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, 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 (I.R.S. Employer Identification No)
of 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, 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 8-11
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 12
SIGNATURES 13
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC.
BALANCE SHEETS
(Dollars in thousands, except share amounts and par value)
(Unaudited)
<CAPTION>
April 30, July 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $ 298 $ 508
Accounts receivable, net 5,545 13,106
Inventories 28,037 21,241
Prepaid expenses 334 235
Notes receivable from related parties 1,620 420
Deferred income tax asset 1,532 1,574
Total current assets 47,366 37,084
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 8,727 8,630
Machinery and equipment 50,662 50,403
Furniture and fixtures 2,125 1,989
Construction in progress 8,047 3,883
Less accumulated depreciation and amortization (24,120) (22,174)
Net property, plant and equipment 46,877 44,167
Other assets, net 1,607 1,661
Total assets $ 95,850 $ 82,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,767 $ 12,419
Accrued liabilities 3,985 3,523
Current portion of long-term debt 1,692 1,698
Total current liabilities 22,444 17,640
Long-term debt 25,556 19,413
Deferred income tax liability 6,412 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 5,431 4,168
41,438 40,175
Total liabilities and stockholders' equity $ 95,850 $ 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 Nine Months Ended
April 30, April 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 28,993 $ 26,338 $ 86,114 $ 74,005
Cost of sales 25,245 22,387 74,473 63,841
Gross profit 3,748 3,951 11,641 10,164
Selling, general and
administrative expenses 2,496 2,402 7,301 6,310
Special item: Write-off of
Mill 3 cut-off equipment - - 884 -
Income from operations 1,252 1,549 3,456 3,854
Interest expense 453 547 1,423 1,663
Income before income taxes 799 1,002 2,033 2,191
Income tax expense 301 381 770 835
Net income $ 498 $ 621 $ 1,263 $ 1,356
Net income per common share $ 0.08 $ 0.10 $ 0.20 $ 0.21
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,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,263 $ 1,356
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,194 1,997
(Gain) loss on write-off and disposition of
property, plant and equipment 897 (1)
Deferred tax expense 770 835
(Increase) decrease in:
Accounts receivable (2,439) (1,283)
Inventories (6,796) (680)
Prepaid expenses (99) 26
Increase (decrease) in:
Accounts payable 4,801 (4,653)
Accrued liabilities 462 (1,674)
Net cash provided by (used in) operating activities 1,053 (4,077)
Cash flows from investing activities:
Capital expenditures (5,716) (3,207)
Advances to stockholder (1,226) (3,638)
Repayments of stockholder advances 26 3,638
Proceeds from sale of property, plant and equipment 12 1
Other (70) (450)
Net cash used in investing activities (6,974) (3,656)
Cash flows from financing activities:
Proceeds from long-term debt 92,315 80,300
Principal payments on long-term debt (86,178) (74,943)
Increase (decrease) in book overdrafts (426) 2,144
Net cash provided by financing activities 5,711 7,501
Net change in cash (210) (232)
Cash, beginning of the period 508 1,659
Cash, end of the period $ 298 $ 1,427
<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, 1997 and results of operations
for the three months and nine months ended April 30, 1997 and April 30, 1996,
and cash flows for the nine months ended April 30, 1997 and April 30, 1996.
Results for the three months and nine months ended April 30, 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 April 30, 1997 and July 31, 1996, the components of inventory were as
follows:
April 30, 1997 July 31, 1996
Raw materials $19,546,000 $12,471,000
Work-in-process 2,009,000 1,987,000
Finished goods 5,378,000 5,766,000
Maintenance parts
and supplies 1,104,000 1,017,000
Total inventories $28,037,000 $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 April 30, 1997 the Company
estimates its remaining potential liability for remediation of the waste
disposal sites and legal costs, related to the Superfund's oversight body,
to be approximately $231,000 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 April 30, 1997, and the related condensed statements
of income for the three-month and nine-month periods ended April 30, 1997 and
1996 and cash flows for the nine-month periods ended April 30, 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
May 26, 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 April 30, 1997 Compared to the
Three Months Ended April 30, 1996
Net sales for the quarter ended April 30, 1997 were $28,993,000, a 10.1%
increase over the $26,338,000 for the same quarter last year. This is the
result of an 11.5% increase in the current quarter 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 slightly offset by a decrease of 1.3%
in the net average sales price per ton, primarily in heat exchanger products.
Gross profit for the period was $3,748,000 as compared to $3,951,000 for
the same quarter of fiscal 1996. Expressed as a percentage of net sales, gross
profit decreased to 12.9% from 15.0% for the same period last year. The decline
in gross profit percentage is attributable to downward market pressure
resulting in a decrease in the net average sales price per ton of tubing sold
of 1.3%. In addition, the suspension of Mill 3 production for approximately
5 weeks of the current quarter for the installment and testing of new cutoff
equipment had a negative effect on the absorption of fixed costs. The result
was an increase in the average cost to manufacture per ton of 4.2%, which was
partially offset by a 1.8% decrease in the average cost per ton of steel sheet
coils.
Selling, general and administrative expenses were $2,496,000 for the third
quarter of fiscal 1997, an increase of only $94,000 as compared to $2,402,000
for the same quarter of fiscal 1996. The change is primarily the result of a
$64,000 increase in marketing costs associated with QuikWater.
The current quarter's income from operations decreased by $297,000 to
$1,252,000 (4.3% of net sales) as compared to $1,549,000 (5.9% of net sales)
for the same quarter last year. This decrease is primarily attributable to the
negative effect on the absorption of fixed costs resulting from the suspension
of Mill 3 production, the decrease in the average net sales price per ton and
QuikWater, as noted above.
<PAGE>
Interest expense for the current period was $453,000 ($572,000 prior to
interest capitalization) as compared to interest expense of $547,000 ($589,000
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
April 30, 1997 averaged approximately $24.0 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 8.69% during the period ended April 30, 1996
The recorded income tax expense for the quarter ended April 30, 1997 is
based upon the estimated annual effective federal and state income tax rates.
Net income for the three month period ended April 30, 1997 was $498,000,
or $0.08 per common share compared with $621,000 or $0.10 per common share for
the same three month period in the prior fiscal year.
Results of Operations for the Nine Months Ended April 30, 1997 Compared to the
Nine Months Ended April 30, 1996
Net sales for the nine months ended April 30, 1997 increased to
$86,114,000, a 16.4% increase from the $74,005,000 for the same period last
year. This is the result of a 21.9% increase in the tonnage of tubing sold
during the current period, which 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 4.9% in the net average sales price
per ton.
Gross profit increased 14.5% to $11,641,000 for the first nine months of
fiscal 1997 as compared to $10,164,000 for the same period last fiscal year.
Gross profit expressed as a percentage of net sales remained relatively
constant at 13.5% for year-to-date fiscal 1997 compared to 13.7% for
year-to-date fiscal 1996. Gross profit in the current period was adversely
affected by downward pricing pressure as reflected in the 4.9% decrease in the
average selling price per ton. This was offset by a decrease in the average
cost per ton of steel sheet coils (6.0%) and the average manufacturing cost per
ton (4.0%), for a combined change in the total cost per ton of 5.2%.
Selling, general and administrative expenses were $7,301,000 for the first
nine months of fiscal 1997 as compared to $6,310,000 for the same period of the
prior fiscal year. Factors contributing to the additional $991,000 of expense
include an increase of $783,000 in development and marketing costs associated
with QuikWater, 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 Mill 3 which was not performing in a manner consistent with
expectations.
Income from operations for the nine months ended April 30, 1997 was
$3,456,000 as compared to $3,854,000 for the same period last year. Operating
income expressed as a percentage of net sales was 4.0% for year-to-date fiscal
1997 compared to 5.2% for year-to-date fiscal 1996. Excluding the special
charge noted above, income from operations for the current nine month period
was $4,340,000 or 5.0% of net sales.
<PAGE>
Interest was $1,423,000 ($1,695,000 prior to interest capitalization) for
the current nine month period as compared to $1,663,000 ($1,781,000 prior to
interest capitalization) for the same period in fiscal 1996. The decrease in
interest prior to interest capitalization is the result of the average level of
debt under the bank Loan and Security Agreement for the nine month period ended
April 30, 1997 being $23.1 million as compared to $24.1 million for the same
period last year. The average interest rate related to this debt for the same
nine month periods decreased from 9.03% in fiscal 1996 to 8.89% in fiscal 1997.
The recorded income tax expense for the nine months ended April 30, 1997
is based upon the estimated annual effective federal and state tax rates.
Net income for the nine month period ended April 30, 1997 decreased
slightly to $1,263,000, or $0.20 per common share. Excluding the special charge
in the second quarter of fiscal 1997, after-tax income was $1,811,000 or $0.29
per common share. Net income was $1,356,000, or $0.21 per common share for the
same nine month period in the prior fiscal year.
Liquidity and Capital Resources
Net cash provided by (used in) operations was $1,053,000 for the nine
months ended April 30, 1997 versus ($4,077,000) for the nine month period
ended April 30, 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, and greater levels of specific inventory for OEM
customers. 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 April 30, 1997,
approximately $2.4 million of consigned inventories were held by the Company
compared to approximately $3.7 million at April 30, 1996.
Net cash used in investing activities for the nine months ended April 30,
1997 was $6,974,000, which was $3,318,000 greater than the $3,656,000 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.
During the period ended April 30, 1997 the Company increased its line of
credit to $23 million in order to provide additional monies for inventory
investment and capital expenditures. As of April 30, 1997, the Company had
$1.9 million available under its $23 million line of credit and a long term
debt-to-equity ratio of 62%. Net borrowings under the line of credit of
$7.4 million for the nine months ended April 30, 1997 were used primarily for
capital projects, and to support increased levels of inventory and accounts
receivable. The Company is currently negotiating with its primary lender to
refinance the existing term loan and line of credit to facilitate its capital
growth plan, including expanding the stainless plant capacity, and to provide
additional working capital. These negotiations have not been finalized.
<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 April 30, 1997 the Company
estimates its remaining potential liability for remediation of the waste
disposal sites and legal costs to be approximately $231,000, 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.
June 12, 1997 /s/F. William Weber
F. William Weber
Chairman
Chief Executive Officer
Director
June 12, 1997 /s/Dana S Weber
Dana S. Weber
President
Chief Operating Officer
Director
June 12, 1997 /s/Michael P. Howard
Michael P. Howard
Treasurer
Chief Financial Officer
Vice President of Finance and Administration
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 298
<SECURITIES> 0
<RECEIVABLES> 15545
<ALLOWANCES> 0
<INVENTORY> 28037
<CURRENT-ASSETS> 47366
<PP&E> 70997
<DEPRECIATION> 24120
<TOTAL-ASSETS> 95850
<CURRENT-LIABILITIES> 22444
<BONDS> 25556
0
0
<COMMON> 63
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<TOTAL-REVENUES> 86114
<CGS> 74473
<TOTAL-COSTS> 74473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-TAX> 770
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<EPS-PRIMARY> .20
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</TABLE>
