-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LtCBDxT68AHr5UYcZm5VBjcuY6itovw6gULuUpS4n6/ItCcQRDqqwTuBoopEbQMz LXm/8TfVt8HyJA+9XOakNg== 0000107294-99-000001.txt : 19990309 0000107294-99-000001.hdr.sgml : 19990309 ACCESSION NUMBER: 0000107294-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILLIAMS INDUSTRIES INC CENTRAL INDEX KEY: 0000107294 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 540899518 STATE OF INCORPORATION: VA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08190 FILM NUMBER: 99558520 BUSINESS ADDRESS: STREET 1: 2849 MEADOW VIEW RD CITY: FALLS CHURCH STATE: VA ZIP: 22042 BUSINESS PHONE: 7035605196 MAIL ADDRESS: STREET 1: 2849 MEADOW VIEW RD CITY: FALLS CHURCH STATE: VA ZIP: 22042 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 FOR QUARTER ENDED January 31, 1999 COMMISSION FILE NO. 0-8190 WILLIAMS INDUSTRIES, INC. (Exact name of registrant as specified in its charter) VIRGINIA 54-0899518 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2849 MEADOW VIEW ROAD, FALLS CHURCH, VIRGINIA 22042 (Address of Principal Executive Offices) (Zip Code) (703) 560-5196 (Registrant's telephone number, including area code) NOT APPLICABLE (Former names, former address and former fiscal year, if changes since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No 3,579,791 Number of Shares of Common Stock Outstanding at January 31, 1999 WILLIAMS INDUSTRIES, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Three Months Ended Six Months Ended January 31, January 31, 1999 1998 1999 1998 REVENUE ----------- ----------- ----------- - ----------- Construction $3,885,262 $3,353,201 $8,576,455 $7,041,071 Manufacturing 2,714,241 2,060,127 5,299,739 4,926,093 Other 173,534 219,053 326,310 449,167 ----------- ----------- ----------- - ----------- Total revenue 6,773,037 5,632,381 14,202,504 12,416,331 ----------- ----------- ----------- - ----------- DIRECT COSTS Construction 2,291,284 2,152,236 5,313,443 4,107,818 Manufacturing 1,512,002 1,679,297 3,005,319 3,940,641 ----------- ----------- ----------- - ----------- Total direct costs 3,803,286 3,831,533 8,318,762 8,048,459 ----------- ----------- ----------- - ----------- GROSS PROFIT 2,969,751 1,800,848 5,883,742 4,367,872 ----------- ----------- ----------- - ----------- OTHER INCOME 54,681 204,056 85,434 204,056 ----------- ----------- ----------- - ----------- EXPENSES Overhead 922,082 746,803 1,811,809 1,471,002 General and administrative 1,206,215 1,160,565 2,515,269 2,146,739 Depreciation 317,727 304,556 632,146 611,056 Interest 235,784 285,476 444,632 620,852 ----------- ----------- ----------- - ----------- Total expenses 2,681,808 2,497,400 5,403,856 4,849,649 ----------- ----------- ----------- - ----------- EARNINGS (LOSS) BEFORE INCOME TAXES, EQUITY EARNINGS AND MINORITY INTERESTS 342,624 (492,496) 565,320 (277,721) INCOME TAX PROVISION (BENEFIT) 130,700 (19,000) 210,700 59,400 ----------- ----------- ----------- - ----------- EARNINGS (LOSS) BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 211,924 (473,496) 354,620 (337,121) Equity in earnings (loss) of unconsolidated affiliates 17,500 (799,971) 59,100 (789,871) Minority interest in consolidated subsidiaries (14,622) (11,155) (25,361) (20,574) ----------- ----------- ----------- - ----------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM 214,802 (1,284,622) 388,359 (1,147,566) EXTRAORDINARY ITEM Gain on extinguishment of debt - 809,000 - 809,000 ----------- ----------- ----------- - ----------- NET EARNINGS (LOSS) $214,802 $(475,622) $388,359 $(338,566) =========== =========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE - BASIC: Profit (loss) before extraordinary item $0.06 $(0.44) $0.11 $(0.40) Extraordinary item - 0.28 - 0.28 ----------- ----------- ----------- - ----------- EARNINGS (LOSS) PER COMMON SHARE- BASIC $0.06 $(0.16) $0.11 $(0.12) =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC 3,577,069 2,915,568 3,576,749 2,881,533 ----------- ----------- ----------- - ----------- See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
January 31, 1999 July 31, 1998 ------------------ --------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 841,351 $ 1,384,339 Restricted cash 15,330 54,004 Certificates of deposit 926,326 732,616 Accounts receivable, (net of allowances for doubtful accounts of $1,144,000 at January 31, 1999 and $1,211,000 at July 31, 1998): Contracts Open accounts 7,926,495 7,057,543 Retainage 312,637 585,506 Trade 1,659,751 1,749,778 Other 128,182 302,445 Inventory 3,784,619 1,320,245 Costs and estimated earnings in excess of billings on uncompleted contracts 753,648 665,926 Notes receivable 32,106 33,706 Prepaid expenses 1,402,182 568,689 ------------ ------------ Total current assets 17,782,627 14,454,797 ------------ - ------------ PROPERTY AND EQUIPMENT, AT COST 19,155,307 19,066,486 Accumulated depreciation (9,839,666) (9,355,343) ------------ ------------ Property and equipment, net 9,315,641 9,711,143 ------------ - ------------ OTHER ASSETS Notes receivable 106,111 128,761 Investments in unconsolidated affiliates 1,005,344 979,769 Deferred income taxes 2,060,000 2,240,000 Inventory 1,241,006 1,243,754 Other 613,951 354,971 ------------ ------------ Total other assets 5,026,412 4,947,255 ------------ ------------ TOTAL ASSETS $32,124,680 $29,113,195 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of notes payable $2,580,695 $1,947,618 Accounts payable 5,065,919 4,017,376 Accrued compensation and related liabilities 634,307 760,620 Billings in excess of costs and estimated earnings on uncompleted contracts 3,369,067 1,885,069 Deferred income 245,028 306,000 Other accrued expenses 2,230,730 2,357,125 Income taxes payable 112,400 159,200 ------------ ------------ Total current liabilities 14,238,146 11,433,008 ------------ ------------ LONG-TERM DEBT Notes payable, less current portion 8,137,698 8,357,119 ------------ ------------ Total Liabilities 22,375,844 19,790,127 ------------ ------------ MINORITY INTERESTS 213,579 189,618 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Common stock - $0.10 par value, 10,000,000 shares authorized; 3,579,791 and 3,576,429 shares issued and outstanding 357,979 357,643 Additional paid-in capital 16,398,816 16,385,704 Accumulated deficit (7,221,538) (7,609,897) ------------ ------------ Total stockholders' equity 9,535,257 9,133,450 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,124,680 $29,113,195 ============ ============ See Notes To Condensed Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended January 31, 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 388,359 $ (338,566) Adjustments to reconcile net earnings (losses) to net cash used in operating activities: Depreciation and amortization 632,146 611,056 Decrease in allowance for doubtful accounts (66,710) (101,486) Gain on extinguishment of debt - (809,000) Gain on disposal of property, plant and equipment (34,140) (777,045) Decrease in deferred income taxes 180,000 7,000 Minority interest in earnings 25,361 20,574 Equity in (earnings) losses of affiliates (59,100) 789,871 Dividend from unconsolidated affiliate 33,525 44,700 Changes in assets and liabilities: Decrease in notes receivable 24,250 28,932 (Increase) decrease in open contracts receivable (785,241) 1,210,396 Decrease in contract retainage 272,869 181,908 Decrease in trade receivables 101,026 274,950 Decrease (increase) in other receivables 146,263 (226,432) (Increase) decrease in inventories (2,461,626) 493,115 Decrease (increase) in costs and estimated earnings related to billings on uncompleted contracts (net) 1,396,276 (962,718) Increase in prepaid expenses and other assets (1,092,473) (683,011) Increase (decrease) in accounts payable 1,048,543 (417,774) Decrease in accrued compensation and related liabilities (126,313) (262,072) Decrease in other accrued expenses (126,395) (2,040) (Decrease) increase in deferred income (60,972) 359,995 (Decrease) increase in income taxes payable (46,800) 44,000 ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (611,152) (513,647) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant and equipment (381,754) (386,002) Decrease in restricted cash 38,674 238,793 Proceeds from sale of property, plant and equipment 179,250 1,859,159 Purchase of certificates of deposit (496,299) (202,589) Maturities of certificates of deposit 302,589 200,308 ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (357,540) 1,709,669 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 2,259,817 1,457,917 Repayments of notes payable (1,846,161) (3,280,298) Issuance of common stock 13,448 50,464 Minority interest dividends (1,400) (4,500) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 425,704 (1,776,417) ----------- ----------- NET DECREASE IN CASH AND EQUIVALENTS (542,988) (580,395) CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,384,339 1,867,144 ----------- ----------- CASH AND EQUIVALENTS, END OF PERIOD $ 841,351 $ 1,286,749 ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income Taxes $76,800 $8,400 =========== =========== Interest $468,584 $615,874 =========== =========== See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS January 31, 1999 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying condensed consolidated financial statements have been prepared in accordance with rules established by the Securities and Exchange Commission. Certain financial disclosures required to present the financial position and results of operations in accordance with generally accepted accounting principles are not included herein. The reader is referred to the financial statements included in the annual report to shareholders for the year ended July 31, 1998. The interim financial information included herein is unaudited. However, such information reflects all adjustments, consisting solely of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position as of January 31, 1999 and the results of operations for the three and six months ended January 31, 1999 and 1998, and cash flows for the six months ended January 31, 1999 and 1998. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Consolidation - The condensed consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. RECENT ACCOUNTING PRONOUNCEMENTS: Effective August 1, 1998, the Company adopted Statement of Financial Accounting Standards: Statement No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components. There are no items that the Company is required to recognize as components of comprehensive income. SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", revises disclosure about pension and other postretirement benefit plans. It is required to be adopted in Fiscal Year 1999 and has no impact on the company's financial statements. SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", establishes accounting and reporting standards for derivative instruments and for hedging activities. This standard will be adopted in Fiscal 2000. The Company has not yet determined what the impact, if any, of implementing this standard will be. 1. INVENTORIES Inventory consisted of the following: January 31, July 31, 1999 1998 ---------- ---------- Expendable tools and equipment $ 805,318 $ 805,318 Supplies 350,647 351,664 Materials 3,869,660 1,407,017 ---------- ---------- Total Inventory $5,025,625 $2,563,999 Less: Amount classified as long-term 1,241,006 1,243,754 ---------- ---------- $3,784,619 $1,320,245 ---------- ---------- 2. RELATED-PARTY TRANSACTIONS Certain shareholders owning or controlling approximately 17% of the outstanding stock of the Company own controlling interest in the outstanding stock of Williams Enterprises of Georgia, Inc. Billings to this entity and its affiliates were approximately $272,000 and $755,000 for the three and six months ended January 31, 1999 and $214,000 and $394,000 for the three and six months ended January 31, 1998, respectively. Certain shareholders owning or controlling approximately 17% of the outstanding stock of the Company own 100% of the stock of The Williams and Beasley Company. Net billings from this entity were approximately $23,000 and $127,000 during the three and six months ended January 31, 1999 and $0 and $57,000 for the three and six months ended January 31, 1998, respectively. 3. COMMITMENTS/CONTINGENCIES A: PRECISION COMPONENTS CORPORATION: The Company received a favorable decision in this case, and judgment in favor of the Company was entered on March 4, 1998 by the Circuit Court for the City of Richmond. The plaintiffs, Industrial Alloy Fabricators, Inc. and Precision Components Corp., have perfected appeal to the Supreme Court of Virginia, which was accepted on September 21, 1998. The Virginia Supreme Court heard oral argument on February 23, 1999, and a decision is pending. The suit, against Williams Industries, Inc. and IAF Transfer Corporation, is for $300,000 plus interest and fees arising from a product liability claim against the Company. Management believes the ultimate outcome will not have a material adverse impact on the Company's financial position, results of operations or cash flows. B: General: The Company is party to various other claims arising in the ordinary course of its business. Generally, claims exposure in the construction services industry consists of workers compensation, personal injury, products' liability and property damage. The Company believes that its insurance accruals, coupled with its liability coverage, is adequate coverage for such claims. 4. EARNINGS PER SHARE SFAS 128 "Earnings per Share", which became effective for financial statement periods ending after December 15, 1997, requires that a reconciliation of the numerators and the denominators of the basic and diluted per-share computations for income from continuing operations be presented for each period for which the income statement is presented. Diluted earnings per share for the three and six months ended January 31, 1999 are not presented because the impact of the outstanding options was not dilutive. Diluted earnings per share for the three and six months ended January 31, 1998 are not presented because the Company was in a loss position and the assumed conversion of convertible debentures would have been antidilutive. The objective of the Basic EPS is to measure the performance of an entity over the reporting period. Basic EPS is computed by dividing the income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period they were outstanding. 5. SEGMENT INFORMATION Effective August 1, 1998, the Company adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports to issued shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Information about the Company's operations in its operating segments for the three months ended January 31, 1999 and 1998, is as follows: Three Months Ended Six Months Ended January 31, January 31,
1999 1998 1999 1998 ----------- ----------- ----------- - ----------- Revenues: Construction $4,307,467 $3,705,875 $9,469,548 $7,574,276 Manufacturing 2,902,275 2,073,900 5,562,440 4,950,132 Other 304,393 306,805 592,463 626,737 ----------- ----------- ----------- - ----------- 7,514,135 6,086,580 15,624,451 13,151,145 ----------- ----------- ----------- - ----------- Intersegment revenues: Construction 422,205 352,674 893,093 533,205 Manufacturing 188,034 13,773 262,701 24,039 Other 130,859 87,752 266,153 177,570 ----------- ----------- ----------- - ----------- Total 741,098 454,199 1,421,947 734,814 ----------- ----------- ----------- - ----------- Consolidated revenues: Construction 3,885,262 3,353,201 8,576,455 7,041,071 Manufacturing 2,714,241 2,060,127 5,299,739 4,926,093 Other 173,534 219,053 326,310 449,167 ----------- ----------- ----------- - ----------- Total consolidated revenues 6,773,037 5,632,381 14,202,504 12,416,331 ----------- ----------- ----------- - ----------- Depreciation: Construction 241,358 227,752 480,919 455,644 Manufacturing 48,573 37,636 96,153 74,775 Other 27,796 39,168 55,074 80,637 ----------- ----------- ----------- - ----------- Total 317,727 304,556 632,146 611,056 ----------- ----------- ----------- - ----------- Earnings before income taxes, equity earnings and minority interest: Construction 224,405 937,312 554,253 1,672,426 Manufacturing 308,068 8,564 541,408 (51,780) Other (189,849) (1,438,372) (530,341) (1,898,367) ----------- ----------- ----------- - ----------- Total $ 342,624 $ (492,496) $ 565,320 $ (277,721) ----------- ----------- ----------- - ----------- Segment assets: Construction $16,365,641 $15,484,551 Manufacturing 9,461,665 5,603,095 Other 6,297,374 6,811,170 ----------- - ----------- Total $32,124,680 $27,898,816 ----------- - -----------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Overall activity in each of the company's construction subsidiaries increased during the second quarter of Fiscal 1999 as marketplace demands continued to be fueled by governmental and commercial spending. The increased governmental spending on infrastructure, particularly as it relates to bridge girders, is expected to continue not only throughout the fiscal year but also for several years hence. The Company's operations continue to serve the industrial, commercial and institutional construction markets. Each of the Company's operating subsidiaries experienced increases in Revenues for the three months ended January 31, 1999 as compared to the three months ended January 31, 1998, and improvement in profit margins were also achieved. Several of the Company's subsidiaries have been expanding their work force, with the most notable increase occurring at Williams Bridge Company. Williams Bridge has not only increased its work force by approximately 25% during the quarter ended January 31, 1999 but also is taking steps to increase capacity and efficiency through capital investments at both its Manassas and Richmond, Virginia plants. Capital improvements are also occurring throughout the corporation, including upgrades to the Company's fleet. Financial Condition The Company experienced improvement in financial performance during the quarter ended January 31, 1999. When the revenues for the quarter ended January 31, 1999 are compared with the revenues of the quarter ended January 31, 1998, revenues increased by approximately 20 percent while direct costs declined slightly. When the six months ended January 31, 1999 are compared to the six months ended January 31, 1998, revenues increased by approximately 14%. Gross profit increased substantially, by nearly 65 percent for the quarter to quarter comparison and approximately 34% for the six month comparison, resulting in a concomitant increase in earnings and shareholders' equity. As of January 31, 1999, stockholder's equity was $9,535,257, compared to $6,343,667 a year ago at January 31, 1998, an increase of nearly 50%. There was an increase in both current assets and current liabilities. Current assets increased by approximately $3.3 million from July 31, 1998. This increase is primarily attributable to the Company's increased manufacturing workload. The related purchase of raw materials in inventory represent approximately $2.5 million of the increase. Additionally, prepaid expenses increased by approximately $800,000 due to the Company's annual insurance renewals. Current liabilities increased by approximately $2.8 million from July 31, 1998. The approximate $1 million increase in accounts payable and the approximate $1.5 million increase in billings in excess of cost are primarily related to the Company's increase in inventory. As discussed in the Company's Form 10-K for the year ended July 31, 1998, the Company has substantial net operating loss carryforwards ("NOLs"). In accordance with generally accepted accounting principles, the Company recognizes quarterly income tax provisions at statutory rates for federal and state income taxes. However, the Company is required on an annual basis to evaluate the probability of utilizing its NOLs and to recognize as income a portion of the benefit which is likely to be utilized. The effect of this process during the past two fiscal years has been to substantially erase the quarterly tax provisions and to recognize additional income tax benefits in the results for the fiscal year. Management believes, based on its internal projections and market analysis, that the Company will recognize additional portions of the benefit of its NOLs at July 31, 1999. The Company's improved financial condition is enabling it to negotiate the terms and conditions of some of its current debt agreements, which, when complete, should improve not only cash flow, but also the Company's ability to finance further capital improvements and operational growth. As of January 31, 1999, the Company is in compliance with all of its debt covenants. Bonding The Company has a comprehensive bonding program, with $20 million available from Fidelity and Deposit Company of Maryland. In addition, the Company has in excess of $6 million bonded with its workers' compensation underwriter. Although the Company's ability to bond work is more than adequate, the Company has traditionally relied on its superior reputation to acquire work and will continue to do so. However, the Company recognizes that, as it expands its geographic range for providing goods and services, it will be necessary to provide bonds to clients unfamiliar with the Company. Liquidity The Company's operations require significant amounts of working capital to procure materials for contracts to be performed over relatively long periods, and for purchases and modifications of heavy-duty and specialized fabrication equipment. Furthermore, in accordance with normal payment terms, the Company's customers often will retain a portion of amounts otherwise payable to the Company during the course of a project as a guarantee of completion of that project. To the extent the Company is unable to receive project payments in the early stages of a project, the Company's cash flow would be reduced, which could have an adverse effect on the Company's cash flow. As a result of the increased activity discussed elsewhere in this document, the Company has been using cash to purchase materials and other "start-up" costs associated with construction lead times. For the six months ended January 31, 1999, the Company's operations used cash of $611,152 compared to $513,647 for the six months ended January 31, 1998. Investing activities also used cash during the six months ended January 31, 1999. Expenditures for property, plant and equipment continued to remain low as the Company has been updating its assets primarily though operating leases. Management believes that cost efficient leasing instead of more traditional buying and/or borrowing offers cash flow and balance sheet advantages. It should be noted, however, that the Company is anticipating capital expenditures at several of its facilities in the near term. Financing activities provided net cash as the Company utilized its line of credit and other borrowing instruments to facilitate operations. The current portion of notes payable presents the scheduled principal payments due within twelve months of January 31, 1999. This figure has risen since July 31, 1998 because of several factors. The Company's insurance renewals, with premiums payable in full at inception, occur on September 1 and December 1 annually. Because of favorable rates available on premium finance and in order to match cash flow more closely with revenue, the Company typically finances its insurance premium over the policy term. This caused the current portion of notes payable to increase by approximately $1 million between July 31, 1998 and January 31, 1999. The asset side of the balance sheet reflects a corresponding increase in "prepaid expense." The Company expects this amount to follow an annual pattern of fluctuation, decreasing somewhat from year to year as the Company continues its efforts to reduce overall debt and to refinance existing debt at more favorable rates and terms. Going forward, management believes that operations will generate sufficient cash to fund activities. However, as revenues increase, it may become necessary to increase the Company's credit facilities to handle short term cash requirements. Management, therefore, is focusing on the proper allocation of resources to ensure stable growth. Certain items that are not easily leased are being obtained through capitalized loans, which then become part of the Company's real property. Operations The quarter ended January 31, 1999 was strong due to a combination of events and circumstances. The mild winter in the Company's traditional geographic work areas, coupled with increased spending at all levels of government as well as in the commercial sector, caused the Company's overall revenues to increase by approximately 20 percent from the prior year's quarter. This increase was spread throughout the Company's operating subsidiaries, but it was most apparent at Williams Bridge Company where revenues in the quarter increased by more than 40 percent over the prior period. Direct costs declined because of several jobs in which the customer provided materials and also because of improved labor efficiency and lower costs of materials in general. Improvements in profit margins varied by subsidiary, but generally costs were in keeping with expectations and budgets. During the quarter ended January 31, 1999, Williams Bridge Company hired a number of former employees of an out-of-business competitor to handle the increased backlog. The former competitor officially ceased operations as of November 1, 1998 and Williams Bridge took advantage of the opportunity to hire a highly trained work force. The elimination of this competitor in the marketplace also has been beneficial to improving overall margins in bidding. Williams Bridge Company currently is dealing almost exclusively with governmental projects, which are increasing as the states spend money allocated and appropriated from the various federal infrastructure programs approved by Congress in recent years. As of January 31, 1999, Williams Bridge Company had the highest backlog, more than $18 million, in the subsidiary's history. It is expected that this subsidiary will continue to benefit from increased government spending directly or indirectly related to the federal Transportation Efficiency Act for the 21st Century (TEA21) for several more years. Williams Steel Erection Company, Greenway Corporation, Williams Equipment Corporation and Piedmont Metal Products continue to work for diverse customers in the industrial, commercial, and governmental markets. 1999 Quarter Compared to 1998 Quarter For the three months ended January 31, 1999, the Company had net earnings of $214,802 or $0.06 per share. These earnings compare to a prior year's loss of $475,622 or $0.16 per share for the comparable quarter in Fiscal 1998. However, these comparisons cannot be taken in a vacuum. While the quarter ended January 31, 1999 was indeed a good one from an operating perspective, the quarter ended January 31, 1998 contained a number of one time events which contributed to the loss. The most significant one time event in the prior year was the Company's write off of approximately $800,000 of its investment in an unconsolidated affiliate. Other exceptional events in the quarter ended January 31, 1998 included: The gain of approximately $204,000 recognized on the Company's sale of its headquarters' property in Falls Church, Virginia; the recognition of a $809,000 Gain on Extinguishment of Debt from the reversal of accounts payable due to the liquidation of a former subsidiary; and a net increase of approximately $500,000 in reserves for litigation settlements. The Condensed Consolidated Statements of Earnings for the three months ended January 31, 1999 reflect a reduction in G&A expense of approximately $237,000 resulting from the reduction of a reserve established for potential sales and use tax liability, which was settled during the quarter. Revenue at Greenway Corporation, Piedmont Metal Products, Williams Bridge Company, Williams Equipment Corporation, and Williams Steel Erection Company increased when compared to the second quarter of Fiscal 1998. With the exception of Williams Steel Erection Company, each of these subsidiaries also experienced an increase in gross profit and an increase in pre-tax profit. Williams Steel Erection Company, ironically, was somewhat a victim of its success. The subsidiary had a number of jobs in process simultaneously and the company had to work a great deal of unanticipated overtime. The overtime costs, which were necessary to meet commitments to customers, were directly responsible for a portion of the reduced profits. Increases in overhead occurred as a result of the increased workload and a couple of projects did not meet margin expectations. The equipment rental and rigging companies, Greenway Corporation and Williams Equipment Corporation, both experienced dramatic improvements in their results for the quarter when compared to the prior year's period. The improvement is attributable to the mild winter and the fact that a number of industrial customers took the opportunity during the holiday season to do routine maintenance requiring cranes and rigging. As stated earlier, the Company's manufacturing subsidiaries, Piedmont Metal Products and Williams Bridge Company, both produced better earnings in the second quarter of Fiscal 1999 than in the comparable quarter of Fiscal 1998. A combination of factors, including the ability to work more efficiently due to the addition of computerized burning equipment as well as the addition of more trained personnel, influenced the change at Williams Bridge Company. This subsidiary now has the ability to buy materials more competitively. Piedmont Metal Products also produced higher pre-tax earnings, which when considered as a percentage increase was actually higher than that achieved by Williams Bridge Company. As the Condensed Consolidated Statements of Earnings shows, overall construction revenue grew from $3,353,201 in the three months ended January 31, 1998 to $3,885,262 in the comparable quarter of Fiscal 1999. Manufacturing revenue expanded from $2,060,127 in the second quarter of Fiscal 1998 to $2,714,241 in the second quarter of Fiscal 1999. The Company's subsidiaries continue to diversify both their geographic marketplaces as well as their customer base. It is anticipated that this trend will continue. Six Months Ended January 31, 1999 Compared to Six Months Ended January 31, 1998 As noted in the quarter to quarter comparisons above, there were a number of unusual events in the second quarter of Fiscal 1998 which influence the six month comparisons. In addition to the previous information, it should be noted that while revenues improved universally when the six months ended January 31, 1999 are compared to the six months ended January 31, 1998, the manufacturing segment experienced a significant cost decline while construction segment costs increased. This, fundamentally, is a factor of the difference in material costs in the manufacturing segment, which declined, and the labor costs in the construction segment, which increased. Gross margins in both segments, however, increased. It should also be noted that the construction revenues for the six months ending January 31, 1998 included approximately $409,000 in revenue due to the sale of equipment. The comparable six month period in this fiscal year did not have any equipment sales. Backlog Despite the fact that the Company produced increased revenues during the quarter ended January 31, 1999, the Company's backlog nevertheless continued to increase. Backlog at January 31, 1999 was $29.2 million as compared to $21.8 million at January 31, 1998 and $21.7 million at July 31, 1998. As stated earlier, this is due in large part to the increases occurring in the manufacturing subsidiaries, particularly Williams Bridge Company. Construction backlog remains consistent with a combination of smaller projects rather than traditionally higher profit "mega" jobs. Most of the backlog will be completed within the next 12 months if contract schedules are followed. Management believes that the level of work is sufficient to allow the Company to have adequate work throughout Fiscal 1999. Management Management, using the Company's updated strategic plan as a guideline, is focusing on long-range growth and acquisition, while simultaneously working on issues relating to profitability in existing activities. Expansion of the Company's traditional market areas is already occurring. It is anticipated that this trend will continue. Management is also focusing on several non-operating issues, such as refinancing its credit facilities at more favorable rates and in developing a comprehensive marketing program to attract strong institutional investors for the Company's stock, possibly as part of a "micro-cap" infrastructure fund. Safe Harbor for Forward Looking Statements The Company is including the following cautionary statements to make applicable and take advantage of the safe harbor provisions within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 for any forward- looking statements made by, or on behalf of, the Company in this document and any materials incorporated herein by reference. Forward looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Such forward-looking statements may be identified, without limitation, by the use of the words "anticipates," "estimates," "expects," "intends," and similar expressions. From time to time, the Company or one of its subsidiaries individually may publish or otherwise make available forward-looking statements of this nature. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the Company or its subsidiaries, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. Forward-looking statements made by the Company are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed in, or implied by, the forward-looking statements. These forward-looking statements may include, among others, statements concerning the Company's revenue and cost trends, cost reduction strategies and anticipated outcomes, planned capital expenditures, financing needs and availability of such financing, and the outlook for future construction activity in the Company's market areas. Investors or other users of forward- looking statements are cautioned that such statements are not a guarantee of future performance by the Company and that such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all of the risks and uncertainties, in addition to those specifically set forth above, include general economic and weather conditions, market prices, environmental and safety laws and policies, federal and state regulatory and legislative actions, tax rates and policies, rates of interest and changes in accounting principles or the application of such principles to the Company. Dependence Upon Key Personnel The Company's success depends on the continued services of the Company's senior management and key employees as well as the Company's ability to attract additional members to its management team with experience in the construction industry. The unexpected loss of the services of any of the Company's management or other key personnel, or its inability to attract new management when necessary, could have a material adverse effect on the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes that there have been no material changes in exposure to market risks during the second quarter of Fiscal 1999 from those set forth in the Company's Annual Report filed with the Commission on Form 10 K for the year ended July 31, 1998. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Precision Components Corp. The Company received a favorable decision in this case, and judgment in favor of the Company was entered on March 4, 1998 by the Circuit Court for the City of Richmond. The plaintiffs, Industrial Alloy Fabricators, Inc. and Precision Components Corp., perfected an appeal to the Supreme Court of Virginia, which was accepted on September 21, 1998. The Virginia Supreme Court heard oral argument on February 23, 1999, and a decision is pending. The suit, against Williams Industries, Inc. and IAF Transfer Corporation, is for $300,000 plus interest and fees arising from a product liability claim against the Company. Management believes the ultimate outcome will not have a material adverse impact on the Company's financial position, results of operations or cash flows. General The Company is party to various other claims arising in the ordinary course of its business. Generally, claims exposure in the construction services industry consists of workers compensation, personal injury, products' liability and property damage. The Company believes that its insurance accruals, coupled with its excess liability coverage, is adequate coverage for such claims. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Year 2000 The Company has developed a plan to assure that its computers are Year 2000 compliant and has begun implementation of the plan. The plan calls for the conversion efforts to be completed by the end of the Fiscal Year ending July 31, 1999. The Year 2000 issues result from some computer programs being written using two digits rather than four to define applicable years. The maximum total cost of the conversion project is estimated to be $200,000 and will be funded through operating cash flows and financing. Management believes that direct Year 2000 exposure in its industry is relatively low, with indirect exposure coming from possible temporary disruptions in external sources such as the financial services, insurance and public utility sectors. Because any problems are likely to occur during the winter when construction activity is relatively low, the Company believes that adequate resources will be available to address any problems that may occur. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WILLIAMS INDUSTRIES, INCORPORATED March 5, 1999 /s/ Frank E. Williams, III Frank E. Williams, III President, Chairman of the Board Chief Financial Officer EX-27 2
5 6-MOS JUL-31-1999 JAN-31-1999 1,783,007 0 11,171,065 (1,144,000) 3,784,619 17,782,627 19,155,307 (9,839,666) 32,124,680 14,238,146 10,718,393 0 0 357,979 9,177,278 32,124,680 0 14,202,504 0 8,318,762 4,659,224 0 444,632 565,320 210,700 388,359 0 0 0 388,359 0.11 0.11
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