SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): June 29, 1998
WEBCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 0-23242 73-1097133
(State or other (File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
9101 West 21st Street, Sand Springs, Oklahoma 74063
(Address of principal executive offices) (Zip Code)
Registrants telephone number,
including area code (918) 241-1000
<PAGE>
The undersigned Registrant hereby amends its Form 8-K filed on July 14, 1998
to include the audited financial statements of its newly acquired subsidiary,
Phillips & Johnston, Inc., and the related pro forma financial information.
Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits
(a) Historical financial statements of Phillips & Johnston, Inc.
PAGE
Report of Independent Public Accountants 3
Balance Sheets as of December 31, 1997 and 1996 4
Statements of Income for the Years Ended December 31, 1997 and 1996 5
Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1997 and 1996 6
Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996 7
Notes to Financial Statements 8-12
Balance Sheet as of June 30, 1998 13
Statements of Income for the Six Months Ended June 30, 1998 and 1997 14
Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 15
Notes to Unaudited Financial Statements 16
(b) Pro forma financial information
Pro Forma Consolidated Balance Sheet as of April 30, 1998 18
Notes to Unaudited Pro Forma Consolidated Balance Sheet
as of April 30, 1998 19
Pro Forma Consolidated Statement of Income for the
Nine Months Ended April 30, 1998 20
Notes to Unaudited Pro Forma Consolidated Statement of
Income for the Nine Months Ended April 30, 1998 21
Pro Forma Consolidated Statements of Income for the
Years Ended July 31, 1997, 1996 and 1995 22-24
Notes to Unaudited Pro Forma Consolidated Statements of
Income for the Years Ended July 31, 1997, 1996 and 1995 25
(c) Exhibits
23.1 Consent of Dugan & Lopatka 27
99.1 Plan and Agreement of reorganization dated as of June 26, 1998, by
and among Webco Industries, Inc., P & J Acquisition Corp., Phillips &
Johnston, Inc., Christopher L. Kowalski and Robert Pressly, incorporated by
reference to exhibit 99.1 to the Company's filing on Form 8-K dated June 29,
1998.
<PAGE>
<AUDIT-REPORT>
ITEM 7 (a): HISTORICAL FINANCIAL STATEMENTS OF PHILLIPS & JOHNSTON, INC.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of Phillips & Johnston, Inc.:
We have audited the accompanying balance sheets of Phillips & Johnston,
Inc. (an Illinois corporation) as of December 31, 1997 and 1996, and the
related statements of income, shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Phillips &
Johnston, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 7 to the financial statements, certain errors
resulting in an understatement of previously reported liabilities as of
December 31, 1997 and 1996 were discovered by management of the company during
the current year. Accordingly, the 1997 and 1996 financial statements have
been restated and an adjustment has been made to retained earnings as of
January 1, 1996 to correct the errors.
DUGAN & LOPATKA
Wheaton, Illinois
June 29, 1998
</AUDIT-REPORT>
<PAGE>
<TABLE>
Phillips & Johnston, Inc.
Balance Sheets
December 31, 1997 and 1996
(Dollars in thousands, except share amounts and par value)
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 56
Receivables - Trade 2,334 2,455
Inventories 2,259 1,850
Other current assets 17 58
Total current assets 4,610 4,419
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 1,042 585
Office furniture and equipment 328 309
Automobiles 461 436
Leasehold improvements 48 48
1,879 1,378
Less - Accumulated depreciation 1,177 938
Property and equipment, net 702 440
OTHER ASSETS 66 115
$ 5,378 $ 4,974
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 264 $ -
Notes payable, current maturities 183 171
Accounts payable - Trade 1,424 1,427
Accrued expenses 465 481
Total current liabilities 2,336 2,079
NOTES PAYABLE, NET OF CURRENT MATURITIES 362 384
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 10,000 shares authorized,
38 shares issued and 26 shares outstanding
Paid-in capital 298 298
Retained earnings 2,794 2,625
Treasury stock, 12 shares at cost (412) (412)
Total shareholders' equity 2,680 2,511
$ 5,378 $ 4,974
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Phillips & Johnston, Inc.
Statements of Income
For the Years Ended December 31, 1997 and 1996
(Dollars in thousands)
<CAPTION>
1997 1996
<S> <C> <C>
NET SALES $ 17,419 $ 15,401
COST OF SALES 13,582 11,800
Gross profit 3,837 3,601
COMMISSION INCOME 2,713 2,577
6,550 6,178
EXPENSES:
Selling expenses 1,749 1,582
General and administrative expenses 2,648 2,420
Total expenses 4,397 4,002
Income from operations 2,153 2,176
INTEREST EXPENSE (63) (81)
OTHER INCOME 25 6
INCOME BEFORE INCOME TAXES 2,115 2,101
PROVISION FOR INCOME TAXES 61 70
NET INCOME $ 2,054 $ 2,031
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Phillips & Johnston, Inc.
Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1997 and 1996
(Dollars in thousands)
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
<S> <C> <C> <C> <C>
Balance at January 1, 1996,
as previously reported $ - $ 298 $ 1,990 $ -
Adjustment for compensated
absences (Note 7) - - (100) -
Balance at January 1, 1996,
as restated - 298 1,890 -
Net income - - 2,031 -
Purchase of treasury stock - - - (412)
Distributions to shareholders - - (1,296) -
Balance at December 31, 1996 - 298 2,625 (412)
Net income - - 2,054 -
Distributions to shareholders - - (1,885) -
Balance at December 31, 1997 $ - $ 298 $ 2,794 $ (412)
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Phillips & Johnston, Inc.
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
(Dollars in thousands)
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,054 $ 2,031
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization 334 249
Gain (loss) on sale of assets (11) 3
Change in assets and liabilities:
(Increase) decrease in accounts
receivable 108 (344)
(Increase) decrease in inventories (409) 37
(Increase) decrease in other assets 81 (1)
(Increase) decrease in advances
and notes receivable 16 (4)
Increase (decrease) in accounts
payable and accrued expenses (19) 307
Net adjustments 100 247
Net cash provided by
operating activities 2,154 2,278
Cash flows from investing activities:
Payments for purchase of property and equipment (703) (215)
Proceeds from sale of property and equipment 123 -
Net cash (used in) investing activities (580) (215)
Cash flows from financing activities:
Cash overdraft 264 (450)
Proceeds on notes 250 25
Payments on notes (259) (286)
Shareholder distributions (1,885) (1,296)
Net cash (used in) financing activities (1,630) (2,007)
Net change in cash (56) 56
Cash, beginning of year 56 -
Cash, end of year $ - $ 56
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Phillips & Johnston, Inc.
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Phillips & Johnston, Inc. (the Company) is a manufacturers' sales
representative and a value added processor of tubing products. The Company
has general office and warehouse facilities in Illinois and Michigan. The
Company was incorporated in Illinois on June 6, 1963.
Accounts receivable -
Accounts receivable represent short-term credit granted to the Company's
customers for which collateral is generally not required.
Inventory -
Inventories, which consist principally of finished goods, are valued at
the lower of cost or market, using average cost. Cost is determined using the
LIFO (last-in, first-out) method.
Property and equipment -
Property and equipment are recorded at cost. Renewals and betterment of
property are accounted for as additions to the asset accounts. Repairs and
maintenance are expensed as incurred. Upon retirement or other disposition,
the cost is removed from the fixed asset account and the related depreciation
previously provided is removed from the accumulated depreciation account.
Gains or losses on such retirements are included in earnings.
Depreciation -
Depreciation is computed utilizing straight-line and accelerated methods.
The cost of all depreciable property is charged to operations over their
estimated useful lives ranging from 3 to 7 years.
Credit risk -
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company places its cash and deposits with high credit quality
financial institutions. At times, bank cash balances may be immaterially in
excess of the federally insured limits.
<PAGE>
Phillips & Johnston, Inc.
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income taxes -
Effective December 31, 1986, the Company elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the shareholders are liable for individual income taxes on the
Company's taxable income. The Company is responsible for paying the state and
city income taxes. Taxes currently payable are $61,000 and $70,000 for the
years ended December 31, 1997 and 1996, respectively. Cash paid for income
taxes during the years ended December 31, 1997 and 1996 was $54,046 and $62,
142, respectively.
Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) LIFO INVENTORY:
As disclosed in note 1, the LIFO (last-in, first-out) method of valuing
inventories is used. If the FIFO (first-in, first-out) method was used, the
income before taxes would have been $19,000 lower and $18,000 higher for the
years ended December 31, 1997 and 1996, respectively. Additionally, the
inventory would have been approximately $319,000 and $338,000 higher than
reported at December 31, 1997 and 1996, respectively.
(3) NOTES PAYABLE:
The Company has a line-of-credit agreement ($2,000,000) and a term note
($500,000) with a bank. The line of credit matures on April 30, 1999, bearing
interest at prime, collateralized by all Company assets and personally
guaranteed by the shareholders of the Company. The shareholders have
personally guaranteed up to $750,000 of the line of credit with each
shareholders' guarantee being limited to the lesser of 50% of the debt or
$375,000. There were no outstanding borrowings on the line of credit at
December 31, 1997 and 1996.
1997 1996
Notes payable to former shareholders in
monthly installments of $6,508, principal
and interest, bearing interest at 8.4%,
due December, 2002, and guaranteed by the
current shareholders. $ 318,000 $ 367,000
<PAGE>
Phillips & Johnston, Inc.
Notes to Financial Statements
Term loan to a bank in monthly
installments of $7,846, principal
and interest, bearing interest at 8.10%,
collateralized by all company assets,
due January, 2000. 174,000
-
Payable to a bank in monthly
installments of $9,901, principal
and interest, bearing interest at 7.0%,
collateralized by all company assets,
due April, 1998. 38,000 150,000
Various notes payable in monthly principal
and interest installments, bearing interest
at rates ranging from 3.9% to 8.25%,
collateralized by automobiles and computer,
due at various dates through September, 1998. 15,000 38,000
545,000 555,000
Less - Current maturities 183,000 171,000
Long-term maturities $ 362,000 $ 384,000
As of December 31, 1997, the long-term portion matures as follows:
1999 $ 149,000
2000 71,000
2001 69,000
2002 73,000
Cash paid for interest during the years ended December 31, 1997 and 1996
was $63,014 and $81,338, respectively.
(4) COMMITMENTS AND CONTINGENCIES:
Leases -
The Company leases office and warehouse facilities in Glen Ellyn,
Illinois and leases warehouse facilities in Grand Rapids, Michigan. Rent
expense was $213,000 for the year ended December 31, 1997.
Additionally, the Company leases its warehouse facility in Lyndon,
Illinois from a related party. The lease agreement provides for monthly lease
payments of approximately $6,000 through April, 1996 with an annual increase
of 5.0% through April, 1999. Rent expense for the Company was $76,000 in 1997.
<PAGE>
Phillips & Johnston, Inc.
Notes to Financial Statements
Future minimum rental commitments are as follows:
1998 $ 242,000
1999 57,000
-------------
$ 299,000
Litigation -
The Company has been named as a defendant in a lawsuit brought by an
individual. The Company has accrued $100,000 at December 31, 1997 and 1996,
which represents a potential settlement.
Significant customer -
For the year ended December 31, 1997, approximately 10% of revenues and
commissions were from one customer.
Major suppliers -
During the years ended December 31, 1997 and 1996, approximately 49% and
42%, respectively, of material purchases were from one supplier.
(5) PROFIT SHARING PLAN:
The Company has a contributory profit sharing/401(k) plan covering
employees meeting certain service requirements. The Company's annual
contribution to the profit sharing plan is discretionary and is determined by
the Board of Directors. Contributions to the 401(k) plan are made solely by
the employees and are limited to 10% of their total compensation or as
prescribed by IRS regulations. The profit sharing contribution was $160,000
and $130,000 for the years ended December 31, 1997 and 1996, respectively.
(6) SUBSEQUENT EVENT:
On June 29, 1998, the Company merged with Webco Industries, Inc. (Webco),
whereby Webco will obtain all of the outstanding stock of the Company from
existing shareholders for 830,000 shares of Webco common stock.
<PAGE>
Phillips & Johnston, Inc.
Notes to Financial Statements
(7) PRIOR PERIOD ADJUSTMENT:
During 1998, the Company determined that it had incorrectly accounted for
its compensated absences and certain other contingencies. Both of these
matters have been corrected through restatement of prior years' financial
statements.
For the year ended
December 31, 1996
Net income as previously reported $ 2,131,000
Adjustments of accrued litigation (100,000)
Net income as restated $ 2,031,000
<PAGE>
<TABLE>
Phillips & Johnston, Inc.
Balance Sheet
June 30, 1998
(Dollars in thousands, except par value)
(Unaudited)
<CAPTION>
ASSETS 1998
<S> <C>
Current assets:
Cash $ -
Receivables - Trade 3,125
Inventories 2,527
Other current assets 22
Total current assets 5,674
Property and equipment:
Machinery and equipment 1,151
Office furniture and equipment 327
Automobiles 401
Leasehold improvements 48
Less: Accumulated depreciation (1,244)
Property and equipment, net 683
Other assets 45
Total assets $ 6,402
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 552
Notes payable, current maturities 1,225
Accounts payable - Trade 1,599
Accrued expenses 832
Total current liabilities 4,208
Notes payable, net of current maturities 410
Stockholders' equity
Common stock, $1 par value, 10,000 shares
authorized, 26 shares issued and outstanding -
Paid-in capital 244
Retained earnings 1,540
Total shareholders' equity 1,784
Total liabilities and equity $ 6,402
<FN>
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
<TABLE>
Phillips & Johnston, Inc.
Statements of Operations
For the Six Months Ended June 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $ 9,491 $ 8,869
Cost of sales 7,468 6,926
Gross profit 2,023 1,943
Commission income 1,424 1,286
Expenses
Selling expenses 885 868
General and administrative expenses 1,231 1,278
Income from operations 1,331 1,083
Interest expense 35 34
Income before income taxes 1,296 1,049
Provision for income taxes 18 34
Net income $ 1,278 $ 1,015
<FN>
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
<TABLE>
Phillips & Johnston, Inc.
Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,278 $ 1,015
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 169 145
(Gain) loss on sale of assets (20) -
(Increase) decrease in:
Accounts receivable (799) (27)
Inventories (268) 191
Other assets 15 (50)
Increase (decrease) in:
Accounts payable 175 34
Accrued expenses 374 309
Net cash provided by operating activities 924 1,617
Cash flows from investing activities:
Payments for purchase of property and equipment (154) (540)
Proceeds from sale of property and equipment 26 117
Net cash used in investing activities (128) (423)
Cash flows from financing activities:
Cash overdraft 288 242
Proceeds on notes 5,080 2,703
Payments on notes (3,990) (2,582)
Shareholder distributions (2,174) (1,613)
Net cash provided by financing activities (796) (1,250)
Net change in cash 0 (56)
Cash, beginning of the period 0 56
Cash, end of the period $ 0 $ 0
<FN>
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
Phillips & Johnston, Inc.
Notes to Unaudited Financial Statements
Note 1 - General
The accompanying unaudited condensed financial statements of Phillips &
Johnston, 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 June 30, 1998 and results of operations
for the six months ended June 30, 1998 and June 30, 1997, and cash flows for
the six months ended June 30, 1998 and June 30, 1997. Results for the six
months ended June 30, 1998 are not necessarily indicative of results which
will be realized for the full fiscal year. The unaudited condensed financial
statements should be read in conjunction with the audited financial statements
and related notes thereto for the year ended December 31, 1997.
On June 29, 1998, the Company merged with Webco Industries, Inc. (Webco),
whereby Webco obtained all of the outstanding stock of the Company from
existing shareholders for 830,000 shares of Webco common stock.
<PAGE>
ITEM 7 (b) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On June 29, 1998, Webco Industries, Inc., an Oklahoma corporation (the
"Company"), acquired Phillips & Johnston, Inc., an Illinois corporation
("P&J"), by merging a wholly-owned subsidiary of the Company, with and into
P&J, with P&J as the surviving corporation (the Merger). The purchase price
consisted of 830,000 shares of the Company's common stock (the Shares). By
virtue of the Merger, P&J became a direct, wholly-owned subsidiary of the
Company, and all of P&J's outstanding capital stock prior to the Merger was
converted into rights to receive a pro rata portion of the Shares. The Merger
is being accounted for under the pooling of interests method of accounting.
<PAGE>
<TABLE>
Webco Industries, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
April 30, 1998
(Dollars in thousands, except share amounts and par value)
(Unaudited)
<CAPTION>
Phillips &
Webco Johnston Adjustments Pro Forma
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash $ 891 $ (45) $ 846
Accounts receivable, net 18,805 2,613 (952)(a) 20,466
Inventories 24,344 2,212 319 (b) 26,738
(137)(c)
Prepaid expenses 381 (1) 380
Deferred income tax asset 1,768 - 1,768
Total current assets 46,189 4,779 50,198
Property and equipment:
Land 1,436 - 1,436
Buildings and improvements 12,181 48 12,229
Machinery and equipment 54,156 1,497 55,653
Furniture and fixtures 3,515 327 3,842
Construction in progress 9,785 0 9,785
Less acc. Depr. and Amort. (27,378) (1,207) (28,585)
Net property, plant and equipment 53,695 665 54,360
Notes receivable: related parties 1,620 - 1,620
Other assets 1,507 48 1,555
Total assets $ 103,011 $ 5,492 $ 107,733
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,304 $ 1,532 (952)(a) $ 12,884
Accrued liabilities 5,820 697 6,517
Current portion of long-term debt 347 671 1,018
Total current liabilities 18,471 2,900 20,419
Long-term debt 30,079 410 30,489
Deferred income tax liability 9,074 - 9,074
Stockholders' equity
Common stock, $.01 par value,
12,000,000 shares authorized,
7,169,000 shares issued
and outstanding 63 - 9 (d) 72
Additional paid-in capital 35,944 298 (9)(d) 36,233
Treasury Stock - (412) (412)
Retained earnings 9,380 2,296 (137)(c) 11,858
319 (b)
45,387 2,182 47,751
Total liabilities and equity $ 103,011 $ 5,492 $ 107,733
<FN>
See accompanying notes to unaudited pro forma consolidated balance sheet.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma
Consolidated Balance Sheet
The pro forma consolidated balance sheet, which has been prepared utilizing
the historical balances of Webco Industries, Inc. ("Webco") and Phillips &
Johnston, Inc. ("P&J"), as of April 30, 1998, is based upon the assumption
that the acquisition by Webco, accounted for under the pooling of interests
method, occurred as of April 30, 1998 and includes the following pro forma
adjustments:
(a) Adjustment to eliminate: (1) Webco's accounts receivable balance and P&J's
corresponding accounts payable balance relating to Webco tubing sold to
P&J and; (2) Webco's accounts payable balance and P&J's corresponding
accounts receivable balance for sales commissions related to tubing sales
made by P & J on Webco's behalf.
(b) Adjustment to conform the method of inventory valuation for P & J from the
Last In-First Out ("LIFO") method to the weighted average method used by
Webco.
(c) Adjustment to eliminate intercompany profit in P & J's inventories.
(d) Adjustment to record issuance of 830,000 shares of Webco common stock in
conjunction with the acquisition.
The pro forma balance sheet should be read in conjunction with the audited
financial statements and related notes thereto of Webco Industries, Inc. and
Phillips and Johnston, Inc. as of July 31, 1997 and December 31, 1997,
respectively.
<PAGE>
<TABLE>
Webco Industries, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Income
For the Nine Months Ended April 30, 1998
(Dollars in thousands)
(Unaudited)
<CAPTION>
Phillips &
Webco Johnston Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 104,451 $ 13,192 (3,844)(a) $ 113,799
Cost of sales 86,436 10,429 (3,844)(a) 92,991
(30)(b)
Gross profit 18,015 2,763 20,808
Commission income - (2,110) (1,560)(c) (550)
Selling, general and
administrative expenses 10,983 3,262 (1,560)(c) 12,685
Income from operations 7,032 1,611 8,673
Interest expense 1,770 41 1,811
Income before income taxes 5,262 1,570 6,862
Provision for income taxes (2,002) (33) (2,035)
Net income $ 3,260 $ 1,537 $ 4,827
Pro forma adjustment for tax expense 595 (d) (595)
Pro forma net income $ 4,232
Net income per share:
Basic $ .51 $ .67
Diluted $ .51 $ .66
Pro forma net income per share:
Basic $ .59
Diluted $ .58
Weighted average shares outstanding:
Basic 6,339,000 7,169,000
Diluted 6,432,000 7,262,000
<FN>
See accompanying notes to unaudited pro forma consolidated statement of income.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma
Consolidated Statement of Income
The pro forma consolidated statement of income, which has been prepared
utilizing the historical results of Webco Industries, Inc. ("Webco") and
Phillips & Johnston, Inc. ("P&J"), for the nine month period ended April 30,
1998, is based upon the assumption that the acquisition by Webco, accounted
for under the pooling of interests method, occurred prior to the earliest
period presented. The pooling of interests method accounts for a business
combination as the uniting of the ownership interest of two or more companies
by the exchange of equity securities. The stockholder groups do not withdraw
or invest any assets but in effect exchange common stocks. While Webco and
P & J have non-conforming fiscal periods, the results presented here are for
the dates indicated for both entities. However, because of the overlapping
period created when P & J's calendar year was conformed to a July 31 fiscal
year, $749,000 of earnings of P & J (the period August 1, 1997 to December 31,
1997) are included in both Webco's consolidated nine month period ended April
30, 1998 and the year ended July 31, 1997. Equity has been adjusted so that
the duplicate amount is reflected in equity only once.
The unaudited pro forma consolidated statement of income includes the
following pro forma adjustments:
(a) Adjustment to eliminate sales recognized by Webco to P & J, and the
related cost of sales recognized by P & J.
(b) Adjustment to eliminate intercompany profit in inventory held by P & J
which had been purchased from Webco
(c) Adjustment to eliminate commission expense and the corresponding
commission income for brokered tubing sales made by P & J on Webco's
behalf.
(d) Adjustment to record the estimated federal and state income tax expense
for P & J for the current period, which had not previously been recognized
due to P & J's status as a Sub-S Corporation.
The pro forma income statements should be read in conjunction with the audited
financial statements and related notes thereto of Webco Industries, Inc. for
the year ended July 31, 1997, as included in the Company's Form 10-K for the
year ended July 31, 1997, and with the audited financial statements and
related notes thereto of Phillips and Johnston, Inc. for the year ended
December 31, 1997. These pro forma statements may not be indicative of the
results that actually would have occurred if the combination had been in
effect on the dates indicated or which may by obtained in the future.
<PAGE>
<TABLE>
Webco Industries, Inc. and Subsidiaries
Pro Forma Consolidated Statements of Income
For the Year Ended July 31, 1997
(Dollars in thousands)
(Unaudited)
<CAPTION>
Phillips &
Webco Johnston Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 117,739 $ 17,419 (6,565)(a) $ 128,593
Cost of sales 101,273 13,582 (6,547)(a) 108,365
57 (b)
Gross profit 16,466 3,837 20,228
Commission income - (2,713) (1,871)(c) (842)
Selling, general and
administrative expenses 10,451 4,372 (1,871)(c) 12,952
Special item: write-off of
Mill #3 cut-off 884 - 884
Income from operations 5,131 2,178 7,234
Interest expense 1,893 64 2,047
Income before income taxes 3,148 2,114 5,187
Provision for income taxes (1,196) (60) (1,256)
Net income $ 1,952 $ 2,054 $ 3,931
Pro forma adjustment for tax expense 752(d) (752)
Pro forma net income $ 3,179
Net income per share:
Basic $ .31 $ .55
Diluted $ .31 $ .55
Pro forma net income per share:
Basic $ .44
Diluted $ .44
Weighted average shares outstanding:
Basic 6,339,000 7,169,000
Diluted 6,339,000 7,169,000
<FN>
See accompanying notes to unaudited pro forma consolidated statements of income.
</TABLE>
<PAGE>
<TABLE>
Webco Industries, Inc. and Subsidiaries
Pro Forma Consolidated Statements of Income
For the Year Ended July 31, 1996
(Dollars in thousands)
(Unaudited)
<CAPTION>
Phillips &
Webco Johnston Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 101,867 $ 15,401 (4,743)(a) $ 112,525
Cost of sales 88,322 11,800 (4,751)(a) 95,366
(5)(b)
Gross profit 13,545 3,601 17,159
Commission income - (2,577) (1,425)(c) (1,152)
Selling, general and
administrative expenses 8,595 3,996 (1,425)(c) 11,166
Income from operations 4,950 2,182 7,145
Interest expense 2,171 81 2,252
Income before income taxes 2,779 2,101 4,893
Provision for income taxes (1,056) (70) (1,126)
Net income $ 1,723 $ 2,031 $ 3,767
Pro forma adjustment for tax expense 777(d) 777
Pro forma net income $ 2,990
Net income per share:
Basic $ .27 $ .53
Diluted $ .27 $ .53
Pro forma net income per share:
Basic $ .42
Diluted $ .42
Weighted average shares outstanding:
Basic 6,339,000 7,169,000
Diluted 6,339,000 7,169,000
<FN>
See accompanying notes to unaudited pro forma consolidated statements of income.
</TABLE>
<PAGE>
<TABLE>
Webco Industries, Inc. and Subsidiaries
Pro Forma Consolidated Statements of Income
For the Year Ended July 31, 1995
(Dollars in thousands)
(Unaudited)
<CAPTION>
Phillips &
Webco Johnston Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 97,724 $ 14,365 ($3,805)(a) $ 108,284
Cost of sales 85,915 11,045 (3,887)(a) 93,089
16 (b)
Gross profit 11,809 3,320 15,195
Commission income - (2,304) (1,378)(c) (926)
Selling, general and
administrative expenses 7,147 3,679 (1,378)(c) 9,448
Income from operations 4,662 1,945 6,673
Unusual item: share holder litigation settlement
and related litigation costs 3,455 - 3,455
Interest expense 1,245 52 1,297
Income before income taxes (38) 1,893 1,921
Provision for income taxes (639) (40) (679)
Net income ($ 677) $ 1,853 $ 1,242
Pro forma adjustment for tax expense 729 (d) (729)
Pro forma net income $ 513
Net income per share:
Basic $ (.11) $ .17
Diluted $ (.11) $ .17
Pro forma net income per share:
Basic $ .07
Diluted $ .07
Weighted average shares outstanding:
Basic 6,339,000 7,169,000
Diluted 6,339,000 7,169,000
<FN>
See accompanying notes to unaudited pro forma consolidated statements of income.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma
Consolidated Statements of Income
The pro forma consolidated statements of income, which have been prepared
utilizing the historical results of Webco Industries, Inc. ("Webco") and
Phillips & Johnston, Inc. ("P&J"), for the years ended July 31, 1997, 1996 and
1995 are based upon an accounting for the acquisition as a pooling of
interests, and accordingly, all prior years financial statements have been
restated to reflect the acquisition. The pooling of interests method accounts
for a business combination as the uniting of the ownership interest of two or
more companies by the exchange of equity securities. The stockholder groups do
not withdraw or invest any assets but in effect exchange common stocks.
Because Webco and P & J have non-conforming fiscal periods, the results
presented here are for the dates indicated for Webco, however they are for the
fiscal periods ended December 31, 1997, 1996 and 1995 for P & J. Because of
the overlapping period created when P & J's calendar year was conformed to a
July 31 fiscal year, $749,000 of earnings of P & J (the period August 1, 1997
to December 31, 1997) are included in both Webco's consolidated nine month
period ended April 30, 1998 and the year ended July 31, 1997. Equity has been
adjusted so that the duplicate amount is reflected in equity only once.
The unaudited pro forma consolidated statements of income includes the
following pro forma adjustments:
(a) Adjustment to eliminate sales recognized by Webco during the current
period to P & J, and the related cost of sales recognized by P & J.
(b) Adjustment to eliminate intercompany profit in inventory held by P & J
which had been purchased from Webco
(c) Adjustment to eliminate commission expense and the corresponding
commission income for brokered tubing sales made by P & J on Webco's
behalf.
(d) Adjustment to record the estimated federal and state income tax expense
for P & J for the current period, which had not previously been
recognized due to P & J's status as a Sub-S Corporation.
The pro forma income statements should be read in conjunction with the audited
financial statements and related notes thereto of Webco Industries, Inc. for
the years ended July 31, 1997, 1996, and 1995 as included in the Company's
Form 10-K for the corresponding periods, and with the audited financial
statements and related notes thereto of Phillips and Johnston, Inc. for the
years ended December 31, 1997 and 1996. These pro forma statements may not be
indicative of the results that actually would have occurred if the combination
had been in effect on the dates indicated or which may by obtained in the
future.
<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 hereunto duly authorized.
WEBCO INDUSTRIES, INC.
Dated: September 12, 1998 By: /s/ Michael P. Howard
Michael P. Howard
Vice President and
Chief Financial Officer
<PAGE>
<AUDIT-REPORT>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements on
Form S-3 (File No. 333-22779) and Form S-8 (File No. 333-49219) of Webco
Industries, Inc. of our report dated June 29, 1998 on our audit of the
financial statements of Phillips & Johnston, Inc. for the years ended
December 31, 1997 and 1996, which report is included in this Form 8-K/A.
DUGAN & LOPATKA
Wheaton, Illinois
September 9, 1998
</AUDIT-REPORT>
