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 April 30, 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 May 31, 1996.
<PAGE>
WEBCO INDUSTRIES, INC.
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Unaudited Financial Statements 6-7
Report of Review by Independent
Accountants 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
<CAPTION>
April 30, July 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,427 $ 1,659
Accounts receivable, net 13,580 12,297
Inventories 21,367 20,687
Prepaid expenses 484 510
Notes receivable from related parties 420 420
Deferred income tax asset 1,244 933
Total current assets 38,522 36,506
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 8,619 8,488
Machinery and equipment 48,555 47,272
Furniture and fixtures 1,953 1,894
Construction in progress 3,862 2,369
Less accumulated depreciation
and amortization (21,539) (19,622)
Net property, plant and equipment 42,886 41,837
Other assets 1,393 1,015
Total assets $ 82,801 $ 79,358
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,956 $ 13,699
Accrued liabilities 3,129 4,803
Current portion of long-term debt 1,698 1,072
Total current liabilities 15,783 19,574
Long-term debt 22,716 17,985
Deferred income tax liability 5,625 4,477
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 35,412 35,412
Retained earnings 3,202 1,847
38,677 37,322
Total liabilities and
stockholders' equity $ 82,801 $ 79,358
<FN>
See accompanying notes to unaudited financial statements
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 26,338 $ 26,282 $ 74,005 $ 72,595
Cost of sales 22,387 22,472 63,841 64,317
Gross profit 3,951 3,810 10,164 8,278
Selling, general
and administrative 2,402 1,831 6,310 5,463
Income from
operations 1,549 1,979 3,854 2,815
Unusual item:
Shareholder litigation
settlement and
related litigation
costs - 2,888 - 3,390
Interest expense 547 524 1,663 727
Income (loss)
before income taxes 1,002 (1,433) 2,191 (1,302)
Income tax expense 381 32 835 138
Net income (loss) $ 621 $ (1,465) $ 1,356 $ (1,440)
Net income (loss)
per common share $ 0.10 $ (0.23) $ 0.21 $ (0.23)
Weighted average
common shares
outstanding 6,339,000 6,339,000 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>
Nine Months Ended
April 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,356 $ (1,440)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 1,997 1,777
Deferred income tax expense 835 138
(Gain) loss on sale of property,
plant & equipment (1) 1
(Increase) decrease in:
Accounts receivable (1,283) (2,688)
Inventories (680) (3,446)
Prepaid expenses 26 103
Increase (decrease) in:
Accounts payable (2,509) (1,582)
Accrued liabilities (1,674) 2,479
Net cash used in operating activities (1,933) (4,658)
Cash flows from investing activities:
Capital expenditures (3,207) (7,260)
Proceeds from sale of property, plant
and equipment 1 15
(Increase) decrease in other assets (450) 5
Net cash used in investing activities (3,656) (7,240)
Cash flows from financing activities:
Proceeds from long-term debt 80,300 85,536
Principal payments on long-term debt (74,943) (72,963)
Net cash provided by financing activities 5,357 12,573
Net increase (decrease) in cash (232) 675
Cash, beginning of the period 1,659 511
Cash, end of the period $ 1,427 $ 1,186
<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 April 30, 1996 and results of
operations for the three months and nine months ended April 30, 1996 and
April 30, 1995, and cash flows for the nine months ended April 30, 1996 and
April 30, 1995. Results for the three and nine months ended April 30, 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,
1995, included in the Company's Form 10-K for the year ended July 31, 1995.
Note 2 - Inventory
At April 30, 1996 and July 31, 1995, the components of inventory were
as follows:
April 30, 1996 July 31, 1995
Raw materials $11,043,000 $11,690,000
Work-in-process 2,411,000 1,206,000
Finished goods 6,971,000 6,815,000
Maintenance parts
and supplies 942,000 976,000
Total.......... $21,367,000 $20,687,000
Note 3 - Contingencies
The agreement in principle reached by the Company in April 1995 to
settle the previously reported securities litigation entitled In re Webco
Securities Litigation was approved by the court on February 5, 1996. The
Statements of Operations included in this report reflect costs related to
the shareholder litigation settlement in the caption "Unusual item". For a
further discussion of the litigation, see Part II, Item 1: "Legal
Proceedings".
The Company has been identified as a potentially responsible party in
the cleanup of two EPA Superfund cleanup sites. At April 30, 1996 the
Company estimates its remaining potential liability for remediation of the
waste disposal sites and legal expense to be approximately $126,000 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
<PAGE>
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 1995 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 April 30, 1996, and the related condensed statements
of operations for the three-month and nine-month periods ended April 30,
1996 and 1995 and cash flows for the nine-month periods ended April 30,
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, 1995, 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 27,
1995, 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, 1995 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
May 23, 1996
</AUDIT-REPORT>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Webco Industries, Inc. (the "Company") is a specialty manufacturer of
high quality carbon steel tubing and stainless steel tubing and pipe
designed to industry and customer specifications. The Company's principal
tubing products range in diameter size between quarter-inch and four inches
and consist primarily of welded and cold drawn carbon steel tubing for the
heat exchanger, boiler and mechanical tubing markets, and welded stainless
steel tubing for the high efficiency furnace, instrumentation and small
diameter pipe 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, Canada and Mexico.
Results of Operations for the Three Months Ended April 30, 1996 Compared to
the Three Months Ended April 30, 1995
Net sales for the period were $26,338,000, a slight increase over the
$26,282,000 for the same period last year. While the tonnage of tubing
sold during the period increased by approximately 2.8% as compared to the
same period last year, the net average sales price per ton decreased by a
similar amount. The increase in tonnage sold is a reflection of improved
market penetration in the heat exchanger market and modest gains in the
mechanical market. These were partially offset by a decline in shipments of
boiler and stainless products. The net average sales price per ton
decreased by approximately 2.6% as a result of the change in product mix
consisting of a lower volume of higher priced stainless products with an
increase in relatively lower priced mechanical tubing.
Gross profit improved to $3,951,000 or 15.0% of net sales for the
third quarter of fiscal 1996 as compared to $3,810,000 or 14.5% of net
sales for the same quarter of fiscal 1995. The improvement in gross profit
margin is attributable to a moderate decrease in the average cost per ton
of steel sheet coils. A portion of this improvement however was adversely
affected by an increase in the average manufacturing cost per ton.
Selling, general and administrative expenses were $2,402,000 for the
third quarter of fiscal 1996 as compared to $1,831,000 for the third
quarter of fiscal 1995. Expressed as a percentage of net sales this is 9.1%
and 7.0% for fiscal 1996 and 1995, respectively. The increase in fiscal
1996 is the result of the hiring and training of new employees and higher
sales and marketing expenses associated with new product development.
The current quarter's income from operations was $1,549,000 as
compared to $1,979,000 for the same quarter last year. As a percentage of
net sales, income from operations declined to 5.9% for the third quarter of
fiscal 1996 from 7.5% for the same quarter of fiscal 1995. This decline in
income from operations is primarily the result of costs related to new
employees and new product development noted above.
<PAGE>
The third quarter of fiscal 1995 included approximately $2,888,000 for
the settlement of, and legal and accounting fees relating to, the
securities litigation discussed in Part II, Item 1: "Legal Proceedings".
The Statement of Income included in this report reflects the $2,888,000 of
costs related to the shareholder litigation in the caption "Unusual item"
and is excluded from operating income.
Interest expense for the period was $547,000 ($589,000 prior to any
interest capitalization) as compared to interest expense of $524,000
($561,000 prior to any interest capitalization) for the same quarter last
year. The level of debt for the three months ended April 30, 1996 averaged
approximately $25.7 million at an average interest rate of 8.69% as
compared to an average borrowing level of $21.7 million at an average
interest rate of 9.79% during the period ended April 30, 1995.
The recorded income tax expense for the period ended April 30, 1996 is
based upon the estimated annual effective federal and state income tax
rates. The variance between the expected income tax expense and the
recorded expense for the quarter ended April 30, 1995 results from the non-
deductibility of a portion of the costs related to the securities
litigation.
Net income for the three month period ended April 30, 1996 increased
to $621,000, or $0.10 per common share compared with a net loss of
($1,465,000) or ($0.23) per common share for the same three month period in
the prior fiscal year.
Results of Operations for the Nine Months Ended April 30, 1996 Compared to
the Nine Months Ended April 30, 1995
Net sales for the nine months ended April 30, 1996 increased to
$74,005,000 from $72,595,000 for the same period last year. This is the
result of a 2.6% increase in the tonnage of tubing sold during the period.
Tons shipped of boiler tubing and heat exchanger products increased 9% and
7%, respectively. These increases were adversely affected by an 11%
decrease in tons sold of mechanical products. The combination of these
changes in product mix resulted in a decrease in the average revenue per
ton of less than one percent.
Gross profit increased 22.8% to $10,164,000 for the first nine months
of 1996 as compared to $8,278,000 for the same period last year. Gross
profit expressed as a percentage of net sales improved to 13.7% for year-
to-date fiscal 1996 compared to 11.4% for year-to-date fiscal 1995. The
fiscal 1995 year-to-date gross profit margin was negatively impacted as
price increases instituted in July 1994 did not keep pace with the cost of
materials until the third quarter of fiscal 1995. In addition, the
improvement in the 1996 year-to-date gross margin is also attributable to a
decrease in the average cost per ton of steel sheet coils and a slight
decrease in the average manufacturing cost per ton.
Selling, general and administrative expenses were $6,310,000 for the
first three quarters of fiscal 1996 as compared to $5,463,000 for the same
period of the prior fiscal year. The increase is the result of higher
commissions, the hiring and training of new employees, and higher sales and
marketing expenses associated with new product development. Expressed as a
percentage of net sales, selling, general and administrative expenses
increased to 8.5% from 7.5% in 1995.
<PAGE>
Income from operations improved to 5.2% of net sales or $3,854,000 for
the nine months ended April 30, 1996 as compared to 3.9% of net sales or
$2,815,000 for the same period of the last fiscal year. This is an
increase of $1,039,000 for year-to-date fiscal 1996 over year-to-date
fiscal 1995.
The first nine months of fiscal 1995 included approximately $3,390,000
for the settlement of, and legal and accounting fees relating to the
securities litigation discussed in Part II, Item 1 "Legal Proceedings". The
Statement of Income included in this report reflects the $3,390,000 of
costs related to the shareholder litigation in the caption "Unusual item"
and is excluded from operating income.
Interest was $1,663,000 ($1,781,000 prior to any interest
capitalization) for the current period as compared to $727,000 ($1,141,000
prior to any interest capitalization) for the same period in fiscal 1995.
The increase in interest prior to any capitalization is the result of the
average level of debt for the period ended April 30, 1996 of $25.3 million
as compared to $17.8 million for the same period last year. This increase
in debt resulted in part from the funding of the securities litigation
settlement, as well as the financing of capital expenditures and increased
levels of working capital. The average interest rate for the same nine
month periods decreased from 9.30% in fiscal 1995 to 9.03% in fiscal 1996.
The increase in the interest expense recognized for financial reporting
purposes results from the higher debt level combined with lower
capitalization of interest following completion of the new weld mill in
January 1995 as well as the increase in debt.
The recorded income tax expense for the nine months ended April 30,
1996 is based upon the estimated annual effective federal and state tax
rates. The variance between the expected income tax expense and the
recorded expense for the period ended April 30, 1995 results from the non-
deductibility of a portion of the costs related to the securities
litigation.
Net income for the nine month period ended April 30, 1996 increased
significantly to $1,356,000, or $0.21 per common share compared with a net
loss of $(1,440,000), or $(0.23) per common share for the same nine month
period in the prior fiscal year.
Liquidity and Capital Resources
Net cash used in operations was $1,933,000 for the nine months ended
April 30, 1996 versus $4,658,000 for the nine month period ended April 30,
1995. Net income plus depreciation, amortization and deferred taxes for the
current period improved to $4,188,000 as compared to $475,000 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 nine months ended April
30, 1996, was $3,656,000. This is primarily the result of capital
expenditures on various projects implemented for productivity improvement.
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.
<PAGE>
The Company, as of April 30, 1996, had $3.7 million available under a
line of credit and a long term debt-to-equity ratio of 59%. The net
borrowings under the line of credit of $6.0 million were used primarily for
capital projects, payment of the $2.4 million litigation settlement,
payment of term debt, and to support increased levels of inventory and
accounts receivable. Inventory levels peaked during the first quarter of
fiscal 1996 but have been reduced during the second and third quarters.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The agreement in principle reached by the Company in April 1995 to
settle the previously reported securities litigation entitled In re Webco
Securities Litigation was approved by the court on February 5, 1996.
Pursuant to the agreement, the portion of the settlement paid by the
Company into escrow on August 8, 1995 was $2,400,000.
The Company has been identified as a potentially responsible party in
the cleanup of two EPA Superfund cleanup sites. At April 30, 1996 the
Company estimates its remaining potential liability for remediation of the
waste disposal sites and legal expense to be approximately $126,000, 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 1995 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.
June 12, 1996 /s/F. William Weber
F. William Weber
Chairman
Chief Executive Officer
Director
June 12, 1996 /s/Dana S Weber
Dana S. Weber
President
Chief Operating Officer
Director
June 12, 1996 /s/Harry G. Dandelles
Harry G. Dandelles
Treasurer
Chief Financial Officer
Vice President of Finance and Administration
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<PERIOD-END> APR-30-1996
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<PP&E> 64425
<DEPRECIATION> 21539
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0
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