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, 2001
_________________________________________________________________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 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 incorporation or organization) (I.R.S. Employer
Identification No)
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, 2001.
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 Operations
4
Statements of Cash Flows
5
Notes to Unaudited Financial Statements
6-8
Report of Review by Independent
Accountants
9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
10-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings
15
Item 2. Changes in
Securities
15
Item 3. Defaults Upon Senior
Securities
15
Item 4. Submission of Matters to a Vote of
Security
Holders
15-16
Item 5. Other Information
16
Item 6. Exhibits and Report on Form
8-K
16
SIGNATURES 17
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
January
31,
July 31,
2001
2000
ASSETS
Current assets:
Cash
$ 179
$
1,633
Accounts receivable, net
19,291
17,536
Inventories
34,561
35,765
Prepaid expenses
636
435
Deferred income tax asset
1,746
2,047
Total current assets 56,413 57,416
Property, plant and equipment, net 69,017 68,067
Notes receivable from related parties 1,801 1,801
Other assets, net
3,252
2,839
Total assets
$ 130,483
$
130,123
======
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$ 16,589
$ 17,938
Accrued liabilities
5,243
5,259
Current portion of long-term debt
4,657
4,090
Total current liabilities 26,489 27,287
Long-term debt 48,668 43,979
Deferred income tax liability 8,586 10,209
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
10,937
12,845
Total stockholders' equity 46,740 48,648
Total liabilities and stockholders' equity
$
130,483
$ 130,123
======
======
See accompanying notes to unaudited consolidated financial statements.
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six
Months Ended
January 31,
January 31,
2001 2000 2001 2000
Net sales
$ 37,442 $ 34,898
$ 74,399
68,220
Cost of sales
33,672 29,639
67,473
58,022
Gross profit 3,770 5,259 6,926 10,198
Selling, general and administrative expenses
3,697
3,979
7,478 8,057
Income (loss) from operations 73 1,280 (552) 2,141
Interest expense
1,288
991 2,538
1,748
Income (loss) before income taxes (1,215) 289 (3,090) 393
Provision (benefit) for income taxes (460) 109 (1,182) 147
Net income (loss)
$
(755) $
180 $
(1,908) $ 246
====== ======
======
======
Net income (loss) per common share:
Basic
$
(.11) $
.03 $
(.27) $
.03
====== ======
======
======
Diluted
$ (.11)
$ .03
$ (.27)
$ .03
====== ======
======
======
Weighted average common shares outstanding:
Basic
7,074
7,074 7,074
7,074
====== ======
======
======
Diluted
7,074
7,074 7,074
7,074
====== ======
====== ======
See accompanying notes to unaudited consolidated financial statements.
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
January 31,
2001
2000
Cash flows from operating activities:
Net income (loss)
$ (1,908)
$ 246
Adjustments to reconcile net income (loss) to
net
cash used in operating
activities:
Depreciation and amortization
2,925
2,942
Loss (gain) on disposition of
property, plant and equipment
13
23
Deferred tax expense (benefit)
(1,322)
147
(Increase) decrease in:
Accounts receivable
(1,755)
(77)
Inventories
1,204
(4,428)
Prepaid expenses
(379)
(333)
Increase (decrease) in:
Accounts payable
(1,480)
712
Accrued liabilities
(16)
(15)
Net cash used in operating activities
(2,718)
(783)
Cash flows from investing activities:
Capital expenditures
(4,186)
(5,983)
Proceeds from sale of property, plant and
equipment
634
79
Other
(413)
(37)
Net cash used in investing activities
(3,965)
(5,941)
Cash flows from financing activities:
Proceeds from long-term debt
73,062
62,227
Principal payments on long-term debt
(67,806) (56,595)
Increase (decrease) in book overdrafts
(27)
1,058
Net cash provided by financing activities 5,229 6,690
Net decrease in cash (1,454) (34)
Cash, beginning of period 1,633 180
Cash, end of period
$ 179
$
146
====== ======
See accompanying notes to unaudited consolidated financial statements.
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, 2001 and results of operations for the three months and six months ended January 31, 2001 and January 31, 2000, and cash flows for the six months ended January 31, 2001 and January 31, 2000. Results for the three months and six months ended January 31, 2001 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, 2000.
Our independent accountants have performed a
review of these interim financial statements in accordance with standards established by
the American Institute of Certified Public Accountants. Pursuant to Rule 436 (c) under the
Securities Act of 1933 their report of that review should not be considered as part of any
registration statements prepared or certified by them within the meaning of Section 7 and
11 of that Act.
Note 2 - Inventories
At January 31, 2001 and July 31, 2000, inventories were as follows:
January 31, 2001
July 31, 2000
Raw materials
$ 13,491
$
17,708
Work-in-process
1,481
2,155
Finished goods
17,035
13,469
Maintenance parts
and supplies
2,554
2,433
Total inventories
$
34,561
$ 35,765
======
======
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, believes that any liability resulting from these matters would not materially affect the results of operations or the financial position of the Company.
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 Six Months
Ended
January 31,
January 31,
2001 2000 2001 2000
Basic EPS:
Weighted average shares outstanding
7,074 7,074
7,074
7,074
Effect of dilutive securities: Options - - - -
Diluted EPS:
Diluted weighted average shares outstanding
7,074
7,074
7,074
7,074
==== ====
====
====
Anti-dilutive options outstanding:
Number of options
692
703
692
698
====
==== ====
====
Weighted average exercise price per share
$ 5.79
$ 5.96
$ 5.79
$ 5.97
==== ====
====
====
Note 5 - Segment Information
The Company applies the provisions of 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, 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 markets 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, 2001:
Revenues
$ 36,307 $ 1,135
$ 37,442
Segment pre-tax income (loss)
(1,170)
(45)
(1,215)
Quarter-ended January 31, 2000:
Revenues
33,936
962 34,898
Segment pre-tax income (loss)
603
(314)
289
Six months ended January 31, 2001:
Revenues
72,429
1,970
74,399
Segment pre-tax income (loss)
(2,846)
(244) (3,090)
Six months ended January 31, 2000:
Revenues
66,614
1,606
68,220
Segment pre-tax income (loss)
1,137
(744)
393
REPORT OF INDEPENDENT ACCOUNTANT
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, 2001, and the related consolidated statements of operations for the three-month and six-month periods ended January 31, 2001 and 2000 and cash flows for the six-month periods ended January 31, 2001 and 2000. 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, 2000, 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 21, 2000, except for the third
paragraph in Note 6(A) as to which the date is November 13, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet information as of July 31, 2000 is
fairly stated in all material respects in relation to the balance sheet from which it has
been derived.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
March 6, 2001
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Webco Industries, Inc., an Oklahoma corporation, was founded in 1969 by F. William Weber, Chairman of the Board and Chief Executive Officer. Webco 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: heat exchanger tubing, carbon steel boiler tubing, stainless steel tube and pipe, and specialty carbon steel mechanical tubing for use in consumer durable and capital goods. Management believes that Webco is a domestic market leader in the manufacture of welded carbon steel heat exchanger and boiler tubing, and the leading supplier of stainless tubing for certain niche applications. The Company's wholly-owned subsidiary, P&J, represents several manufacturers who produce various non-competing mechanical and specialty tubular products made from copper, brass, aluminum, stainless 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 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, 2001 Compared with
the Three Months Ended January 31, 2000
Manufactured Tubing Product sales for the quarter ended January 31, 2001 were $32,780,000, an increase of 5.9 percent from the $30,964,000 for the same quarter last year. The $1,816,000 increase in net sales is primarily the result of a 7.3 percent increase in the tonnage of tubing sold and a 1.4 percent decrease in the average net sales price per ton. The tonnage of tubing sold was up primarily as a result of increases in pressure tubing product sales, which were offset by tonnage declines in both stainless and mechanical tubing products. The slight decrease in the average net selling price reflects a change in sales mix and continuing pricing pressure on mechanical tubing products.
Gross profit for Manufactured Tubing Products decreased to $2,752,000, or 8.4 percent of net sales, for the second quarter of fiscal 2001 from $4,366,000, or 14.1 percent of net sales, for the same period in fiscal 2000. The decline in gross profit is a function of higher payrolls while training new personnel and higher operating expenses at the Oil City facility due to the on-going plant expansion, higher natural gas prices, and a change in sales mix. Pricing pressure on certain carbon mechanical products and lower sales of higher margin stainless products added to the decline in margin in the current period.
Other Tubing Products sales are made primarily by Webco's subsidiary, P&J. Sales of these products increased 18.7 percent to $3,527,000 for the quarter ended January 31, 2001 from $2,972,000 for the quarter ended January 31, 2000. Gross profit from Other Tubing Products decreased to $695,000, or 19.7 percent of net sales, for the second quarter of fiscal 2001 from $720,000, or 24.2 percent of net sales, for the same period in fiscal 2000. The increase in sales and decline in gross profit percentage is a result of an increase in the tonnage of tubing sold at reduced sales prices to the OEM markets.
Sales for QuikWater were $1,135,000 for the second quarter of fiscal 2001, which is 18.0 percent more than the $962,000 in sales for the same period in fiscal 2000. Gross profit for QuikWater was $323,000, or 28.5 percent of net sales, for the second quarter of fiscal 2001 as compared with $173,000, or 18.0 percent of net sales, for the same period of fiscal 2000. The increase in sales is a result of improved market conditions for the QuikWater product due to changes in certain environmental standards, primarily on the West coast of the United States, and long-term marketing efforts. The gross profit percentage increase is a reflection of the new outsourcing arrangement for the manufacturing of the units, which has reduced the amount of unproductive overhead costs incurred.
Selling, general and administrative expenses were $3,697,000 for the second quarter of fiscal 2001 compared with $3,979,000 for the same quarter of fiscal 2000. The decrease in the current quarter is primarily the result of a $81,000 decrease in information technology expenses incurred in support of the new enterprise resource planning ("ERP") system, and a $234,000 decrease in administrative labor and overhead expenses realized as a result of certain cost saving measures implemented during the first and second quarters of fiscal 2001.
Interest expense for the current period was $1,288,000 ($1,472,000 prior to interest capitalization) as compared to interest expense of $991,000 ($1,032,000 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, 2001 being $49.0 million as compared to $44.2 million for the same period last year. In addition, the related average interest rate increased to 9.48 percent in the second quarter of fiscal 2001 from 7.79 percent in the second quarter of fiscal 2000. 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. Higher borrowing levels have resulted from declines in operating cash flow and the expansion in Oil City, Pennsylvania. Due to the current LIBOR and prime rate levels and the Company's amended bank agreement with its primary lender, the Company expects a higher average interest rate in the third quarter of fiscal 2001 and for the remainder of the current fiscal year when compared to prior year results.
The recorded income tax expense for the quarter ended January 31, 2001 is based upon the estimated annual combined effective federal and state income tax rates.
Results of Operations for the Six Months Ended January 31, 2001 Compared with the
Six Months Ended January 31, 2000
Manufactured Tubing Product sales for the six months ended January 31, 2001 increased 7.2 percent to $64,770,000 as compared with $60,425,000 for the same period last year. The $4,345,000 increase in net sales is primarily the result of a 3.9 percent increase in the average net sales price per ton along with a 3.3 percent increase in the tonnage of tubing sold. The overall tonnage of tubing sold was up primarily as a result of increased pressure tubing volumes. The slight increase in the average net selling price is primarily due to sales mix.
Gross profit for Manufactured Tubing Products was $4,939,000, or 7.6 percent of net sales, for the first six months of fiscal 2001 compared to $8,366,000, or 13.8 percent of net sales, for the same period in fiscal 2000. This is a function of a 12.7 percent increase in the average manufactured cost per ton of tubing sold, which was partially offset by the 3.9 percent increase in the average net selling price per ton, noted above. A one-week suspension at the Sand Springs facility in August and higher payrolls while training new personnel and higher operating expenses at the Oil City facility due to the on-going plant expansion negatively impacted margins in the current period. Margins have further been reduced by increased natural gas prices and pricing pressure in carbon mechanical tubing product markets.
Other Tubing Products sales are made primarily by Webco's subsidiary, P&J. Sales of these products increased 23.8 percent to $7,659,000 for the six-month period ended January 31, 2001 from $6,189,000 for the same period ended January 31, 2000. Gross profit from Other Tubing Products decreased to $1,485,000, or 19.4 percent of net sales, for the first six months of fiscal 2001 from $1,492,000, or 24.1 percent of net sales, for the same period in fiscal 2000. The increase in sales and decline in gross profit percentage is a result of an increase in the tonnage of tubing sold at reduced sales prices to the OEM market.
Sales for QuikWater were $1,970,000 for year to date fiscal 2001 compared to $1,606,000 sales for the same period in fiscal 2000. Gross profit for QuikWater was $502,000, or 25.5 percent of net sales, for the first six months of fiscal 2001 as compared with $340,000, or 21.2 percent of net sales, for the same period of fiscal 2000. The increase in sales is a result of improved market conditions for the QuikWater product due to changes in certain environmental standards, primarily on the West coast of the United States, and long-term marketing efforts. The gross profit percentage increase is a reflection of the new outsourcing arrangement for the manufacturing of the units, which has reduced the amount of unproductive overhead costs incurred.
Selling, general and administrative expenses year to date for fiscal 2001 were $7,478,000 compared with $8,057,000 for the same period of fiscal 2000. The decrease in the current period is primarily the result of decreases of $85,000 in legal fees principally related to Thermatool (See Part II, Item 1, Legal Proceedings of this form 10Q) and certain labor matters, a $119,000 decrease in information technology expenses incurred in support of the new ERP system, and a $393,000 decrease in administrative labor and overhead expenses realized as a result of certain cost saving measures implemented during the first and second quarters of fiscal 2001.
Interest expense for the current six-month period was $2,538,000 ($2,842,000 prior to interest capitalization) as compared with interest expense of $1,748,000 ($1,891,000 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, 2001 being $48.4 million as compared with $41.8 million for the same period last year. In addition, the related average interest rate increased to 9.05% for the first six months of fiscal 2001 from 7.56% for the same period in fiscal 2000. 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. Higher borrowing levels have resulted from declines in operating cash flow and the expansion in Oil City, Pennsylvania. Due to the current LIBOR and prime rate levels and the Company's amended bank agreement with its primary lender, the Company expects a higher average interest rate in the third quarter of fiscal 2001 and for the remainder of the current fiscal year when compared to prior year results.
The recorded income tax expense for the six months ended January 31, 2001 is based upon the estimated combined annual effective federal and state income tax rates.
Liquidity and Capital Resources
Net cash used in operations was $2,718,000 for the six months ended January 31, 2001 versus net cash used in operations of $783,000 for the six months ended January 31, 2000. Accounts receivable increased $1,755,000 during the current period and increased $77,000 during the same period last year, primarily due to stronger sales late in the second quarter of fiscal 2001. Inventories decreased $1,204,000 for the six months ended January 31, 2001, primarily due to management's efforts to reduce inventory. 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. Accounts payable decreased $1,480,000 during the current period and increased $712,000 for the same period last year, while book overdrafts also increased $1,058,000 during the prior year period principally related to the increase in inventory.
Net cash used in investing activities for the six months ended January 31, 2001 was $3,965,000, which was $1,976,000 less than the $5,941,000 used in investing activities during the same period in fiscal 2000. Capital expenditures made during the current period principally related to the expansion of the Oil City facility, which neared completion as of January 31, 2001.
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 has 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 is currently completing the expansion in Oil City and will thereafter focus on debt reduction and working capital management. The Company currently intends to retain earnings to support this strategy and does not anticipate paying dividends in the foreseeable future.
The Company's financing arrangements provide for a term loan of $25 million, a line of credit of $25 million and a capital expenditure ("CAPEX") facility in the amount of $5 million to finance equipment at the Oil City, Pennsylvania plant. As of January 31, 2001, the Company had $23.7 million outstanding on the term loan, $20.9 million under the revolving line of credit and $4.8 million outstanding on the CAPEX facility. These loans mature on August 31, 2002, and are collateralized by substantially all of the Company's assets other than the Sand Springs real estate. The Company may have borrowings and outstanding letters of credit ($1,128,000 at January 31, 2001) 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, 2001, $3.0 million was available for borrowing under this line of credit. The CAPEX loan was fully funded during the second quarter of fiscal 2001 leaving no remaining borrowing capacity at January 31, 2001 under this facility. Principal payments of $208,000, plus interest, are due on the term loan each month until maturity. Principal payments on the CAPEX facility of $83,000, plus interest, are due each month until maturity.
The Company's debt agreement, as amended on November 13, 2000, contains various covenants regarding debt coverage, the ratio of indebtedness to equity and the maintenance of a minimum borrowing base availability without considering the $25 million revolving loan cap. As of January 31, 2001, the Company was in compliance with all such covenants.
The Company has arranged financing with various public agencies related to the Oil City facility, of which, $2.5 million is outstanding and an additional $500,000 remains available for borrowing as of January 31, 2001. 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 10 year period and bear interest at rates ranging from 3 to 5 percent.
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, 2001, the Company had $850,000 outstanding under the line of credit and $346,000 outstanding on the term loan. The line of credit matures on November 30, 2001, and the term loan matures in April 2004. Both loans are collateralized by P&J's assets. At January 31, 2001, $1.15 million was available for borrowing under the line of credit.
Safe Harbor for Forward Looking Statements: Certain statements in
this Form 10-Q, including statements preceded by, or predicated upon the words
"believes", "expects", "appears" or "plans",
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
July31, 2000 for additional information regarding this matter.
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 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 6, 2000 the Company held its
annual stockholders meeting. During that meeting the following directors were elected to
three-year terms:
For
Withheld
Bradley S. Vetal
4,407,301
6,420
Christopher L. Kowalski
4,409,301
4,420
The following director's terms will continue: F. William Weber, Dana S. Weber, Dr. Kenneth E. Case, Frederick C. Ermel.
The appointment of PricewaterhouseCoopers
LLP as auditors for 2001 was ratified by the following vote:
For
Against Abstain
4,412,734 987
0
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
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 13, 2001
/s/Michael P. Howard
Michael P. Howard
Treasurer
Chief Accounting Officer
Vice President of Finance and Administration
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 23, 2001, on our review of the interim
financial information of Webco Industries, Inc. for the periods ended January 31, 2001 and
2000, 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 13, 2001