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 January 31, 1997
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 February 28, 1997.
<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 8-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
BALANCE SHEETS
(Dollars in thousands, except share amounts and par value)
(Unaudited)
<CAPTION>
January 31, July 31,
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash $ 821 $ 508
Accounts receivable, net 16,482 13,106
Inventories 24,817 21,241
Prepaid expenses 382 235
Notes receivable from related parties 1,620 420
Deferred income tax asset 629 1,574
Total current assets 44,751 37,084
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 8,706 8,630
Machinery and equipment 50,606 50,403
Furniture and fixtures 2,068 1,989
Construction in progress 5,901 3,883
Less accumulated depreciation and amortization (23,475) (22,174)
Net property, plant and equipment 45,242 44,167
Other assets, net 1,633 1,661
Total assets $ 91,626 $ 82,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,659 $ 12,419
Accrued liabilities 3,440 3,523
Current portion of long-term debt 1,692 1,698
Total current liabilities 22,791 17,640
Long-term debt 22,687 19,413
Deferred income tax liability 5,208 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 4,933 4,168
------ ------
40,940 40,175
Total liabilities and
stockholders' equity $ 91,626 $ 82,912
<FN>
See accompanying notes to unaudited financial statements
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 28,678 $ 25,086 $ 57,121 $ 47,667
Cost of sales 24,622 21,423 49,228 41,454
Gross profit 4,056 3,663 7,893 6,213
Selling, general and
administrative expenses 2,496 2,089 4,805 3,909
Special item: Write-off of Mill 3
cut-off equipment 884 - 884 -
Income from operations 676 1,574 2,204 2,304
Interest expense 465 575 970 1,116
Income before income taxes 211 999 1,234 1,188
Income tax expense 80 382 469 454
Net income $ 131 $ 617 $ 765 $ 734
Net income per common share $ 0.02 $ 0.10 $ 0.12 $ 0.12
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>
Six Months Ended
January 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 765 $ 734
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,454 1,315
(Gain) loss on write-off and disposition of
property, plant and equipment 899 (1)
Deferred tax expense 469 454
(Increase) decrease in:
Accounts receivable (3,376) (1,996)
Inventories (3,576) (3,035)
Prepaid expenses (147) (25)
Increase (decrease) in:
Accounts payable 3,998 (1,752)
Accrued liabilities (83) (2,002)
Net cash provided by (used in) operating activities 403 (6,308)
Cash flows from investing activities:
Capital expenditures (3,035) (2,022)
Advances to stockholder (1,226) (2,323)
Repayments of stockholder advances 26 2,323
Proceeds from sale of property, plant and equipment 10 1
Other (47) (361)
Net cash used in investing activities (4,272) (2,382)
Cash flows from financing activities:
Proceeds from long-term debt 58,405 54,615
Principal payments on long-term debt (55,137) (47,560)
Increase in book overdrafts 914 645
Net cash provided by financing activities 4,182 7,700
Net change in cash 313 (990)
Cash, beginning of the period 508 1,659
Cash, end of the period $ 821 $ 669
<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 January 31, 1997 and results of
operations for the three months and six months ended January 31, 1997 and
January 31, 1996, and cash flows for the six months ended January 31, 1997 and
January 31, 1996. Results for the three months and six months ended January 31,
1997 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 January 31, 1997 and July 31, 1996, the components of inventory were
as follows:
January 31, 1997 July 31, 1996
Raw materials $15,285,000 $12,471,000
Work-in-process 2,163,000 1,987,000
Finished goods 6,278,000 5,766,000
Maintenance parts
and supplies 1,091,000 1,017,000
----------- -----------
Total inventories $24,817,000 $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 January 31, 1997 the Company
estimates its remaining potential liability for remediation of the waste
disposal sites and legal costs 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 January 31, 1997, and the related condensed statements
of income for the three-month and six-month periods ended January 31, 1997 and
1996 and cash flows for the six-month periods ended January 31, 1997 and 1996.
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 our 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
February 25, 1997
</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 January 31, 1997 Compared to
the Three Months Ended January 31, 1996
Net sales for the quarter ended January 31, 1997 were $28,678,000, a 14%
increase over the $25,086,000 for the same quarter last year. This is the
result of a 22% 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 is reflected primarily in the boiler tube and stainless products.
Gross profit improved to $4,056,000 for the second quarter of fiscal 1997
which is an 11% increase as compared to $3,663,000 for the same quarter of
fiscal 1996. This increase of approximately $393,000 is the result of higher
revenues generated by the increases in tonnage shipped. Expressed as a
percentage of net sales, gross profit decreased slightly to 14.1% from 14.6%
for the same period last year. This decline in gross profit percentage is
attributable to the decrease in the manufactured cost per ton being slightly
less than the decrease in the net average sales price per ton, which is the
result of downward market pressure.
Selling, general and administrative expenses were $2,496,000 (8.7% of net
sales) for the second quarter of fiscal 1997 as compared to $2,089,000 (8.3% of
net sales) for the same quarter of fiscal 1996. Factors contributing to the
$407,000 increase over the prior quarter include an increase of $264,000 in
development and marketing costs associated with QuikWater and $100,000 in
non-recurring charges related to litigation settlement.
During the second quarter of fiscal 1997 the Company recorded a special
charge of $884,000. This charge relates to the replacement and write-off of
cutoff equipment on the Company's new weld mill ("Mill 3") which was not
performing in a manner consistent with expectations.
<PAGE>
The current quarter's income from operations decreased by $898,000 to
$676,000 (2.4% of net sales) as compared to $1,574,000 (6.3% of net sales) for
the same quarter last year. This decrease is the result of the special charge
noted above. Excluding the special charge, income from operations for the
current period was $1,560,000 which is 5.4% of net sales.
Interest expense for the period was $465,000 ($546,000 prior to interest
capitalization) as compared to interest expense of $575,000 ($614,000 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 January
31, 1997 averaged approximately $22.7 million at an average interest rate of
8.89% as compared to an average borrowing level of $24.6 million at an average
interest rate of 9.15% during the period ended January 31, 1996
The recorded income tax expense for the period ended January 31, 1997 is
based upon the estimated annual effective federal and state income tax rates.
Net income for the three month period ended January 31, 1997 was $131,000,
or $0.02 per common share compared with $617,000 or $0.10 per common share for
the same three month period in the prior fiscal year. The reduction in net
income results from the $548,000 after tax effect ($0.09 per common share) of
the special charge noted above. Net income excluding the special charge is
$679,000 or $0.11 per common share.
Results of Operations for the Six Months Ended January 31, 1997 Compared to the
Six Months Ended January 31, 1996
Net sales for the six months ended January 31, 1997 increased to
$57,121,000, a 20% increase from the $47,667,000 for the same period last year.
This is the result of a 28% increase in the tonnage of tubing sold during the
period, which is a reflection of improved market penetration in the heat
exchanger market and mechanical market. The increase in tonnage was partially
offset by a decrease of approximately 7% in the net average sales price per
ton.
Gross profit increased 27% to $7,893,000 for the first six months of 1997
as compared to $6,213,000 for the same period last year. Gross profit expressed
as a percentage of net sales improved to 13.8% for year-to-date fiscal 1997
compared to 13.0% for year-to-date fiscal 1996. A decrease in the average cost
per ton of steel sheet coils along with a decrease in the average manufacturing
cost per ton were partially offset by a decrease in the average selling price
per ton noted above.
Selling, general and administrative expenses were $4,805,000 (8.4% of net
sales) for the first six months of fiscal 1997 as compared to $3,909,000 (8.2%
of net sales) for the same period of the prior fiscal year. Factors
contributing to the additional $896,000 of expense include an increase of
$564,000 in development and marketing costs associated with QuikWater, $100,000
in non-recurring charges related to litigation settlement and higher sales
commissions from the increase in sales.
During the second quarter of fiscal 1997 the Company recorded a special
charge of $884,000. This charge relates to the replacement and write-off of
cutoff equipment on the Company's new weld mill ("Mill 3") which was not
performing in a manner consistent with expectations.
<PAGE>
Income from operations for the six months ended January 31, 1997 was
$2,204,000 as compared to $2,304,000 for the same period last year. Operating
income expressed as a percentage of net sales was 3.9% for year-to-date fiscal
1997 compared to 4.8% for year-to-date fiscal 1996. Excluding the special
charge noted above, income from operations for the current six month period was
$3,088,000 or 5.4% of net sales.
Interest was $970,000 ($1,123,000 prior to any interest capitalization)
for the current six month period as compared to $1,116,000 ($1,192,000 prior to
any interest capitalization) for the same period in fiscal 1996. The decrease
in interest prior to any capitalization is the result of the average level of
debt under the bank Loan and Security Agreement for the six month period ended
January 31, 1997 being $22.7 million as compared to $23.9 million for the same
period last year. The average interest rate related to this debt for the same
six month periods decreased from 9.19% in fiscal 1996 to 8.88% in fiscal 1997.
The recorded income tax expense for the six months ended January 31, 1997
is based upon the estimated annual effective federal and state tax rates.
Net income for the six month period ended January 31, 1997 increased
slightly to $765,000, or $0.12 per common share. Excluding the special charge
in the second quarter of this fiscal year, after-tax income was $1,313,000 or
$0.21 per common share compared to $734,000, or $0.12 per common share for the
same six month period in the prior fiscal year.
Liquidity and Capital Resources
Net cash provided by (used in) operations was $403,000 for the six months
ended January 31, 1997 versus ($6,308,000) for the six month period ended
January 31, 1996. Receivables and inventories have increased as a result of
higher sales volumes, as compared to the prior year, and inventory levels also
increased due to the strike at Wheeling Pittsburgh, a supplier of consignment
sheet coil steel. The strike has required the Company to obtain alternative
sources of steel which are not always on payment terms as favorable as the
consignment arrangements under which the Wheeling Pittsburgh purchases were
made. The Company believes that the Wheeling Pittsburgh strike will continue
for the foreseeable future and that inventories will continue to grow unless
alternative consignment inventories are located. At January 31, 1997,
approximately $3.0 million of consigned inventories were held by the Company
compared to approximately $4.9 million at January 31, 1996.
Net cash used in investing activities for the six months ended January 31,
1997, was $4,272,000, $1,890,000 greater than the amount of cash used in
investing activities during the same period in 1996. This increase is
primarily the result of capital expenditures related to expansion of the
stainless facility as well as other projects which are expected to increase
capacity and improve productivity, and an increase in stockholder advances.
As of January 31, 1997, the Company had $2.2 million available under it's
$20 million line of credit and a long term debt-to-equity ratio of 55%. Net
borrowings under the line of credit of $4.1 million for the six months ended
January 31, 1997 were used primarily for capital projects, and to support
increased levels of inventory and accounts receivable. The Company is in the
process of increasing its line of credit to $23 million in order to provide
additional monies for inventory investment and capital expenditures. The
Company anticipates pursuing additional debt financing to facilitate its
capital growth plan, including expanding the stainless plant capacity.
<PAGE>
Forward Looking Statements
Certain statements, including those predicated or preceded by the words
"expects" and "plans", should be considered forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve known and unknown
risks and uncertainties which may cause the Company's actual results in future
periods to differ materially from forecasted results. Those risks include,
but are not limited to, industry demand, competition, changes in the
availability and pricing of carbon and stainless steel, labor supply near
the Company's manufacturing facilities, interest rate fluctuations and other
capital market conditions.
Impact of New Financial Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share and No. 129, Disclosure of Information
About Capital Structure. Statement No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share and is
substantially similar to the standard recently issued by the International
Accounting Standards Committee. Statement No. 129 consolidates the existing
requirements to disclose certain information about an entity's capital
structure. Both statements are effective for financial statements issued for
periods ending after December 15, 1997. Based on the Company's present capital
structure and common stock equivalents (stock options), the Company does not
believe that the implementation of these new standards will have a material
impact on its financial statements.
<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 January 31, 1997 the Company
estimates its remaining potential liability for remediation of the waste
disposal sites and legal costs 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
On December 5, 1996 the Company held its annual stockholders meeting.
During that meeting the following directors were elected to a three year term:
For Withheld
F. William Weber 6,065,535 52,678
Dana S. Weber 6,065,535 52,678
The following directors terms will continue: Frederick C. Ermel,
Dr. Kenneth E. Case and Neven C. Hulsey.
The appointment of Coopers & Lybrand LLP as auditors for 1997 was ratified
by the following vote:
For Against Abstain
6,089,662 10,250 18,301
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit
Number Description
15 Letter re: unaudited interim financial information.
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.
March 12, 1997 /s/F. William Weber
F. William Weber
Chairman
Chief Executive Officer
Director
March 12, 1997 /s/Dana S Weber
Dana S. Weber
President
Chief Operating Officer
Director
March 12, 1997 /s/Michael P. Howard
Michael P. Howard
Treasurer
Chief Financial Officer
Vice President of Finance and Administration
<PAGE>
Exhibit 15
March 14, 1997
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Webco Industries, Inc. Registration on Form S-3
We are aware that our report dated February 25, 1997 on our review of interim
financial information of Webco Industries, Inc. for the periods ended
January 31, 1997 and 1996 and included in the Company's quarterly report on
Form 10-Q for the quarter ended January 31, 1997 is incorporated by reference
in the Company's registration statement on Form S-3 (File No. 333-22779).
Pursuant to rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified by
us within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 821
<SECURITIES> 0
<RECEIVABLES> 16482
<ALLOWANCES> 0
<INVENTORY> 24819
<CURRENT-ASSETS> 44751
<PP&E> 68717
<DEPRECIATION> 23475
<TOTAL-ASSETS> 91626
<CURRENT-LIABILITIES> 22791
<BONDS> 22687
0
0
<COMMON> 63
<OTHER-SE> 40877
<TOTAL-LIABILITY-AND-EQUITY> 91626
<SALES> 57121
<TOTAL-REVENUES> 57121
<CGS> 49228
<TOTAL-COSTS> 49228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 970
<INCOME-PRETAX> 1234
<INCOME-TAX> 469
<INCOME-CONTINUING> 765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 765
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
