1,106
Accounts Payable $ 249 $ 154
Subsequent to the quarter ended October 31, 2007, the Company entered
into a lease/purchase agreement with FlexLease to finance an additional
crane, previously leased by the Company from GE Capital. The negotiated
buyout of the lease was $200,000, and with the approval of the Company's
independent directors, the Company agreed to pay FlexLease based on a
capitalized cost of $210,000 with interest at FlexLease's cost of funds + 1%.
In connection with financing this transaction, FlexLease negotiated a lower
rate on two cranes previously financed, which is expected to result in cost
savings to the Company of approximately $1,000 per month.
The deferred gains on the transactions with FlexLease are shown as
"Financing obligations resulting from sale-leaseback transactions" under
Current and Long-Term Liabilities on the Condensed Consolidated Balance
Sheet.
Mr. Frank E. Williams, Jr., who owned or controlled approximately 51% of
the Company's stock at October 31, 2007, also owns controlling interests in
Williams Enterprises of Georgia, Inc., and Structural Concrete Products, LLC.
Additionally, Mr. Williams, Jr. owns a substantial interest in Bosworth Steel
Erectors, Inc. Amounts receivable and payable to these entities at October
31, 2007 and July 31, 2007, and revenue earned and costs incurred with these
entities during the three months ended October 31, 2007 and 2006 are
reflected below.
Three Months Ended
October 31,
(in thousands) 2007 2006
---------- ----------
Revenue $109 $338
Billings to entities $109 $533
Costs and expenses incurred $ 87 $341
Balance
October 31, July 31,
2007 2007
---------- ----------
Accounts receivable $820 $965
Notes Payable $200 $ -
Accounts Payable $722 $538
Billings in excess of costs and estimated
earnings on uncompleted contracts net of Costs
and Estimated Earnings in Excess of Billings $(1) $ 39
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, which replaced an existing note
payable that had a higher interest rate and payment, was negotiated at arms
length under normal commercial terms. Interest expense for the three months
ended October 31, 2007 and 2006, respectively, is reflected below. The
balance outstanding at October 31, 2007 and July 31, 2007 is also reflected
below.
Three Months Ended
October 31,
(in thousands) 2007 2006
---------- ----------
Interest Expense $ 1 $ 2
Balance Balance
October 31, July 31,
2007 2007
---------- ----------
Note Payable $ 9 $21
Directors
At October 31, 2007, the Company owed its non-employee members of the
Board of Directors approximately $184,000 for unpaid director fees.
3. SEGMENT INFORMATION
Information about the Company's operations for the three months ended
October 31, 2007 and 2006 is as follows (in thousands):
Three Months Ended
October 31,
2007 2006
---------- ----------
Revenues:
Construction $ 4,433 $ 3,643
Manufacturing 7,525 6,714
Other 11 115
---------- ----------
11,969 10,472
---------- ----------
Intersegment revenues:
Construction 575 448
Manufacturing 590 6
Other - -
---------- ----------
1,165 454
---------- ----------
Consolidated revenues:
Construction 3,858 3,195
Manufacturing 6,935 6,708
Other 11 115
---------- ----------
Total Consolidated
Revenues $10,804 $10,018
---------- ----------
Operating (loss) income:
Construction $ (283) $ 44
Manufacturing 711 166
---------- ----------
Consolidated operating income 428 210
General corporate expense, net (420) (340)
Interest expense (320) (227)
Minority interests (3) (11)
---------- ----------
Corporate loss $ (315) $ (368)
========== ==========
The majority of revenues are derived from projects on which the Company
is a subcontractor of a material supplier, contractor or subcontractor.
Where the Company acts as a subcontractor, it is invited to bid by firms
seeking construction services or materials. Therefore, it is important to
maintain favorable business relations with those firms. In the manufacturing
segment, for the three months ended October 31, 2007, five customers
accounted for 15%, 12%, 12%, 11% and 10% of "manufacturing revenue". For the
three months ended October 31, 2006, one customer accounted for 23% of total
"consolidated revenue", and 36% of manufacturing revenue".
The Company's bridge girder subsidiary is dependent upon one producer of
discrete steel plate and one producer of heavy rolled steel beams for its
product, although the rolled beams are generally purchased through one of
several competitive "warehouse" vendors. The Company maintains good relations
with its vendors, generally receiving orders on a timely basis at reasonable
cost for this market. If the vendors were unwilling or unable to continue
selling steel to the Company, the Company would have trouble meeting
production deadlines in its contracts, as the other major suppliers of these
products have limited excess production available to "new" customers.
Subsequent to October 31, 2007, the Company learned that the discrete
steel plate producer agreed to be acquired by another company. The Company
does not expect this acquisition to impair its important relationship with
the vendor.
4. INVENTORIES
Materials inventory consists of structural steel, steel plates and
galvanized steel coils. Cost of materials inventory is accounted for using
either the specific identification or the average cost method.
5. PURCHASE OF ASSETS
During the quarter ended October 31, 2007, the Company capitalized major
repairs of equipment of approximately $129,000 in Property and Equipment.
6. SALE-LEASEBACK TRANSACTIONS
On September 23, 2005, the Company sold its Richmond, Virginia property
for $2,750,000 to the Company's founder and largest shareholder, and
concurrently entered into an agreement to lease the property back at $252,000
per year through April 30, 2011, subject to increases related to the variable
interest rate in the buyer's financing. In addition, the Company received an
option to buy the property back any time during the lease term for the same
price for which it was sold. Consideration equal to the full purchase price
was received at closing. Because the Company has an option to repurchase the
property at the same price for which it was sold and therefore has the
ability to benefit from future appreciation in the value of the property, and
because the present value of future payments is significantly less than the
property's fair value, the transaction has been accounted for as a financing
transaction. As a result, consideration received from the purchaser is
included in the accompanying consolidated balance sheet as "Financing
obligations resulting from sale-leaseback transactions" and payments made
under the lease are being treated as rent expense (at an effective rate of
approximately 9.2%). A sale will be recognized if and when the Company's
lease and related option to repurchase expire or terminate.
The land and building in this transaction are included in property and
equipment as follows:
Balance Balance
October 31, July 31,
(In thousands) 2007 2007
----------- ----------
Land $ 357 $ 357
Building & improvements 2,097 2,155
----------- ----------
Total property at cost 2,454 2,512
Less: Accumulated depreciation (1,519) (1,571)
----------- ----------
Property, net $ 935 $ 941
----------- ----------
Depreciation on the building and improvements will continue to be charged to
operations until a sale has been recognized. Future minimum annual payments
required under the leaseback, as of October 31, 2007, are as follows:
For the year ending October 31,
2008 $ 252
2009 $ 252
2010 $ 252
2011 $ 147
--------
Total $ 903
========
Rent expense relating to this financing agreement was $63,000 and $57,000 for
the three months ended October 31, 2007 and 2006, respectively.
During the year ended July 31, 2006, in order to resolve loan and lease
defaults, the Company sold seven previously owned or leased cranes to
FlexLease, LLC, an entity owned by Director Frank E. Williams, Jr., his son H.
Arthur Williams, President of Williams Steel Erection Company, Inc. and
General Counsel Daniel K. Maller, also a Vice President of Williams Bridge
Company. During the year ended July 31, 2007, two additional cranes which
were previously leased by the Company, were acquired by FlexLease. One of the
cranes was subsequently sold to the Company for $165,000 with the Company
entering into a note to FlexLease for three years at the prime rate of
interest plus one percent (currently 9.25%). These transactions were approved
by the Company's independent directors. These cranes support the construction
activities of the Company. The Company has entered into short-term lease
agreements on six cranes, one of which was subsequently sold to a non-
affiliated third party during the year ended July 31, 2006, and two financing
agreements on three cranes. Deferred gains on transactions with FlexLease are
shown as "Financing obligations resulting from sale-leaseback transactions"
under Current and Long Term Liabilities on the Condensed Consolidated Balance
Sheet.
The Company cranes, in these transactions, are included in property and
equipment as follows at October 31, 2007 and July 31, 2007 (in thousands):
Balance Balance
October 31, July 31,
(In thousands) 2007 2007
---------- ----------
Cranes & Heavy Equipment $2,523 $2,475
Less: Accumulated depreciation (1,341) (1,282)
---------- ----------
Property, net $1,182 $1,193
========== ==========
Depreciation on the previously owned cranes will continue to be charged to
operations until a sale has been recognized.
Subsequent to the quarter ended October 31, 2007, the Company entered
into a lease/purchase agreement with FlexLease to finance an additional crane,
previously leased by the Company from GE Capital. The negotiated buyout of the
lease was $200,000, and with the approval of the Company's independent
directors, the Company agreed to pay FlexLease based on a capitalized cost of
$210,000 with interest at FlexLease's cost of funds + 1%. In connection with
financing this transaction, FlexLease negotiated a lower rate on two cranes
previously financed, which is expected to result in cost savings to the
Company of approximately $1,000 per month.
7. INCOME TAXES
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 - Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (FIN 48). This interpretation
applies to all tax positions accounted for in accordance with SFAS No. 109 by
defining the criteria that an individual tax position must meet in order for
the position to be recognized within the financial statements and provides
guidance on measurement, de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition of tax
positions. This interpretation is effective for fiscal years beginning after
December 15, 2006, with earlier adoption permitted. The Company adopted FIN
48 effective August 1, 2007. There were no adjustments from the adoption of
this standard in the three months ended October 31, 2007. The Company is
subject to U.S. federal income tax as well as income tax of multiple state
jurisdictions. Currently, no examinations are open in any jurisdiction.
For federal purposes, tax years 2004-2006 remain open to examination as a
result of earlier net operating losses being utilized in recent years. The
statue of limitation remains open on the earlier years for three years
subsequent to the utilization of net operating losses. For state purposes,
the statute of limitation remains open in a similar manner for states that
have generated net operating losses.
The Company does not anticipate any significant increases or decreases in
unrecognized tax benefits within the next twelve months. In October of 2007,
the statute of limitations expired on federal issues related to tax years 2003
and prior. There was no material impact on the unrecognized tax benefits
related to the expiration of the statue of limitations for tax years 2003 and
prior.
8. COMMON STOCK OPTIONS
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 123(R), "Share-Based Payment", which replaced SFAS No. 123 "Accounting for
Stock-Based Compensation" as amended by SFAS No. 148, "Accounting for Stock-
Based Compensation-Transition and Disclosure" to account for its stock option
plans. The standard requires public companies to treat stock options and all
other forms of shared-based payments to employees as compensation costs in the
income statement; however, the approach is similar to the guidance set forth
in SFAS No. 123.
The adoption of SFAS No. 123 (R) had no impact on the Company's condensed
consolidated financial statements for the three months ended October 31, 2007
and 2006 since no stock based grants were issued and all prior grants were
fully vested. The Company generally grants options for common stock at an
option price equal to the fair market value of the stock on the date of grant.
The Company's stock option plans are more fully described in the Company's
Annual Report on Form 10-K for fiscal year ended July 31, 2007.
At October 31, 2007, the Company had 60,000 stock options outstanding and
exercisable at a weighted average exercise price of $4.24 per share. The
exercise price ranges from $3.55 per share to $4.10 per share. All unexercised
stock options expire by January 20, 2010.
9. SUBSEQUENT EVENTS
Subsequent to the quarter ended October 31, 2007, the Company entered
into a lease/purchase agreement with FlexLease to finance an additional
crane, previously leased by the Company from GE Capital. The negotiated
buyout of the lease was $200,000, and with the approval of the Company's
independent directors, the Company agreed to pay FlexLease based on a
capitalized cost of $210,000 with interest at FlexLease's cost of funds + 1%.
In connection with financing this transaction, FlexLease negotiated a lower
rate on two cranes previously financed, which is expected to result in cost
savings to the Company of approximately $1,000 per month.
Subsequent to October 31, 2007, the Company sold a heavy lift crane for
$75,000, recording a gain of $39,000.
Item 2. 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; rigging;
fabrication of welded steel plate girders and rolled beams, "stay-in-place"
bridge decking, and light structural and other metal products.
The Company is facing a liquidity and business crisis after suffering
operating losses for several years. It has utilized its available sources of
operating cash and borrowed approximately $3.8 million from its largest
shareholder and his affiliated entities.
The Company is operating under a Forbearance Agreement with its major
lender, United Bank, pursuant to which it owes approximately $3.0 million on
December 31, 2007. The Company has initiated discussions with the lender to
extend the maturity of this debt, but as of this filing there is no agreement
on any such extension.
In addition, the Company is in default on 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 the highly
competitive market in its areas of operation, there remains significant risk
that the Company may not be able to maintain its level of operations. The
Company operates in an industry where there are large risks related to
estimating and performing work and collecting amounts earned.
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.
In view of the Company's liquidity problems and in order to fund the
repayment of the United Bank notes, the Company is pursuing various financing
options, including conventional and asset-based financing, and exploring its
strategic options relative to the sale of individual assets or subsidiaries.
For example, the Company's present use of its land in Manassas, Virginia may
not be its highest and best use. Based on the sale price of the 3 acre parcel
sold in June 2006, the value of the Company's real property in Manassas,
Virginia may exceed $15 million. Management has not ruled out any measure
that may be necessary to protect the Company's assets and preserve
shareholder value.
The Company's manufacturing segment produced an operating profit of
$711,000 for the quarter ended October 31, 2007 compared to an operating
profit of $166,000 for the quarter ended October 31, 2006. The segment was
able to manufacture its product more efficiently while steel prices stayed
constant or declined slightly.
The construction segment produced an operating loss of $283,000 for the
quarter ended October 31, 2007 compared to an operating profit of $44,000 for
the quarter ended October 31, 2006. While the segment's crane rental
subsidiary was profitable, it's construction subsidiary produced a loss as it
completed its Woodrow Wilson Bridge contract and closed out several other
contracts which operated at a loss.
Material Changes in Financial Condition
- ----------------------------------------
For the three months ended October 31, 2007, the following changes
occurred:
The Company's Cash decreased $49,000.
Accounts Receivable increased approximately $818,000 mainly from
increased billings in the Company's manufacturing segment related to its
bridge girder subsidiary.
Inventory increased $150,000 with increases at each of its manufacturing
subsidiaries. The Company believes it has adequate inventory on hand and on
order to meet current needs.
Property and Equipment, at Cost increased $104,000. The Company
capitalized major repairs of approximately $129,000 and wrote off fully
depreciated capital repairs of $25,000.
At October 31, 2007, the Company had approximately $7.1 million in
variable rate notes payable. Total Notes Payable increased $220,000 for the
three months ended October 31, 2007. The Company borrowed approximately $3.4
million, including $2.4 million financed by accounts receivable of the
Company's stay-in-place decking subsidiary; $500,000 to finance Company
insurance premiums; and $540,000 from related parties to fund operations. The
Company repaid $3.2 million, which included payments of $2.6 million on
financing secured by Company accounts receivables; $69,000 to the Williams
Family Partnership; and $512,000 on other operating notes. Notes payable to
the Williams Family Limited Partnership of $3.2 million matured on September
30, 2007 and are included in "Current portion of notes payable" at October
31, 2007.
Billings In Excess of Costs and Estimated Earnings on Uncompleted
Contracts net of Costs and Estimated Earnings in Excess of Billings,
decreased $109,000.
Other Liabilities increased $77,000, mainly related to increased payroll
related costs on the Company's steel erection subsidiary's contract on the
inner loop of the Woodrow Wilson Bridge project outside of Washington, D.C.
Stockholders' Equity decreased $315,000 to $2.4 million as the Company
recorded a loss of $315,000 for the period.
For the three months ended October 31, 2007, the Company used net cash
of $49,000. It used $76,000 in operations and $129,000 in investing
activities related to fixed asset acquisitions. Net cash was provided from
financing activities of $156,000 as the Company borrowed $3.4 million and
repaid $3.2 million.
Material Changes in Results of Operations
- -----------------------------------------
Three Months Ended October 31, 2007 Compared to
Three Months Ended October 31, 2006
For the quarter ended October 31, 2007, the Company reported an increase
in revenues and gross profit, and a decrease in its loss when compared to the
quarter ended October 31, 2006.
The Company reported a net loss of $315,000, or $0.09 per share, on
total revenue of $10.8 million for 2007 as compared to a net loss of
$368,000, or $.10 per share, on total revenue of $10 million for 2006.
While Manufacturing segment revenues increased slightly, its gross
profit increased approximately $450,000 as gross profit percentages increased
from 29% in 2006 to 34% in 2007. Increased labor efficiency and stable steel
pricing contributed to the increased percentages. All subsidiaries in this
segment were profitable for 2007.
Construction segment revenues increased $663,000 when the two quarters
are compared. Gross profit decreased $232,000 as the gross profit percentage
decreased from 34% in 2006 to 22% in 2007. Increased labor and labor related
costs to the close out of several contracts, including erection of the
Woodrow Wilson Bridge outside of Washington, DC, contributed to the reduced
gross profit and gross profit percentage.
Overhead increased $114,000 mainly due to increased consumable spending
on increased production.
General and Administrative expenses decreased $117,000, due mainly to
decreased insurance costs.
BACKLOG
At October 31, 2007, the Company's backlog was $21.1 million, a decrease
of approximately $10 million from October 31, 2006 and a decrease of
approximately $2.4 million from July 31, 2007. It is anticipated that
substantially all of the $21 million backlog will be completed within the
next twelve months.
Off-Balance Sheet Arrangements
Except as shown below in Aggregate Contractual Obligations and in Note
14, Leases, in the Company's "Notes to Consolidated Financial Statements" of
the Company's Annual Report on Form 10K for July 31, 2007, 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 4-5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
- ------------------------ ------- ---------- ------ ------ ----------
Long Term Debt $9,853 $9,471 $ 371 $ 11 $ -
Financing Obligation from
Sale-Leaseback Transactions $1,782 $ 497 $1,009 $ 276 $ -
Operating Leases $ 208 $ 73 $ 108 $ 27 $ -
------- ------- ------ ------ -------
Total $11,843 $10,041 $1,488 $ 314 $ -
======= ======= ====== ====== =======
Safe Harbor for Forward-Looking Statements
The Company is including the following cautionary statements to make
applicable and take advantage of the safe harbor provisions within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 for any forward-looking statements made by, or on behalf
of, the Company in this document and any materials incorporated herein by
reference. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements, which are other than statements of
historical facts. Such forward-looking statements may be identified, without
limitation, by the use of the words "anticipates," "estimates," "expects,"
"intends," and similar expressions. From time to time, the Company or one of
its subsidiaries individually may publish or otherwise make available forward-
looking statements of this nature. All such forward-looking statements,
whether written or oral, and whether made by or on behalf of the Company or
its subsidiaries, are expressly qualified by these cautionary statements and
any other cautionary statements which may accompany the forward-looking
statements. In addition, the Company disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
Forward-looking statements made by the Company are subject to risks and
uncertainties that could cause actual results or events to differ materially
from those expressed in, or implied by, the forward-looking statements. These
forward-looking statements may include, among others, statements concerning
the Company's revenue and cost trends, cost reduction strategies and
anticipated outcomes, planned capital expenditures, financing needs and the
availability of such financing, and the outlook for future activity in the
Company's market areas. Investors or other users of forward-looking
statements are cautioned that such statements are not a guarantee of future
performance by the Company and that such forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in, or implied by, such statements. Some, but
not all of the risks and uncertainties, in addition to those specifically set
forth above, include general economic and weather conditions, market prices,
environmental and safety laws and policies, federal and state regulatory and
legislative actions, tax rates and policies, rates of interest and changes in
accounting principles or the application of such principles to the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's cash equivalents, invested in interest-bearing instruments,
are presented at fair value on the Company's balance sheets. The Company's
exposure to market risks for changes in interest rates relate primarily to
these investments and current and long-term debt.
Item 4T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
As of the end of the period of this report, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, management evaluated the effectiveness of our controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of October 31, 2007.
(b) Changes in internal controls over financial reporting.
There have not been any changes in our internal control over financial
reporting during the fiscal quarter ended October 31, 2007 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
(c) Inherent limitations on effectiveness of controls
The Company's management, including its Chief Executive Officer and Chief
Financial officer, believes that its disclosure controls and procedures and
internal control over financial reporting are effective at a reasonable
assurance level. However, the Company's management does not expect that its
disclosure controls and procedures or internal control over financial
reporting will prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that these are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurances that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of a simple error or
mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people or by management override of
the controls. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud may occur and
not be detected.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
General
The Company is party to various claims arising in the ordinary course of
its business. Generally, claims exposure in the construction services
industry consists of workers' compensation, personal injury, products'
liability and property damage. The Company believes that its insurance and
other expense accruals, coupled with its primary and excess liability
coverage, provide adequate coverage for such claims or contingencies.
The Company is operating under a Forbearance Agreement with its major
lender, United Bank, pursuant to which it owes approximately $3.0 million on
December 31, 2007. The Company has initiated discussions with the lender to
extend the maturity of this debt, but as of this filing there is no agreement
on any such extension.
The Company's construction segment is in arrears on its payments under
substantially all of its notes payable and leases, although the lenders and
lessors have not taken action to accelerate the indebtedness, foreclose on
collateral or terminate the subject leases.
ITEM 1A. RISK FACTORS
There have been no material changes to the Company's risk factors as
previously disclosed in Item 1A, "Risk Factors", in its Form 10K for the
fiscal year ended July 31, 2007.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
The Company is operating under a Forbearance Agreement with its major
lender, United Bank, pursuant to which it owes approximately $3.0 million on
December 31, 2007. The Company has initiated discussions with the lender to
extend the maturity of this debt, but as of this filing there is no agreement
on any such extension.
In view of the Company's liquidity problems and in order to fund the
repayment of the United Bank notes, the Company is pursuing various financing
options, including conventional and asset-based financing, and exploring its
strategic options relative to the sale of individual assets or subsidiaries.
For example, the Company's present use of its land in Manassas, Virginia may
not be its highest and best use. Based on the sale price of the 3 acre parcel
sold in June 2006, the value of the Company's real property in Manassas,
Virginia may exceed $15 million. Management has not ruled out any measure that
may be necessary to protect the Company's assets and preserve shareholder
value.
ITEM 4. Submission of Matters to a Vote of Security Holders
On December 6, 2007, the shareholders of Williams Industries, Inc.
elected the Company's board of directors at the annual meeting of
shareholders. Elected were: Stephen N. Ashman, William J. Sim, Frank E.
Williams, Jr., Frank E. Williams, III and John A. Yerrick. The results of the
December 6, 2007 shareholder's election of directors are as follows:
Nominee For Abstain
- ----------------------- ----------- --------
Stephen N. Ashman 2,836,327 64,187
William J. Sim 2,836,255 64,259
Frank E. Williams, Jr. 2,810,555 89,959
Frank E. Williams, III 2,810,855 89,659
John A. Yerrick 2,836,255 64,259
ITEM 5. Other Information
None.
ITEM 6. Exhibits
Exhibit 31.1 Section 302 Certification for
Frank E. Williams, III
Exhibit 31.2 Section 302 Certification for
Christ H. Manos
Exhibit 32.1 Section 906 Certification for
Frank E. Williams, III and
Christ H. Manos
Exhibit 99 Press Release announcing third quarter losses
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
December 13, 2007 Williams Industries, Incorporated
----------------------------------
Registrant
/s/ Frank E. Williams, III
---------------------------
Frank E. Williams, III
Chairman of the Board, President,
Chief Executive Officer,
Chief Financial Officer