UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
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)
9101 West 21st Street, 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: 7,073,723 shares of Common
Stock, $0.01 par value, as of November 30, 1999.
<PAGE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Number
--------
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Balance Sheets 3
Statements of Income 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 9-13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
<CAPTION>
October 31, July 31,
ASSETS 1999 1999
------- -------
<S> <C> <C>
Current assets:
Cash $ 229 $ 180
Accounts receivable, net 18,011 17,179
Inventories 34,227 30,785
Prepaid expenses 446 289
Deferred income tax asset 3,146 3,013
------- -------
Total current assets 56,059 51,446
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 18,451 15,519
Machinery and equipment 69,736 67,666
Computer equipment and software 9,214 7,515
Furniture and fixtures 852 712
Construction in progress 1,788 5,681
Less accumulated depreciation and amortization (35,369) (34,252)
------- -------
Net property, plant and equipment 66,108 64,277
Notes receivable from related parties 1,824 1,824
Other assets, net 3,667 2,934
------- -------
Total assets $127,658 $120,481
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,937 $ 12,784
Accrued liabilities 5,851 5,421
Current portion of long-term debt 1,125 895
------- -------
Total current liabilities 19,913 19,100
Long-term debt 45,860 39,746
Deferred income tax liability 12,146 11,962
Commitments and contingencies (Note 3)
Stockholders' equity:
Common stock, $.01 par value, 12,000,000
shares authorized, 7,073,723 shares issued
and outstanding 71 71
Additional paid-in capital 35,732 35,732
Retained earnings 13,936 13,870
------- -------
Total stockholders' equity 49,739 49,673
------- -------
Total liabilities and stockholders' equity $127,658 $120,481
======= =======
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
October 31,
1999 1998
<S> <C> <C>
Net sales $ 33,322 $ 36,583
Cost of sales 28,383 29,616
------- -------
Gross profit 4,939 6,967
Selling, general and administrative expenses 4,078 4,412
------- -------
Income from operations 861 2,555
Interest expense 757 599
------- -------
Income before income taxes 104 1,956
Provision for income taxes 38 744
------- -------
Net income $ 66 $ 1,212
======= =======
Net income per common share:
Basic $ .01 $ .17
======= =======
Diluted $ .01 $ .17
======= =======
Weighted average common shares outstanding:
Basic 7,074 7,169
======= =======
Diluted 7,074 7,193
======= =======
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
October 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 66 $ 1,212
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,448 1,207
Loss (gain) on write-off and disposition
of property, plant and equipment 33 (7)
Deferred tax expense 51 526
(Increase) decrease in:
Accounts receivable (832) 80
Inventories (3,442) (1,068)
Prepaid expenses (157) (51)
Increase (decrease) in:
Accounts payable (3,651) 1,236
Accrued liabilities 430 109
------- -------
Net cash provided by (used in) operating activities (6,054) 3,244
------- -------
Cash flows from investing activities:
Capital expenditures (3,385) (3,057)
Proceeds from sale of property, plant and equipment 21 7
Other (804) (177)
------- -------
Net cash used in investing activities (4,168) (3,227)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 32,912 34,735
Principal payments on long-term debt (26,568) (35,083)
Increase (decrease) in book overdrafts 3,927 329
------- -------
Net cash provided by (used in) financing activities 10,271 (19)
------- -------
Net increase (decrease) in cash 49 (2)
Cash, beginning of period 180 266
------- -------
Cash, end of period $ 229 $ 264
======= =======
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General
The unaudited condensed consolidated financial statements include the
accounts of Webco Industries, Inc. ("Webco" or together with its subsidiary,
the "Company") and its wholly owned subsidiary Phillips & Johnston, Inc.
("P&J"), a Chicago based sales organization and value-added processor of
tubular products. All significant intercompany accounts and transactions have
been eliminated in the accompanying financial statements.
The financial statements include, in the opinion of management, all
adjustments (which are of a normal recurring nature) necessary for a fair
presentation of financial position at October 31, 1999, and results of
operations and cash flows for the three months ended October 31, 1999 and
October 31, 1998. Results for the three months ended October 31, 1999 are not
necessarily indicative of results that will be realized for the full fiscal
year. The year-end balance sheet was derived from the audited consolidated
financial statements but does not include all disclosures required by generally
accepted accounting principles. The unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and related notes which can be found in the Company's Form
10-K for the year ended July 31, 1999.
Note 2 - Inventories
At October 31, 1999 and July 31, 1999, inventories were as follows (in
thousands):
October 31, 1999 July 31, 1999
---------------- -------------
Raw materials $ 19,541 $ 16,437
Work-in-process 2,517 1,908
Finished goods 10,402 10,728
Maintenance parts
and supplies 1,767 1,712
------- -------
Total inventories $ 34,227 $ 30,785
======= =======
Note 3 - Contingencies
The Company is a party to various 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.
<PAGE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Common Stock and Common Stock Equivalents
Presented below is a reconciliation of the differences between actual
weighted average shares outstanding and diluted weighted average shares (in
thousands, except per share amounts).
Three Months Ended
October 31,
1999 1998
----- -----
Basic EPS:
Weighted average shares outstanding 7,074 7,169
Effect of dilutive securities: Options - 24
----- -----
Diluted EPS:
Diluted weighted average shares outstanding 7,074 7,193
===== =====
Anti-dilutive options outstanding:
Number of options 717 227
===== =====
Weighted average exercise price $5.99 $7.30
===== =====
Note 5 - Segment Information
In 1998 Webco Industries, Inc. adopted FAS 131 "Disclosures about Segments
of an Enterprise and Related Information". The Company has two reportable
segments: tubing products and QuikWater, representing the Company's two
strategic business units offering different products. The Company internally
evaluates its business by facility, however, because of the similar economic
characteristics of the tubing operations, including the nature of products,
production processes and customers, those operations have been aggregated for
segment reporting purposes. The tubing products segment manufactures as well
as distributes tubular products principally made of carbon and stainless steel.
QuikWater manufactures a patented direct contact high efficiency water heater.
The Company measures segment profit or loss as segment income before
income taxes. Information on the Company's segments is as follows (Dollars in
thousands):
Tubing
Products QuikWater Total
-------- --------- -------
Quarter-ended October 31, 1999:
Revenues $ 32,678 $ 644 $ 33,322
Segment pre-tax income or (loss) 534 (430) 104
Quarter-ended October 31, 1998:
Revenues 35,846 737 36,583
Segment pre-tax income or (loss) 2,358 (402) 1,956
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Webco Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Webco Industries, Inc. and subsidiary as of October 31, 1999, and the related
condensed consolidated statements of income for the three-month periods ended
October 31, 1999 and 1998 and cash flows for the three-month periods ended
October 31, 1999 and 1998. 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 consolidated 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 consolidated balance sheet of Webco Industries, Inc. and
subsidiary as of July 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated September 16, 1999, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of July 31, 1999 is fairly stated in all material respects in relation to
the balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
November 19, 1999
</AUDIT-REPORT>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Webco Industries, Inc., 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 and stainless steel tubing
products designed to industry and customer specifications. Webco's tubing
products consist primarily of: welded carbon heat exchanger and boiler tubing,
stainless tube and pipe, and specialty carbon mechanical tubing for use in
consumer durable and capital goods. Management believes that Webco is the
domestic market leader in the manufacture of welded carbon heat exchanger and
boiler tubing, and the leading supplier of stainless tubing for certain niche
applications. The Company's subsidiary, P&J, represents several manufacturers
who produce various non-competing mechanical and specialty tubular products
made from copper, brass, aluminum, stainless steel and carbon steel, among
others. This access to other tubing products allows the Company to better serve
its customers by offering a full range of tubing products. Through its
QuikWater division, the Company manufactures and markets a patented direct
contact water heater for commercial and industrial applications. The Company
has three production facilities in Oklahoma and Pennsylvania and five
distribution facilities in Oklahoma, Texas, Illinois and Michigan, serving more
than 1,300 customers throughout North America.
Unless the context otherwise requires, the information contained in this
report, and the terms "Webco" and the "Company" when used in this report,
include Webco Industries, Inc. and its subsidiary, P&J, on a consolidated
basis.
Results of Operations for the Three Months Ended October 31, 1999 Compared
with the Three Months Ended October 31, 1998
Manufactured Tubing Product sales for the quarter ended October 31, 1999
were $29,460,000, a decrease of 8.9 percent from the $32,332,000 for the same
quarter last year. The $2,872,000 decrease in net sales is primarily the result
of a 3.5 percent decrease in the tonnage of tubing sold and a 5.6 percent
decrease in the average net sales price per ton. The tonnage of tubing sold
was down primarily as a result of the one-week suspension in production at the
Company's Sand Springs, Oklahoma, facility for the installation of the
enterprise resource planning software and other maintenance projects at the
location. The decrease in the average net selling price is a combination of a
change in sales mix and the continued erosion in pricing obtained for carbon
products.
Gross profit for Manufactured Tubing Products decreased to $3,999,000, or
13.6 percent of net sales, for the first quarter of fiscal 2000 from
$6,079,000, or 18.8 percent of net sales, for the same period in fiscal 1999.
This is a function of a decrease in the tonnage sold, as explained above, and
continued pricing pressures in the carbon market.
Other Tubing Products sales are made primarily by Webco's subsidiary, P&J.
Sales of these products decreased 8.4 percent to $3,218,000 for the period
ended October 31, 1999 from $3,514,000 for the period ended October 31, 1998.
Gross Profit from Other Tubing Products decreased to $773,000, or 24.0
percent of net sales, for the first quarter of fiscal 2000 from $806,000, or
22.9 percent of net sales, for the same period in fiscal 1999. These changes
were primarily the result of a change in sales mix.
<PAGE>
Sales for QuikWater were $644,000 for the first quarter of fiscal 2000,
which is 12.6 percent less than the $737,000 in sales for the same period in
fiscal 1999. Gross profit for QuikWater was $167,000, or 25.9 percent of net
sales, for the first quarter of fiscal 2000 as compared to $82,000, or 11.1
percent of net sales, for the same period of fiscal 1999. The increase in
gross profit is a reflection of increased efficiencies in manufacturing and
cost reduction efforts made by management.
Selling, general and administrative expenses were $4,078,000 for the first
quarter of fiscal 2000 compared to $4,412,000 for the same quarter of fiscal
1999. The decrease in the current quarter is primarily the result of a
$290,000 decrease in legal fees related to the Thermatool litigation, along
with a $215,000 decrease in profit sharing and bonuses to employees, partially
offset by an increase of $100,000 in depreciation expense related to the
enterprise software system.
Interest expense for the current period was $757,000 ($859,000 prior to
interest capitalization) as compared to interest expense of $599,000 ($692,000
prior to interest capitalization) for the same quarter last year. The increase
in interest prior to interest capitalization is the result of the average level
of debt under the bank Loan and Security Agreement for the three months ended
October 31, 1999 being $41.4 million as compared to $32.4 million for the same
period last year. The average interest rate was 7.32 percent in the first
quarter of fiscal 2000 compared with 7.43 percent in the first quarter of
fiscal 1999. A significant portion of the Company's debt bears an interest
rate that fluctuates with LIBOR. Due to the recent increases in LIBOR interest
rates, the Company expects a higher average interest rate in the second quarter
of fiscal 2000.
The recorded income tax expense for the quarter ended October 31, 1999 is
based upon the estimated annual combined effective federal and state income
tax rates.
Liquidity and Capital Resources
Net cash used in operations was $6,054,000 for the three months ended
October 31, 1999 versus net cash provided by operations of $3,244,000 for the
three month period ended October 31, 1998. Receivables increased $832,000
during the current period, and decreased $80,000 for the same period last year,
primarily due to stronger sales in the later half of the current quarter.
Inventories increased $3,442,000 for the period ended October 31, 1999 due to
strategic purchases of raw materials, which were made in anticipation of rising
prices. Inventories increased $1,068,000 for the period ended October 31, 1998.
Accounts payable decreased $3,651,000 during the current period and increased
$1,236,000 for the same period last year, however, the current period decrease
is principally offset by an increase of $3,927,000 in book overdrafts. In
addition, accrued liabilities increased by $430,000 for the period ended
October 31, 1999, compared to an increase of $109,000 during the same period
last year.
Net cash used in investing activities for the three months ended October
31, 1999 was $4,168,000, which was $941,000 greater than the $3,227,000 used in
investing activities during the same period in fiscal 1998. Capital
expenditures made during the current period related to progress with the
expansion of the Oil City facility, installation of new enterprise resource
planning software and continued progress with the expansion of the stainless
facility, as well as other projects, which are expected to increase capacity
and improve productivity. The increase in other assets relates to deposits
made as part of the Oil City expansion.
<PAGE>
The Company's capital requirements have historically been to fund
equipment purchases and for general working capital needs resulting from the
growth that the Company experienced. The Company followed an aggressive capital
expenditure plan as part of its growth strategy and to enable it to continue to
be a leader in tubular manufacturing technologies. The Company foresees a
continuance of this strategy in the future. The Company is currently proceeding
with the expansion of its carbon and stainless tubing manufacturing capacity.
The Company's financing arrangements provide for a term loan of $25
million and a line of credit of $25 million. As of October 31, 1999, the
Company had $25 million outstanding on the term loan, and $18.4 million under
the revolving line of credit. These loans mature on August 31, 2002, and are
collateralized by substantially all of the Company's assets other than the Sand
Springs and Oil City real estate. The Company may have borrowings and
outstanding letters of credit ($2,606,000 at October 31, 1999) under the
revolving credit facility up to the lesser of $25 million or an amount
determined by a formula based on the amount of eligible inventories and
accounts receivable. At October 31, 1999, $4.0 million was available for
borrowing under this line of credit.
The Company has arranged for a capital expenditure ("CAPEX") facility in
the amount of $5 million to finance equipment at the Oil City, Pennsylvania,
plant. The line matures on August 31, 2002, and is collateralized by
equipment. At October 31, 1999, $1 million was outstanding on the facility and
$4 million was available for borrowing.
The Company has arranged for financing with various public agencies
related to the Oil City facility, of which, $1.4 million is outstanding and
an additional $1.3 million remains available for borrowing as of October 31,
1999. The notes are collateralized by the underlying real estate and/or
equipment, and the guarantee of the principal stockholder/officer. The notes
mature over a 5 to 9 year period.
P&J has a line of credit agreement for $2,000,000 and term loans of
$250,000 and $500,000 with its primary lender. As of October 31, 1999, the
Company had no outstanding balance under the line of credit and $16,000 and
$459,000, respectively, outstanding on the term loans. The line of credit
matures on November 30, 2000, and the term loans mature in January 2000 and
April 2004, respectively, and are collateralized by P&J's assets. At October
31, 1999, $2 million was available for borrowing under the line of credit.
In the past, the Company has funded its capital growth expenditures with a
combination of cash flow from operations and debt. With the exception of the
expansion of its facilities in Oil City, the Company currently believes that
working capital provided by operations will fund capital spending through
fiscal 2000.
Stock Repurchase Plan
In March 1999, the Company's Board of Directors approved a plan to acquire
up to $500,000 of its common stock. Of the approved $500,000 repurchase, the
Company acquired 95,000 shares of stock for approximately $448,000 during the
third and fourth quarters of fiscal 1999.
<PAGE>
Information Technology and the Year 2000
Over two years ago, the Company began an evaluation of its information
systems to determine the potential impact of advanced technology on the
Company's operations and profitability. During the course of this evaluation,
issues surrounding the effect of the year 2000 on date sensitive applications
became more widely publicized and understood. The Company, recognizing an
opportunity to both update its technology and to address year 2000 concerns,
decided to replace its current information systems with an Enterprise Resource
Planning ("ERP") system.
In the third quarter of fiscal 1998, the Company purchased and began
installation of a Year 2000 compliant ERP system. The installation process
consisted of four phases. The first phase of installation, addressing the
financial, purchasing and plant maintenance functions, was successfully
completed before the end of fiscal 1998. The remaining four modules include
sales orders, materials management, shop floor control and production planning.
These modules were completed (installed and tested) at the Mannford, Oklahoma,
facility in April 1999 and at the Sand Springs, Oklahoma, facility in September
1999. The same system was implemented at the Oil City, Pennsylvania, facility
on November 30, 1999. The Year 2000 compliant ERP system has now been
implemented for all facilities and key business processes throughout the
Company.
The Company has completed an evaluation of other information technology
systems such as phone systems, e-mail, faxes, local area networks, servers and
personal computers. All items of consequence are now year 2000 compliant and
the few remaining ones are scheduled to be replaced with Year 2000 compliant
software and equipment before December 31, 1999. Other important systems,
including equipment used in manufacturing and processing, are basically signal
driven systems where dates play no role in the operating logic.
The Company has surveyed key third party suppliers and is not aware of any
remaining significant year 2000 problems. However, this does not insure there
will be no problems in this area. The impact of non-compliance by third party
suppliers of key components, materials or services could still effect
operations and timely delivery of products. Y2K readiness problems by our
customers could also cause reductions in orders due to their inability to
control their own production or sales processes. Therefore, the company
continues to develop contingency plans to help mitigate potential failures.
Included in the contingency plans, for example, are procedures for contacting
customers in the event of a supplier failure, procedures to maintain certain
inventory levels, and maintenance of Y2K readiness and contact information for
critical vendors and customers.
After the final implementation in Oil City, noted above, of the new ERP
System, and disposition of the initial installation and startup problems, the
Company believes the Year 2000 issue will not pose significant operational
problems for its computer systems. However, if the newly activated ERP system
were to contain latent defects, such defects could have a material affect on
the operations of the company until such problems were resolved. Ramifications
could include mismatched material purchase orders, customer sales orders, and
possible delays caused by the need to manually audit materials planning,
purchasing, order backlog, and capacity planning functions. Systems problems
and the resulting delays could conceivably result in, among other things,
damage to customer relationships, lost sales, and significant customer claims.
<PAGE>
As of October 31, 1999, the Company had spent $6.1 million on the ERP
system, and the Company currently estimates another $500,000 will be expended
to complete the project. Of the $6.6 million total expenditure, over 25 percent
is hardware related, including upgrading the Company's mid-range computers and
the placement of personal computers on the shop floor. Due to the necessity of
technology upgrades generally, it would be arbitrary to allocate any portion of
this project exclusively to the correction of year 2000 issues. Therefore, no
such allocation has been attempted.
The foregoing forward-looking statements, including the costs of
addressing the year 2000 issue and the dates upon which compliance will be
attained, reflect management's current assessment and estimates with respect to
the Company's year 2000 compliance effort. Various factors could cause actual
plans and results to differ materially from those contemplated by such
assessments, estimates and forward-looking statements, many of which are beyond
the control of the Company. Some of these factors include, but are not limited
to, third party modification and installation plans, representations by vendors
and customers, technological advances, economic considerations and customer
perceptions.
Safe Harbor for Forward Looking Statements: Certain statements in this Form
10-Q, including statements preceded by, or predicated upon the words "expects"
and "believes", constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Company, or industry results, to differ materially from any future results,
performance or achievements expressed or implied herein. Such risks,
uncertainties and factors include, among others: general economic and business
conditions, competition from imports, changes in manufacturing technology,
industry capacity, domestic competition, raw material costs and availability,
loss of significant customers and customer and vendor work stoppages,
successful implementation of enterprise software and Year 2000 compliance by
customers and vendors. The reader should refer to Part I, Item 1: "Forward
Looking Statements" of the Company's Form 10-K for the year ended July 31, 1999
for additional information regarding this matter.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In August 1997, the Company filed an action, Webco Industries, Inc. vs.
Thermatool Corporation and Alpha Industries, Inc., relating to certain cut-off
equipment sold to the Company and installed on Mill 3, which did not perform to
specifications. The case, filed in the United States District Court for the
Northern District of Oklahoma (Case No. 97-CV-708H (W)), sought recoveries
including, but not limited to, the cost of the equipment and other incidental
and consequential damages, including lost profits, suffered by the Company. On
May 27, 1999 a jury awarded the Company $1.1 million in its claims against
Thermatool. On December 1, 1998, the court ruled that the Company could not
collect lost profits and certain other incidental and consequential damages,
and limited the Company's possible recovery to the purchase price of the
equipment plus the cost of improvements and interest. The damages awarded by
the jury, accordingly, do not include lost profits by the Company. Now that
the first trial has been decided in the Company's favor, the Company has
petitioned the court for attorneys' fees and has appealed the pre-trial order
that prevented the Company from recovering for lost profits. There can be no
assurances that the Company will be successful on appeal or that if successful,
lost profits awarded in the succeeding trial, if any, will be commensurate with
actual lost profits suffered by the Company. Thermatool has appealed the
jury's verdict and there can be no assurances as to what the outcome of that
appeal will be.
The Company is also 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 Company maintains liability insurance against risks
arising out of the normal course of business.
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
Exhibit 15.1: Letter Regarding 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.
December 7, 1999 /s/Michael P. Howard
Michael P. Howard
Treasurer
Chief Financial Officer
Vice President of Finance and Administration
<PAGE>
EXHIBIT 15.1
WEBCO INDUSTRIES, INC.
LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C. 20549
Re: Webco Industries, Inc.
Registration on Form S-3 and S-8
We are aware that our report dated November 19, 1999, on our review of the
interim financial information of Webco Industries, Inc. for the periods ended
October 31, 1999 and 1998, and included in this Form 10-Q is incorporated by
reference in the Company's registration statements on Form S-3 (File nos. 333-
22779 and 333-67923) and S-8 (File no. 333-49219).
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
December 7, 1999
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<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> OCT-31-1999
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 56059
<PP&E> 101477
<DEPRECIATION> 35369
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<CURRENT-LIABILITIES> 19913
<BONDS> 45860
0
0
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<SALES> 33322
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