WEBC Webco Industrial Inc (PK)

Webco Industries, Inc. (OTC:WEBC) today reported results for its fiscal 2010 fourth quarter and fiscal year ended July 31, 2010.

For its fiscal 2010 fourth quarter, the Company reported net income of $1,700,000, or $2.21 per diluted share, compared to a net loss of $16,000, or a loss of $0.02 per diluted share, for the same quarter in fiscal 2009. Net sales for the fourth quarter of fiscal 2010 were $97.2 million, a 73.4 percent increase over the $56.0 million of sales in last year’s fourth quarter. The current and prior fourth fiscal quarter results reflect a $1.5 million non-cash charge and $1.3 million non-cash gain, respectively, related to interest rate swap contracts. The improvement in current quarter to same prior year quarter sales and results reflect an improved business environment following the global economic crisis experienced in fiscal 2009.

For fiscal year 2010, the Company generated net income of $3,326,000, or $4.34 per diluted share, compared to a net loss of $2,919,000, or a loss of $3.83 per diluted share, for the same period in fiscal 2009. Net sales for fiscal year 2010 amounted to $312.6 million, a 3.4 percent decrease from the $323.7 million in sales last fiscal year. The current and prior fiscal year results reflect $2.5 million and $5.0 million, respectively, in non-cash pre-tax charges related to interest rate swap contracts. The first quarter in fiscal year 2009, which preceded the onset of the global economic crisis, was one of the most profitable quarters in the Company’s history.

F. William Weber, Webco’s Chairman and Chief Executive Officer, commented, “Production levels and sales continue to be at good volumes. The dedication of our employees and plans implemented by management helped us make tremendous progress toward putting the challenges from the global economic crisis behind us over the last year and a half. Our financial health has placed us in a position to pursue strategic organic growth investments, which we plan to undertake without sacrificing the strength of our balance sheet. Our current investments support our long-term niche strategy, which we believe is appropriate even in the current economic environment.”

Mr. Weber further commented, “In July 2010, we paid bonuses to our employees in an amount that approximated reductions in pay they experienced during the course of the Company’s response to the 2009 global economic crisis. We waited to pay this special bonus until we were confident in the future performance of the Company and our ability to facilitate goals we have set for new capital investments. Approximately $2.5 million was expensed in fiscal 2010 for this special bonus, of which $1.5 million was expensed in the third fiscal quarter and the balance was evenly distributed in the other three quarters. Seventy-two percent of the special bonus is included in cost of goods sold and the remainder is in selling, general and administrative expenses.”

Gross profit for the fourth quarter of fiscal 2010 was $8.7 million, or 9.0 percent of net sales, compared to a gross profit of $0.9 million, or 1.5 percent of net sales, for the fourth quarter of fiscal 2009. Gross profit for fiscal year 2010 was $28.4 million, or 9.1 percent of net sales, compared to $18.8 million, or 5.8 percent of net sales, in fiscal year 2009. The current quarter and fiscal year gross profit percentages increased from the comparable prior year periods because of the impacts of high priced inventories on those prior year periods.

Selling, general and administrative expenses in the fourth quarter of fiscal 2010 were $3.8 million, compared to $1.7 million in the fourth quarter of the prior year. SG&A costs for fiscal year 2010 were $17.1 million, compared to $15.3 million reported for fiscal year 2009. SG&A expenses in the current fiscal year periods are higher than the prior year same periods as short-term cost reduction strategies employed in 2009 have given way to longer term management objectives.

Interest expense, which includes monthly settlements on interest swap contracts, was $1.0 million in each of the current and prior year quarters. Interest expense totaled $3.8 million in each of fiscal year 2010 and 2009, respectively. In the spring of 2008, the Company entered into a five-year swap arrangement that changed the variable interest rate for $75 million of the Company’s debt to a fixed rate, concluding that the fixed rates available for that period were preferred to the exposure to significant interest rate increases in the future. The global economic crisis that began in October 2008 resulted in significant decreases in interest rates and, therefore current rates are less than the swapped rates. Monthly swap settlements are included in interest expense and amounted to $0.7 million in each of the current and prior year quarters and $2.8 million and $1.5 million in the current and prior fiscal years, respectively. The Company records interest rate swap contracts at fair value and the non-cash changes in value from period to period are reported as unrealized gains or losses on interest contracts. During the fourth quarter of fiscal year 2010, fair value adjustments on the interest contracts resulted in a non-cash charge of $1.5 million versus a non-cash gain of $1.3 million in the prior year’s fourth quarter. Non-cash charges on the interest contracts of $2.5 million and $5.0 million were recorded in fiscal year 2010 and 2009, respectively. At July 31, 2010, the Company had a liability of $6.9 million related to the negative fair value of the interest rate swap contracts.

Capital expenditures incurred equaled $3.3 million for the fourth quarter of fiscal 2010 and $9.6 million for the fiscal year 2010. We expect incurred capital spending for fiscal year 2011 to be in the range of $10 million to $12 million.

Webco is a manufacturer and value added distributor of high-quality carbon steel, stainless steel and other metal tubular products designed to industry and customer specifications. Webco's tubing products consist primarily of pressure tubing and specialty tubing for use in durable and capital goods. Webco's long-term strategy involves the pursuit of niche markets within the metal tubing industry through the deployment of leading-edge manufacturing and information technology. Webco has five production facilities in Oklahoma and Pennsylvania and five value-added distribution facilities in Oklahoma, Texas, Illinois and Michigan, serving more than 1,000 customers throughout North America.

Forward-looking statements: Certain statements in this release, including, but not limited to, those preceded by or predicated upon the words "anticipates," "appears," "believes," “can,” “considering,” "expects," "hopes," "plans," “pursuing,” "should," "would," or similar words constitute "forward-looking statements." 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 the factors discussed above and, among others: general economic and business conditions, including global recessions and disruptions in the global credit markets, competition from imports, changes in manufacturing technology, banking environment, including availability of adequate financing, monetary policy, raw material costs and availability, industry capacity, domestic competition, loss of significant customers and customer work stoppages, customer claims, technical and data processing capabilities, and insurance costs and availability. The Company assumes no obligation to update publicly such forward-looking statements, whether as a result of new information, future events or otherwise.

- TABLES FOLLOW -

WEBCO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

  Three Months Ended

July 31,

  Fiscal Year Ended

July 31,

2010

 

2009

2010

 

2009

  Net sales $ 97,198 $ 56,037 $ 312,602 $ 323,680 Cost of sales   88,472     55,170     284,236     304,842     Gross profit 8,726 867 28,366 18,838 Selling, general & administrative   3,785     1,699     17,061     15,260     Income (loss) from operations 4,941 (832 ) 11,305 3,578 Interest expense 970 986 3,825 3,781 Unrealized gain (loss) on interest contracts   (1,508 )   1,286     (2,473 )   (5,003 )

Income (loss) before income taxes

2,463

(532

)

5,007

(5,206

)

Income tax expense (benefit)   763     (516 )   1,681     (2,287 )   Net income (loss) $ 1,700   $ (16 ) $ 3,326   $ (2,919 )

 

Net income (loss) per common share: Basic $ 2.22   $ (0.02 ) $ 4.35   $ (3.83 ) Diluted $ 2.21   $ (0.02 ) $ 4.34   $ (3.83 )   Weighted average common shares outstanding: Basic   766,000     763,000     765,000     762,000   Diluted   769,000     763,000     767,000     762,000   WEBCO INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET HIGHLIGHTS

(Dollars in thousands)

(Unaudited)

  July 31, July 31,

2010

2009

  Accounts receivable, net $ 41,310 $ 21,156 Inventories, net 116,631 91,322 Other current assets   7,952   9,383 Total current assets 165,893 121,861   Net property, plant and equipment 65,594 63,387 Other long-term assets   7,301   4,836   Total assets $ 238,788 $ 190,084   Other current liabilities $ 42,836 $ 24,815 Current portion of long-term debt   63,903   36,182 Total current liabilities 106,739 60,997   Long-term debt 8,750 8,750 Deferred income tax liability 11,117 12,094   Total equity   112,182   108,243   Total liabilities and equity $ 238,788 $ 190,084 CASH FLOW DATA

(Dollars in thousands)

(Unaudited)

      Three Months Ended

July 31,

Fiscal Year Ended

July 31,

2010

 

2009

2010

2009

Net cash provided by (used in)

operating activities

$

(10,270

)

$

17,343

$

(20,202

)

$

47,010

  Depreciation and amortization $ 2,005   $ 2,107 $ 7,946   $ 7,797   Cash paid for capital expenditures $ 3,346   $ 709 $ 9,088   $ 9,039