UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15D OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________.
Commission File Number: 0-23242
WEBCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1097133
(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
201 WOODLAND DRIVE, SAND SPRINGS, OKLAHOMA 74063
(Address of principal executive offices) (Zip Code)
(918) 241-1000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address 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. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to distribution of securities under a plan
confirmed by a court.
NOT APPLICABLE [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date 6,339,000 shares of Common
Stock, $0.01 par value, as of November 30, 1996.
<PAGE>
WEBCO INDUSTRIES, INC.
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Unaudited Financial Statements 6
Report of Review by Independent
Accountants 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
BALANCE SHEETS
(Dollars in thousands, except share amounts and par value)
(Unaudited)
<CAPTION>
October 31, July 31,
1996 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $ 529 $ 508
Accounts receivable, net 14,424 13,106
Inventories 23,203 21,241
Prepaid expenses 424 235
Notes receivable from related parties 1,526 420
Deferred income tax asset 1,481 1,574
Total current assets 41,587 37,084
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 8,630 8,630
Machinery and equipment 50,503 50,403
Furniture and fixtures 2,030 1,989
Construction in progress 4,813 3,883
Less accumulated depreciation and amortization (22,855) (22,174)
Net property, plant and equipment 44,557 44,167
Other assets, net 1,643 1,661
Total assets $ 87,787 $ 82,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,748 $ 12,419
Accrued liabilities 3,596 3,523
Current portion of long-term debt 1,698 1,698
Total current liabilities 19,042 17,640
Long-term debt 21,956 19,413
Deferred income tax liability 5,980 5,684
Contingencies (Note 3) - -
Stockholders' equity
Common stock, $.01 par value, 12,000,000 shares
authorized, 6,339,000 shares issued and
outstanding 63 63
Additional paid-in capital 35,944 35,944
Retained earnings 4,802 4,168
-------- --------
40,809 40,175
Total liabilities and
stockholders' equity $ 87,787 $ 82,912
<FN>
See accompanying notes to unaudited financial statements
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)
(Unaudited)
<CAPTION>
Three Months Ended
October 31,
1996 1995
<S> <C> <C>
Net sales $ 28,444 $ 22,581
Cost of sales 24,608 20,031
Gross profit 3,836 2,550
Selling, general and administrative expenses 2,308 1,820
Income from operations 1,528 730
Interest expense 505 541
Income before income taxes 1,023 189
Deferred income tax expense 389 72
Net income $ 634 $ 117
Earnings per common share $ .10 $ .02
Weighted average common shares outstanding 6,339,000 6,339,000
<FN>
See accompanying notes to unaudited financial statements
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
October 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 634 $ 117
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 712 648
(Gain) loss on sale of property, plant and equipment 13 -
Deferred tax expense 389 72
(Increase) decrease in:
Accounts receivable (1,318) (655)
Inventories (1,962) (3,482)
Prepaid expenses (189) (221)
Increase (decrease) in:
Accounts payable 734 395
Accrued liabilities 73 (2,203)
Net cash used in operating activities (914) (5,329)
Cash flows from investing activities:
Capital expenditures (1,141) (1,142)
Advances to stockholder (1,132) (1,080)
Repayments of stockholder advances 26 1,080
Proceeds from sale of property, plant and equipment 4 -
Other (13) (373)
Net cash used in investing activities (2,256) (1,515)
Cash flows from financing activities:
Proceeds from long-term debt 30,525 29,290
Principal payments on long-term debt (27,982) (23,713)
Increase in book overdrafts 648 173
Net cash provided by financing activities 3,191 5,750
Net increase (decrease) in cash 21 (1,094)
Cash, beginning of the period 508 1,659
Cash, end of the period $ 529 $ 565
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amount
capitalized of $72 and $ 37 in fiscal 1997
and fiscal 1996, respectively $ 439 $ 526
Income taxes $ 109 $ -
<FN>
See accompanying notes to unaudited financial statements
</TABLE>
<PAGE>
WEBCO INDUSTRIES, INC.
Notes to Unaudited Financial Statements
Note 1 - General
The accompanying unaudited condensed financial statements of Webco
Industries, Inc. (the "Company") include, in the opinion of management, all
adjustments (which are of a normal recurring nature) necessary for a fair
presentation of financial position at October 31, 1996 and results of
operations for the three months ended October 31, 1996 and October 31, 1995,
and cash flows for the three months ended October 31, 1996 and October 31,
1995. Results for the three months ended October 31, 1996 are not necessarily
indicative of results which will be realized for the full fiscal year. The
year-end balance sheet was derived from the audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. The unaudited condensed financial statements should be read in
conjunction with the audited financial statements and related notes thereto
for the year ended July 31, 1996, included in the Company's Form 10-K for the
year ended July 31, 1996.
Note 2 - Inventory
At October 31, 1996 and July 31, 1996, the components of inventory were
as follows:
October 31, 1996 July 31, 1996
Raw materials $13,950,000 $12,471,000
Work-in-process 2,111,000 1,987,000
Finished goods 6,123,000 5,766,000
Maintenance parts
and supplies 1,019,000 1,017,000
Total $23,203,000 $21,241,000
Note 3 - Contingencies
The Company has been identified as a potentially responsible party in the
cleanup of two EPA Superfund cleanup sites. At October 31, 1996 the Company
estimates its remaining potential liability for remediation of the waste
disposal sites and legal expense to be approximately $244,000 which has been
recorded as an accrued liability.
In addition, the Company is a party to various other lawsuits and claims
arising in the ordinary course of business. Management, after review and
consultation with legal counsel, considers that any liability resulting from
these matters would not materially affect the results of operations or the
financial position of the Company.
The reader should refer to the Company's 1996 Form 10-K: Part I, Item 3
"Legal Proceedings" for additional information regarding these matters.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders
Webco Industries, Inc.
We have reviewed the accompanying condensed balance sheet of Webco
Industries, Inc. as of October 31, 1996, and the related condensed statements
of income and cash flows for the three-month periods ended October 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of July 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated September 18, 1996, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of
July 31, 1996 is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
November 25, 1996
</AUDIT-REPORT>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Webco Industries, Inc. ("Webco" or the "Company"), an Oklahoma corporation
founded in 1969 by F. William Weber, chairman of the board and chief executive
officer, is a specialty manufacturer of high-quality carbon steel tubing and
stainless steel tubing and pipe designed to industry and customer
specifications. Based on the Company's knowledge of the specialty tube
industry, management believes that Webco is the domestic market leader in the
manufacture of welded carbon heat exchanger tubing and welded carbon boiler
tubing, and the leading supplier of stainless tubing for the high efficiency
residential furnace market. Commencing in fiscal 1996, the Company
manufactures and markets, through its QuikWater division, a patented direct
contact water heater with unique environmental and energy saving advantages for
a wide variety of end use markets. The Company's products are delivered from
its three production facilities in Oklahoma and Pennsylvania and from two
distribution facilities in Oklahoma and Texas to more than 700 customers
located primarily in the continental United States, southern Canada, and
northern Mexico.
Results of Operations for the Three Months Ended October 31, 1996 Compared to
the Three Months Ended October 31, 1995
Net sales for the period were $28,444,000, a 26% increase over the
$22,581,000 for the same period last year. This is the result of a 34% increase
in the tonnage of tubing sold as compared to the same period last year. This
increase is a reflection of improved market penetration in the heat exchanger
market and mechanical market. The increase in tonnage sold was partially offset
by a decrease of approximately 7% in the net average sales price per ton. The
decrease in the average net sales price per ton resulted primarily from
downward market pressure in the stainless and heat exchanger markets.
Gross profit improved to $3,836,000 for the first quarter of fiscal 1997
as compared to $2,550,000 for the same quarter of fiscal 1996. Expressed as
a percentage of net sales, gross profit increased from 11.3% to 13.5%. The
improvement in gross profit margin is attributable to decreases in the average
cost of material per ton for both carbon and stainless sheet coil, coupled with
improved efficiencies which resulted in a 9% decrease in the manufactured cost
per ton. A significant portion of this cost decrease was offset by a
corresponding decrease in the net average sales price per ton.
Selling, general and administrative expenses were $2,308,000 for the first
quarter of fiscal 1997 as compared to $1,820,000 for the first quarter of
fiscal 1996, which is a rate of 8.1% of net sales for both periods. Factors
contributing to the increase of $488,000 include marketing costs associated
with QuikWater and increased sales commissions resulting from higher sales
volumes. These increases were partially offset by $225,000 recorded as the
result of an insurance recovery on an EPA related claim.
The current quarter's income from operations increased by $798,000 to
$1,528,000 as compared to $730,000 for the same quarter last year. As a
percentage of net sales, income from operations improved to 5.4% for the first
<PAGE>
quarter of fiscal 1997 from 3.2% for the same quarter of fiscal 1996. This
increase is a reflection of the volume driven increase in sales and the
decrease in the average manufactured cost per ton.
Interest expense for the period was $505,000 ($577,000 prior to interest
capitalization) as compared to interest expense of $541,000 ($578,000 prior to
interest capitalization) for the same quarter last year. The level of debt
under the bank Loan and Security Agreement for the three months ended October
31, 1996 averaged approximately $22.6 million at an average interest rate of
8.88% as compared to an average borrowing level of $23.2 million at an average
interest rate of 9.24% during the period ended October 31, 1995.
The recorded income tax expense for the period ended October 31, 1996 is
based upon the estimated annual effective federal and state income tax rates.
Net income for the three month period ended October 31, 1996 increased to
$634,000, or $0.10 per common share compared with $117,000 or $0.02 per common
share for the same three month period in the prior fiscal year.
Liquidity and Capital Resources
Net cash used in operations was $914,000 for the three months ended
October 31, 1996 versus $5,329,000 for the three month period ended October 31,
1995. Net income plus depreciation, amortization and deferred taxes for the
current period improved to $1,735,000 as compared to $837,000 for the same
period last year. The difference between net cash used in operations and net
income plus non-cash items for the respective periods primarily represents
increases in working capital.
Net cash used in investing activities for the three months ended
October 31, 1996, was $2,256,000. This is primarily the result of capital
expenditures on various projects implemented for productivity improvement and
stockholder advances.
The Company expects cash flow from operations and borrowings under its
credit facility to fund its operating and capital expenditure cash flow needs
for the remainder of this fiscal year.
The Company, as of October 31, 1996, had $3.4 million available under a
line of credit and a long term debt-to-equity ratio of 54%. The net borrowings
under the line of credit of $3.0 million were used primarily for capital
projects, payment of term debt, and to support increased levels of inventory
and accounts receivable.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been identified as a potentially responsible party in the
cleanup of two EPA Superfund cleanup sites. At October 31, 1996 the Company
estimates its remaining potential liability for remediation of the waste
disposal sites and legal expense to be approximately $244,000, which has been
recorded as an accrued liability.
In addition, the Company is a party to various other lawsuits and claims
arising in the ordinary course of business. Management, after review and
consultation with legal counsel, considers that any liability resulting from
these matters would not materially affect the results of operations or the
financial position of the Company.
The reader should refer to the Company's 1996 10-K: Part I, Item 3: "Legal
Proceedings" for additional information regarding these matters.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None
B. Reports on Form 8-K
None
<PAGE>
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.
WEBCO INDUSTRIES, INC.
December 12, 1996 /s/F. William Weber
F. William Weber
Chairman
Chief Executive Officer
Director
December 12, 1996 /s/Dana S Weber
Dana S. Weber
President
Chief Operating Officer
Director
December 12, 1996 /s/Harry G. Dandelles
Harry G. Dandelles
Treasurer
Chief Financial Officer
Vice President of Finance and Administration
<PAGE>
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.
WEBCO INDUSTRIES, INC.
December 12, 1996 ________________________
F. William Weber
Chairman
Chief Executive Officer
Director
December 12, 1996 ________________________
Dana S. Weber
President
Chief Operating Officer
Director
December 12, 1996 ________________________
Harry G. Dandelles
Treasurer
Chief Financial Officer
Vice President of Finance and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 529
<SECURITIES> 0
<RECEIVABLES> 14424
<ALLOWANCES> 0
<INVENTORY> 23203
<CURRENT-ASSETS> 41587
<PP&E> 67412
<DEPRECIATION> 22855
<TOTAL-ASSETS> 87787
<CURRENT-LIABILITIES> 19042
<BONDS> 21956
0
0
<COMMON> 63
<OTHER-SE> 40746
<TOTAL-LIABILITY-AND-EQUITY> 87787
<SALES> 28444
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<CGS> 24608
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<OTHER-EXPENSES> 0
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<EPS-PRIMARY> .10
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</TABLE>
