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, 2000
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 March 1, 2000.
<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 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
<CAPTION>
January 31, July 31,
ASSETS 2000 1999
------- -------
<S> <C> <C>
Current assets:
Cash $ 146 $ 180
Accounts receivable, net 17,256 17,179
Inventories 35,810 30,785
Prepaid expenses 622 289
Deferred income tax asset 3,146 3,013
------- -------
Total current assets 56,980 51,446
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 18,556 15,519
Machinery and equipment 69,364 67,666
Computer equipment and software 9,012 7,515
Furniture and fixtures 1,162 712
Construction in progress 3,883 5,681
Less accumulated depreciation and amortization (36,634) (34,252)
------- -------
Net property, plant and equipment 66,779 64,277
Notes receivable from related parties 1,795 1,824
Other assets, net 2,829 2,934
------- -------
Total assets $128,383 $120,481
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,572 $ 12,784
Accrued liabilities 5,555 5,421
Current portion of long-term debt 2,586 895
------- -------
Total current liabilities 22,713 19,100
Long-term debt 43,687 39,746
Deferred income tax liability 12,064 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 14,116 13,870
------- -------
Total stockholders' equity 49,919 49,673
------- -------
Total liabilities and stockholders' equity $128,383 $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 Six Months Ended
January 31, January 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 34,898 $ 32,124 $ 68,220 $ 68,707
Cost of sales 29,639 27,512 58,022 57,128
------- ------- ------- -------
Gross profit 5,259 4,612 10,198 11,579
Selling, general and administrative
expenses 3,979 3,729 8,057 8,141
------- ------- ------- -------
Income from operations 1,280 883 2,141 3,438
Interest expense 991 599 1,748 1,198
------- ------- ------- -------
Income before income taxes 289 284 393 2,240
Provision for income taxes 109 112 147 856
------- ------- ------- -------
Net income $ 180 $ 172 $ 246 $ 1,384
======= ======= ======= =======
Net income per common share:
Basic $ .03 $ .02 $ .03 $ .19
======= ======= ======= =======
Diluted $ .03 $ .02 $ .03 $ .19
======= ======= ======= =======
Weighted average common shares outstanding:
Basic 7,074 7,169 7,074 7,169
======= ======= ======= =======
Diluted 7,074 7,186 7,074 7,189
======= ======= ======= =======
<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>
Six Months Ended
January 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 246 $ 1,384
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,942 2,407
Loss (gain) on disposition of
property, plant and equipment 23 (8)
Deferred tax expense 147 560
(Increase) decrease in:
Accounts receivable (77) 2,836
Inventories (4,428) (2,320)
Prepaid expenses (333) (443)
Increase (decrease) in:
Accounts payable 712 814
Accrued liabilities (15) (1,226)
------- -------
Net cash provided by (used in) operating activities (783) 4,004
------- -------
Cash flows from investing activities:
Capital expenditures (5,983) (6,214)
Proceeds from sale of property, plant and equipment 79 7
Other (37) (245)
------- -------
Net cash used in investing activities (5,941) (6,452)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 62,227 72,405
Principal payments on long-term debt (56,595) (67,853)
Increase (decrease) in book overdrafts 1,058 (1,144)
------- -------
Net cash provided by financing activities 6,690 3,408
------- -------
Net increase (decrease) in cash (34) 960
Cash, beginning of period 180 266
------- -------
Cash, end of period $ 146 $ 1,226
======= =======
<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 accompanying unaudited 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 January 31, 2000 and results of
operations for the three months and six months ended January 31, 2000 and
January 31, 1999, and cash flows for the six months ended January 31, 2000 and
January 31, 1999. Results for the three months and six months ended January
31, 2000 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 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 January 31, 2000 and July 31, 1999, inventories were as follows:
January 31, 2000 July 31, 1999
---------------- -------------
Raw materials $ 19,696 $ 16,437
Work-in-process 2,111 1,908
Finished goods 11,655 10,728
Maintenance parts
and supplies 2,348 1,712
------- -------
Total inventories $ 35,810 $ 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
<TABLE>
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 Six Months Ended
January 31, January 31,
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic EPS:
Weighted average shares outstanding 7,074 7,169 7,074 7,169
Effect of dilutive securities: Options - 17 - 20
----- ----- ----- -----
Diluted EPS:
Diluted weighted average shares outstanding 7,074 7,186 7,074 7,189
===== ===== ===== =====
Anti-dilutive options outstanding:
Number of options 703 216 698 216
===== ===== ===== =====
Weighted average exercise price $5.96 $7.26 $5.97 $7.26
===== ===== ===== =====
</TABLE>
Note 5 - Segment 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 income (loss) before income
taxes. Information on the Company's segments is as follows (Dollars in
thousands):
Tubing
Products QuikWater Total
-------- --------- -------
Quarter-ended January 31, 2000:
Revenues $ 33,936 $ 962 $ 34,898
Segment pre-tax income (loss) 603 (314) 289
Quarter-ended January 31, 1999:
Revenues 31,266 858 32,124
Segment pre-tax income (loss) 627 (343) 284
Six months ended January 31, 2000:
Revenues 66,614 1,606 68,220
Segment pre-tax income (loss) 1,137 (744) 393
Six months ended January 31, 1999:
Revenues 67,113 1,594 68,707
Segment pre-tax income (loss) 2,985 (745) 2,240
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Webco Industries, Inc.
We have reviewed the accompanying consolidated balance sheet of Webco
Industries, Inc. and subsidiary as of January 31, 2000, and the related
consolidated statements of income for the three-month and six-month periods
ended January 31, 2000 and 1999 and cash flows for the six-month periods ended
January 31, 2000 and 1999. 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 interim 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
income, 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 consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet information as of July 31, 1999 is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 25, 2000
</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 January 31, 2000 Compared with
the Three Months Ended January 31, 1999
Manufactured Tubing Product sales for the quarter ended January 31, 2000
were $30,964,000, an increase of 7.9 percent from the $28,695,000 for the same
quarter last year. The $2,269,000 increase in net sales is primarily the
result of a 8.6 percent increase in the tonnage of tubing sold and a .7 percent
decrease in the average net sales price per ton. Despite the five-day
suspension of operations at the Oil City, Pennsylvania facility for the
installation of the Enterprise Resource Planning ("ERP") software and other
expansion projects, the Company was able to increase the tonnage sold over the
prior year period. The tonnage of tubing sold was up primarily as a result of
the growth in the Company's mechanical tubing markets, which was largely offset
by the decline in heat exchanger sales. 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 heat exchanger and boiler tube products.
Since the Oil City facility was the final plant to install the ERP software,
the Company does not expect any further significant production downtime for
system implementation.
Gross profit for Manufactured Tubing Products increased to $4,366,000 or
14.1 percent of net sales for the second quarter of fiscal 2000 from $4,022,000
or 14.0 percent of net sales for the same period in fiscal 1999. The slight
improvement in sales is a function of the increase in the tonnage sold, as
explained above.
<PAGE>
Other Tubing Products sales are made primarily by Webco's subsidiary, P&J.
Sales of these products increased 15.6 percent to $2,972,000 for the quarter
ended January 31, 2000 from $2,571,000 for the quarter ended January 31, 1999.
Gross profit from Other Tubing Products increased to $720,000, or 24.2 percent
of net sales, for the second quarter of fiscal 2000 from $468,000, or 18.2
percent of net sales, for the same period in fiscal 1999. These increases were
primarily the result of a change in sales mix and stronger than expected sales
during the current quarter.
Sales for QuikWater were $962,000 for the second quarter of fiscal 2000,
which is 12.1 percent more than the $858,000 in sales for the same period in
fiscal 1999. Gross profit for QuikWater was $173,000, or 18.0 percent of net
sales, for the second quarter of fiscal 2000 as compared with $122,000, or 14.2
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. However, as a result of low volume,
gross profit figures remain low due to the under-utilization of available
manufacturing capacity.
Selling, general and administrative expenses were $3,979,000 for the
second quarter of fiscal 2000 compared with $3,729,000 for the same quarter of
fiscal 1999. The increase in the current quarter is primarily the result of an
increase in depreciation expense of $124,000 related to the ERP system and
$176,000 of additional information technology expenses incurred in the support
of, and transition to, the new ERP system.
Interest expense for the current period was $991,000 ($1,032,000 prior to
interest capitalization) as compared with interest expense of $599,000
($724,000 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 January 31, 2000 being $44.2 million as compared with $34.5
million for the same period last year. The average interest rate was 7.79
percent in the second quarter of fiscal 2000 compared with 7.34 percent in the
second quarter of fiscal 1999. The Company has historically elected for its
term debt and a significant portion of its outstanding revolver to bear
interest at a floating rate based on LIBOR. LIBOR, much like the prime rate,
experienced increases during the second quarter of fiscal 2000. However,
unlike the prime rate, LIBOR has decreased marginally since the end of the
calendar year. Higher borrowing levels have resulted from increased
inventories and the expansions in Oil City, Pennsylvania, and Mannford,
Oklahoma.
The recorded income tax expense for the quarter ended January 31, 2000 is
based upon the estimated annual combined effective federal and state income
tax rates.
Results of Operations for the Six Months Ended January 31, 2000 Compared with
the Six Months Ended January 31, 1999
Manufactured Tubing Product sales for the six months ended January 31,
2000 decreased .7 percent to $60,425,000 as compared with $60,844,000 for the
same period last year. The $419,000 decrease in net sales is primarily the
result of a 3.4 percent decrease in the average net sales price per ton, which
was offset by a 2.8 percent increase in the tonnage of tubing sold. Despite
the five-day and seven-day suspensions in operations at the Oil City,
Pennsylvania and Sand Springs, Oklahoma facilities, respectively, during the
six-month period for the installation of the ERP software and other facility
projects, the Company was able to increase the tonnage sold over the prior
period. The overall increase in the tonnage of tubing sold was the result of
increased sales of mechanical tubing, which was largely offset by declines in
sales of carbon heat exchanger products. The decrease in the average net
selling price is a result of pricing pressure throughout most carbon product
markets, although predominantly in heat exchanger and mechanical products.
<PAGE>
Gross profit for Manufactured Tubing Products was $8,366,000, or 13.8
percent of net sales, for the first six months of fiscal 2000 compared with
$10,077,000, or 16.6 percent of net sales, for the same period in fiscal 1999.
This is a function of a 3.4 percent decrease in the average net sales price per
ton, noted above, which was partially offset by a .6 percent decrease in the
average manufactured cost per ton of tubing sold.
Other Tubing Products sales are made primarily by Webco's subsidiary, P&J.
Sales of these products decreased 1.3 percent to $6,189,000 for the six-month
period ended January 31, 2000 from $6,269,000 for the same period ended January
31, 1999. Gross profit from Other Tubing Products increased to $1,492,000, or
24.1 percent of net sales, for the first six months of fiscal 2000 from
$1,298,000, or 20.7 percent of net sales, for the same period in fiscal 1999.
This was primarily the result of a change in sales mix.
Sales for QuikWater were $1,606,000 for year to date fiscal 2000 compared
to $1,594,000 sales for the same period in fiscal 1999. Gross profit for
QuikWater was $340,000, or 21.2 percent of net sales, for the first six months
of fiscal 2000 as compared with $204,000, or 12.8 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. However, as a result of low volume, gross profit figures remain
low due to the under-utilization of available manufacturing capacity.
Selling, general and administrative expenses year to date for fiscal 2000
were $8,057,000 compared with $8,141,000 for the same period of fiscal 1999.
The decrease in the current period is primarily the result of decreases of
$348,000 in legal fees principally related to the Thermatool litigation and
$215,000 in profit sharing to employees. These decreases were principally
offset by an increase in depreciation of $224,000 related to the ERP system and
$252,000 of additional information technology expenses incurred in the support
of, and transition to, the new ERP system.
Interest expense for the current six-month period was $1,748,000
($1,891,000 prior to interest capitalization) as compared with interest expense
of $1,198,000 ($1,416,000 prior to interest capitalization) for the same period
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 six months ended January 31, 2000 being $41.8 million as compared with
$33.4 million for the same period last year. In addition, the related average
interest rate increased slightly to 7.56% for the first six months of fiscal
2000 from 7.39% for the same period in fiscal 1999. The Company has
historically elected for its term debt and a significant portion of its
outstanding revolver to bear interest at a floating rate based on LIBOR.
LIBOR, much like the prime rate, experienced increases during the first six
months of fiscal 2000. However, unlike the prime rate, LIBOR has decreased
marginally since the end of the calendar year. Higher borrowing levels have
resulted from increased inventories and the expansions in Oil City,
Pennsylvania, and Mannford, Oklahoma.
The recorded income tax expense for the six months ended January 31, 2000
is based upon the estimated combined annual effective federal and state income
tax rates.
<PAGE>
Liquidity and Capital Resources
Net cash used in operations was $783,000 for the six months ended January
31, 2000 versus net cash provided by operations of $4,004,000 for the six
months ended January 31, 1999. Accounts receivable increased $77,000 during
the current period and decreased $2,836,000 during the same period last year,
primarily due to stronger sales in the second quarter of fiscal 2000.
Inventories increased $4,428,000 for the six months ended January 31, 2000 due
to strategic purchases of raw materials, which were made in anticipation of
rising prices. Inventories increased $2,320,000 for the six months ended
January 31, 1999. Accounts payable increased $712,000 during the current
period and increased $814,000 for the same period last year, while book
overdrafts also increased $1,058,000 during the current period principally
related to the increase in inventory.
Net cash used in investing activities for the six months ended January 31,
2000 was $5,941,000, which was $511,000 less than the $6,452,000 used in
investing activities during the same period in fiscal 1999. Capital
expenditures made during the current period related to the expansion of the Oil
City facility, final installations of the new ERP 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 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 has 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 currently intends to retain earnings to
support its growth strategy and does not anticipate paying dividends in the
foreseeable future.
The Company's financing arrangements provide for a term loan of $25
million and a line of credit of $25 million. As of January 31, 2000, the
Company had $25 million outstanding on the term loan, and $17 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 ($3,638,000 at January 31, 2000) 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 January 31, 2000, $4.4 million was available for
borrowing under this line of credit. Beginning in August 2000, principal
payments of $208,000, plus interest, will be due on the term loan each month
until maturity.
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 January 31, 2000, $1.9 million was outstanding on the facility
and $3.1 million was available for borrowing. Beginning in April 2000,
principal payments of $83,000, plus interest, will be due on the facility each
month until maturity.
The Company has arranged 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 January 31, 2000. The
agency loans are collateralized by the underlying real estate and/or equipment
and the guarantee of the principal stockholder/officer. The notes mature over
a 4 to 9 year period.
<PAGE>
P&J has a line of credit agreement for $2,000,000 and a term loan of
$500,000 with its primary lender. As of January 31, 2000, the Company had no
outstanding balance under the line of credit and $437,000 outstanding on the
term loan. The line of credit matures on November 30, 2000, and the term loan
matures in April 2004. Both loans are collateralized by P&J's assets. At
January 31, 2000, $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 expects capital
spending to be limited to projects in process for the remainder of fiscal 2000.
The remaining available borrowing on the CAPEX facility (approximately $3.1
million) is committed to funding the purchase of ordered equipment for the Oil
City plant.
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.
Information Technology and the Year 2000
The Company continues to monitor its information and non-information
technology systems and to communicate with suppliers and customers to determine
whether date disruptions have, or are likely, to occur. To date, no
significant disruptions have been identified.
As of January 31, 2000, the Company had spent $6.3 million on the ERP
system and the Company currently estimates another $100,000 of capitalized
expenses to complete the project. Of the $6.4 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.
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, and
technical and data processing capabilities of 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
appealed the pre-trial order that prevented the Company from recovering for
lost profits, and has appealed the trial court's denial of attorneys' fees and
pre-judgment interest. There can be no assurances that the Company will be
successful on appeal or that if successful, lost profits or other damages
awarded by the appeals court or in the succeeding trial, if any, will be
commensurate with actual lost profits and damages and expenses 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
On December 1, 1999 the Company held its annual stockholders meeting.
During that meeting the following directors were elected to three-year terms:
For Withheld
F. William Weber 6,806,369 44,935
Dana S. Weber 6,802,969 48,335
The following director's terms will continue: Dr. Kenneth E. Case,
Frederick C. Ermel, Neven C. Hulsey and Christopher L. Kowalski.
The appointment of PricewaterhouseCoopers LLP as auditors for 2000 was
ratified by the following vote:
For Against Abstain
6,831,731 11,466 8,107
<PAGE>
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.
March 10, 2000 /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 February 25, 2000, on our review of the
interim financial information of Webco Industries, Inc. for the periods ended
January 31, 2000 and 1999, 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
March 9, 2000
<PAGE>
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