U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

[X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31, 2001
OR
[  ] TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________ to__________
Commission File No. 0-23242

**WEBCO INDUSTRIES, INC.**(Exact name of registrant as specified in its charter)

                      Oklahoma                                                                                                73-1097133                    (Stateor other jurisdiction                                                                                (I.R.S.Employer           of incorporation ororganization)                                                                         Identification Number)

9101 West 21st StreetSand Springs, Oklahoma 74063(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code - (918) 241-1000SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OFTHE ACT: NoneSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01(Title of class)

    Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes X No 
    Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not containedherein, and will not be contained, to the best of registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. [ X ]

    As of September 30, 2001, the aggregate marketvalue of the voting stock held by non-affiliates of the registrant was $5,796,000. 

    On September 30, 2001, the number of sharesoutstanding of the registrant's common stock, $.01 par value, was 7,073,723 shares.

**DOCUMENTS INCORPORATED BYREFERENCE:** Portions of the Proxy Statement forthe registrant's 2001 Annual Meeting of Stockholders are incorporated by reference intoItems 10, 11, 12 and 13 of Part III of this Form 10-K.** 

WEBCO INDUSTRIES, INC. AND SUBSIDIARY

TABLE OF CONTENTS

                                                                                                                                                           Page**PART I**
Item 1. Business                                                                                                                                       3Item 2. Properties                                                                                                                                   13Item 3. Legal Proceedings                                                                                                                       14Item 4. Submission of Matters to a Vote of Security             Holders                                                                                                                                     14 
**PART II**
Item 5. Market for Registrant's Common Stock and Related            StockholderMatters                                                                                                                    15Item 6. Selected Financial Data                                                                                                               15Item 7. Management's Discussion and Analysis of Financial            Condition and ResultsofOperations                                                                                            17Item 8. Financial Statements and Supplementary Data                                                                             23Item 9. Changes in and Disagreements with Accountants on            Accounting andFinancialDisclosure                                                                                            41 
**PART III**
Item 10. Directors and Executive Officers of the Registrant                                                                     41Item 11. Executive Compensation                                                                                                          41Item 12. Security Ownership of Certain Beneficial Owners              andManagement                                                                                                                      41Item 13. Certain Relationships and Related Transactions                                                                        41 
**PART IV**
Item 14. Exhibits, Financial Statement Schedules and               Reports onForm 8-K                                                                                                            42 

WEBCO INDUSTRIES, INC. AND SUBSIDIARY

FORM 10-K
**PART I

ITEM 1. BUSINESS

General**
Webco Industries, Inc., an Oklahoma corporation, was founded in 1969 byF. William Weber, Chairman of the Board and Chief Executive Officer. Webco is a specialty manufacturer of high-quality carbon andstainless steel tubing products designed to industry and customer specifications. Webco'stubing products consist primarily of: heat exchanger tubing, carbon steel boiler tubing,stainless steel tube and pipe, and specialty carbon steel mechanical tubing for use inconsumer durable and capital goods. Management believes that Webcois a domestic market leader in the manufacture of welded carbon steel heat exchanger andboiler tubing, and the leading supplier of stainless steel tubing for certain nicheapplications. The Company's wholly-ownedsubsidiary, Phillips & Johnston, Inc. ("P&J"), represents severalmanufacturers who produce various non-competing mechanical and specialty tubular productsmade from copper, brass, aluminum, stainless and carbon steel, among others. This accessto other tubing products allows the Company to better serve its customers by offering afull range of tubing products. Through its QuikWater division, the Company markets apatented direct contact water heater for commercial and industrial applications. TheCompany has three production facilities in Oklahoma and Pennsylvania and five distributionfacilities in Oklahoma, Texas, Illinois and Michigan, serving more than 1,100 customersthroughout North America.
Unless the context otherwise requires, the information contained inthis report, and the terms "Webco" and the "Company" when used in thisreport, include Webco Industries, Inc. and its subsidiary, P&J, on a consolidatedbasis.
**Industry Overview**
Specialty tubing producers occupy a niche between the primary steelproducers and customers who utilize precision tubing in the manufacture of productsprimarily for the capital goods and consumer durable industries. As contrasted withcommodity pipe producers, specialty tube mills manufacture products which are engineeredand tailored for more specialized and critical end-use applications. 

The specialty tubing industry was once dominated by the majorintegrated steel producers. Over time, these integrated producers lost their competitiveadvantage and have largely withdrawn from this segment. In addition, the industrycontinues to undergo consolidation, as well as rationalization of less efficientproducers. Despite the consolidation over the past several years, the industry continuesto be highly fragmented and is currently comprised of independent producers that occupyrelatively focused market niches.

The specialty tubing industry has been affected by several trends thatare expected to continue over the next several years. First, customers’ increasingemphasis on just-in-time inventory methods has required tube producers to increaseoperating efficiencies to accommodate more frequent, but smaller sized orders, and hascaused tube producers to place greater emphasis on inventory management and cost control.Second, customers’ desires to cut operating costs through the outsourcing of specificprocessing functions, such as specialty tube manufacturing, have created the opportunityfor third-party tube producers to replace production from captive mills. Finally, theimpacts of foreign steel producers on the U.S. markets have caused volatility in the priceof finished goods and the cost of steel sheet coil, the principal raw material used in themanufacture of tubing products.
**MANUFACTURING TUBING PROCESSES

Manufactured Products

Electric Resistance Carbon Steel Weld Process: The Companymaintains inventories of carbon steel sheet coils from which it manufactures tubing usingelectric resistance welding. This steel is in the form of a continuous sheet, typically 48to 60 inches wide, between .049 and .500 inches thick, and rolled into 15 to 20 ton coils.

All customer orders for manufactured products are entered into acomputerized order entry system, and the appropriate steel coil inventory is then selectedand scheduled for processing in accordance with the customer’s delivery date andproduct specifications. The Company attempts to maximize efficiency by combining orders tooptimize size rollings.

The manufacturing cycle begins with the slitting of wide coils intonarrower bands. The outside diameter of the tube to be produced determines the width ofthe slit band. Steel coils over .180 inches thick used at the Sand Springs facility areslit to pre-designated widths by outside vendors. Steel coils less than .180 inches thickin Sand Springs and substantially all coils in Oil City are slit in each facility usingCompany equipment. 

Conversion from slit band to carbon and alloy tubes is accomplished by(i) continuously roll forming into the desired tubular diameter; (ii) continuously weldingthe edges; and (iii) cutting to approximate finished length or multiples thereof. Afterthe tube has been welded and depending upon product specifications, it may be moved tothree further processing stations for annealing (heat treatment through an atmosphericallycontrolled roller hearth furnace), straightening through rotary straighteners, andfinishing (i.e., cut-to-length, non-destructive test, stencil, oil coat and package). TheCompany has stringent quality control standards in place at each stage of themanufacturing process.

This process produces welded heat exchanger tubing, boiler tubing,mechanical tubing and hollows (the raw material for the cold drawing process, which doesnot go through the finishing process). Hollows are primarily for specific cold draworders, however, smaller amounts are produced for inventory.
**Carbon Steel Cold Drawing Process: The Company maintainsinventories of tubing hollows, which is raw material for the cold drawing process. Most ofthis tubing is manufactured by the Company’s own weld tube mills. The Companycurrently offers precision, made-to-order cold drawn products from .250 inch to .375 inchin wall thickness for mechanical tubing and a limited amount of heat exchanger and boilertubing. Cold drawing permits greater flexibility and precision (as compared to the weldprocess) in meeting customer specifications of tube diameters, wall thickness and othercharacteristics.

Cold drawing orders are entered into a computerized order entry system.Raw materials are selected to optimize yields and efficiency and meet the customer’sspecifications and required delivery schedule. After the proper material has been selectedfor each specific order, it is cut to the desired length. The tube is then (i) pickled andlubricated through a series of tanks, (ii) pointed to taper the tube end, and (iii) colddrawn (cold reduction of outside diameter and inside diameter and elongation of tube).After the cold drawn tube has been manufactured to finished size, it is moved to threefurther processing stations for annealing, straightening and finishing.
**Welded Stainless Tube Process: The manufacturing cycle for thestainless steel weld mill operations begins with the receipt by the Company of stainlesssteel coils slit to a pre-designated width by the vendor.

Customer orders are entered into the computerized order entry system.Slit coils are selected and fed into the stainless weld mills to be formed into a tubularshape and welded by an automated gas or laser welding process. After welding, the tube isannealed, cooled, straightened, stenciled, non-destructively tested, cut to length andpackaged for shipment. For some special customer requirements, the tubing is coiled tolengths up to 20,000 feet. Most of the processing is performed in a continuous operation.

Stainless processing provides air-cooled heat exchanger tubing,instrumentation tubing and small diameter stainless pipe. The majority of stainlessproducts are also made-to-order.
**Other Tubing Products**
The Company either outsources the fabrication of its Other TubingProducts or performs value added processing, such as cutting to length and end finishingthe product, using owned equipment. Highly specialized and technical applications aregenerally outsourced. Other Tubing Products consist of tubular goods made of stainlesssteel, carbon steel, copper, brass, aluminum, and surgical steel purchased from othermanufacturers. 
**QuikWater**
QuikWater maintains a sales and engineering office in Sand Springs,Oklahoma and outsources the fabrication of the units to a related party vendor. All unitsare built to the Company's and its customer’s specifications. The Company suppliesall of the required components based upon the specific size and model of the unit. Oncecompleted, the unit is fully tested and then shipped to the customer's site where it isinstalled by the customer or a Company representative.
**Tubing Facilities**
The Company has three manufacturing facilities for producing carbon orstainless steel tubing products. The largest facility is located in Sand Springs,Oklahoma, which produces a wide range of carbon steel tubing products. This facility hasbeen in operation since the Company began in 1969. The Company also has a facility in OilCity, Pennsylvania, which produces primarily boiler and as-welded mechanical carbon steeltubing products. The third facility in Mannford, Oklahoma produces stainless steel tubingproducts. The Company completed its expansion in Oil City during the third quarter offiscal 2001. The additional 36,000 tons of welded capacity will create company-wideadditional capacity for its welded carbon steel heat exchanger and boiler tubing and forits welded and cold drawn mechanical OEM tubing markets.

 

The following table sets forth the processing and other techniques performed at Webco'sfacilities:
                  Manufacturing            
                                     Distribution                                  l
Sand
Oil
Sand
Grand
Glen
Springs,
City,
Mannford, 
Springs,
Nederland,
Lyndon,
Rapids,
Ellyn,
Okla.
Penn.
Okla.
Okla.
Tx.
Illinois
Mich.
Ill.Cold Drawing
X
XSlitting
X
XWelding
X
X
XAnnealing
X
X
X
X
XStraightening
X
X
XCut-to-Length
X
X
X
X
X
X
X
XIntegral Finning
XElectronic Non- Destructive Testing:Eddy Current
X
X
XFlux Leakage
XUltra-Sonic
X
XHydro-Static Testing
X
X
XStenciling
X
X
XBending
X
X
XBar Coding
X
X
X
X
X
X
XComputerized Shop Floor Control
X
X
X
X
XMetallurgical Lab &Spectrometer
XStatistical ProcessControl
X
X
X**  

INDUSTRY SEGMENTSThe Company has two reportable segments: Tubing Products and QuikWater, representingthe Company’s two strategic business units offering different products. The Companyinternally evaluates its business by facility, however, because of the similar economiccharacteristics of the tubing operations, including the nature of products, productionprocesses and customers, those operations have been aggregated for segment reportingpurposes. See Footnote 11 to the financial statements for additional information regardingsegments.
**PRODUCTS

Manufactured Tubing ProductsThe Company produces tubing for a wide variety of markets andend-use applications. The Company seeks to identify niche markets and customers that havebeen serviced by high cost and low service competitors. The heat exchanger and boiler tubemarkets are examples of the Company achieving significant penetration following thisstrategy. Management believes that Webco is a domestic market leader in the manufacture ofwelded carbon steel heat exchanger and boiler tubing, and that it is the leading supplierof stainless steel tubing for certain niche applications. The Company continues to targetthe carbon mechanical and stainless steel tube markets for future growth. The Company isbuilding its market share for mechanical tubing through its low cost structure and highproduct quality, together with the Company’s commitment to customer service. Adetailed description of the Company’s Manufactured Tubing Products by the four majorend-use markets follows:**Heat Exchanger Tubing: The Company is a full service distributor ofheat exchanger tubing, offering a full spectrum of welded, cold drawn or seamless tubingthrough its distribution facilities in Oklahoma and Texas. Through its manufacturingfacilities and sourcing partners, the Company can offer carbon and stainless steel, brass,copper and other metal heat exchanger tubes, which can be cut, bent and/or finned tocustomer specifications at the distribution warehouses. The Company believes that itsmanufacturing capabilities, in both carbon and stainless steel, provide a strategicadvantage over its distribution competitors. The Company also believes that itsdistribution capabilities provide an additional advantage over its manufacturingcompetitors. 

Heat exchangers generally fall into two broad categories; shell andtube, and air-cooled. Shell and tube heat exchangers are used to control temperatures orto recover waste heat in, among other things, power stations, petrochemical plants, andrefineries. Air-cooled heat exchangers are used to dissipate heat generated by industrialprocesses in, among other things, gas compressor stations and petrochemical plants. TheCompany’s products are suitable for both shell and tube and air-cooled heatexchangers.

The heat exchanger industry over the past two years has been impactedby low demand in the petrochemical industry and low cost foreign imports (including bothraw coils and finished tubes and pipe), however, the industry did show signs ofimprovement over the later half of the fiscal year. The Company believes that its currentproduction capacity and product offerings will enable it to better realize the benefitsassociated with improving demand in the steel heat exchanger market.
**Carbon Steel Boiler Tubing: The Company produces welded carbonsteel boiler tubing from both the Sand Springs, Oklahoma, and Oil City, Pennsylvaniafacilities. This capability enables the Company to cost-effectively serve this marketthroughout the continental United States and eastern Canada. The Company is a marketleader in the manufacture of welded carbon steel boiler tubing.

The Company’s products are used for the manufacture andmaintenance of boiler systems for utilities, waste-heat recovery units, industrial andcommercial facilities, and co-generation plants. While maintenance is an ongoingrequirement, new boiler manufacturing generally depends on industrial plant expansion andconstruction of new energy production facilities.
**Stainless Tubing: The Company serves five sub-markets within thesmall diameter welded stainless tubing category: instrumentation tubing, stainless pipe,mechanical tubing, heat exchanger tubing, and other specialty tubing. The end uses forthese products include appliances, industrial plant piping systems, instruments for thepetrochemical industry, and a variety of other capital goods applications. The Company isa small, niche producer, due to both product size and capacity constraints, but plans tocontinue an aggressive growth strategy in the above product lines.

The stainless pipe and tube industry over the last three years has beenimpacted by high levels of low cost foreign imports (including both raw coils and finishedtubes and pipe), which have created historically low pricing and a highly competitivesales environment.
**Mechanical Tubing: Mechanical tubing includes both as-welded andcold drawn tubing. Most of the products the Company manufactures from its cold drawprocesses are for mechanical tube applications. The end-uses for these products are verydiverse and include hydraulic cylinders, automotive components, appliances, farmequipment, and a wide variety of consumer durable (such as bicycles and lawnmowers) andcapital goods. The Company is a relatively small producer in this market, but continues topursue opportunities for growth.

In conjunction with the increased capabilities of Mill 3 and thecompleted expansion in Oil City, the Company has targeted the mechanical tubing market asa growth area over the next several years. This market continues to undergo a major changein which final assembly manufacturers (automotive, appliance, etc.) outsource componentparts and emphasize just-in-time inventory management to reduce production costs. Webcobelieves that this market, which is largely comprised of original equipment manufacturers("OEMs"), provides an opportunity for the Company to gain market share byutilizing its technological capabilities to offer superior quality, on-time delivery,customer service, and customized products at competitive prices.
**Other Tubing ProductsThe Company sells a variety of other tubing products, primarily through itssubsidiary, P&J. Other Tubing Products consist of tubular goods made of stainless andcarbon steel, copper, brass, aluminum, and surgical steel purchased from othermanufacturers. These products come in a wide range of sizes and are used in a variety ofapplications. In many cases, the Company provides just-in-time inventory management forits customers.
**QuikWaterThe Company's QuikWater division sells a patented direct contact water heater. Thewater heater generates hot water on demand and has significant energy saving benefitscoupled with unique environmental advantages. It can be used in a variety of commercialapplications such as food processing, manufacturing, health care, construction, and othermarkets where a high volume of hot water is required.
**Quarterly Effects and SeasonalityOrder rates generally tend to be lower during mid-summer and December as many of theCompany’s customers schedule plant shutdowns for plant maintenance. In addition, theCompany experiences some seasonality in stainless during its third fiscal quarter, whichmay result in reduced net sales and income for that period.
**BacklogThe Company’s firm backlog of orders at July 31, 2001 and2000 were $ 18.6 million and $17.1 million, respectively. Orders, including a portion ofthe orders considered firm, are generally cancelable by the customer until work hascommenced and the Company has committed resources; thereafter, orders are generallycancelable by the customer only upon payment of a cancellation penalty.**CompetitionSpecialty steel tube manufacturing is a highly competitivemarket in which companies compete on the basis of price, quality, service and ability todeliver orders on a timely basis. Public data concerning the size of the markets in whichthe Company participates is not readily available since many of the large competitors areprivately held. The Company believes that it is the domestic market share leader in weldedcarbon heat exchanger tubing, welded carbon boiler tubing, and certain stainless steelapplications. Although the Company has a small share of the mechanical tubing market,management believes that it is well positioned to increase its market share over the nextseveral years.
The Company’s major competitors include Vision Metals, Inc. forcarbon heat exchanger tubing, Plymouth Tube Company for carbon boiler tubing,Damascus/Bishop Tube, Inc. and Gibson Tube, Inc. for stainless products, and CopperweldLTV, Pittsburgh Tube Company, Metalmatic and Lone Star Steel Company for mechanicaltubing. Certain of these competitors are larger and have access to greater financialresources than the Company. Most of these competitors are unionized.

The Company believes that its non-union status, geographic balance,focused niche strategy, product quality, customer service and continued emphasis ontechnical innovations position it to compete effectively within each of its niche markets.
**Quality ControlThe supply of quality products and service is critical to theCompany’s success. To help foster continuous improvements in quality and service, theCompany, through its corporate quality management department, instituted a total qualitymanagement system based upon ISO 9000 quality system standards. In early 1994, the Companyachieved ISO 9002 certification at its Sand Springs, Oklahoma manufacturing facility. ISO9002 certification at its Oil City, Pennsylvania manufacturing facility was achieved inearly 1995. In May 2000, the Company achieved ISO 9002 certification at its Mannford,Oklahoma manufacturing facility. The Company has obtained QS-9000 certification at itsSand Springs, Oklahoma, Oil City, Pennsylvania and Mannford, Oklahoma facilities. Insupport of the total quality management system, the Company has created an environmentthat emphasizes and utilizes teamwork to support continuous improvement of quality andservice.
Fundamental to the Company’s quality system is the control of theproduct and process, from raw material procurement to the ultimate delivery of finishedgoods to the Company’s customers. On a test basis, physical and chemical analyses areperformed on raw materials to verify that their mechanical and dimensional properties,cleanliness, and surface characteristics meet the Company’s and industryrequirements. The Company has also developed stringent process controls, includingStatistical Process Control, non-destructive testing methods, and standardized operatingand inspection procedures, to provide assurance of quality, and to ensure that thecustomer’s requirements are met throughout the manufacturing process.
**SuppliersThe Company purchases steel sheet coil from a number of primarysteel producers including, but not limited to, Nucor, Wheeling-Pittsburgh Steel Corp. andGallatin Steel for carbon steel, and Allegheny Rodney and AvestaPolarit for stainlesssteel. In addition, Webco purchases from intermediate steel processors and brokers inorder to benefit from their purchasing power or for their specialized processingcapabilities. Webco monitors and purchases some raw material from foreign sources aseconomic conditions dictate. However, the greatest percentage of Company purchases arefrom domestic suppliers. The Company orders steel to specified physical characteristicsand chemistry. By purchasing in large quantities at consistent predetermined intervals,Webco is able to obtain quality raw materials at competitive prices. All increments of thecost of purchasing and landing steel are continuously monitored, reviewed and acted upon.Webco believes that it is not dependent on any one of its suppliers for raw materials,however, interruptions in supply from its main suppliers could impact the landed cost ofnew purchases.
Webco understands that the Company's supplier base for materials iscritical to its economic health. Constant effort is directed towards developing long-termpartners who can provide acceptable quality, competitive prices and dependable delivery,and are, themselves, economically stable. 
**Marketing and Customer ServiceThe Company’s products and services are sold predominatelyby the Company’s inside and outside sales personnel.
The Company’s sales and marketing efforts for its manufacturedproducts are directed by a vice president of sales and marketing, the President ofP&J, and Webco's product sales managers. These efforts are supported by itsdistribution organization, internal sales staff and technical services group. The Companyalso emphasizes the use of its technical and engineering support staff in its productdevelopment and marketing efforts. The Company’s technical services, operating,engineering, quality, sales, product planning and purchasing staffs work closely with itscustomers and suppliers to develop products that meet specific customer applications.Variables in the product development process include the steel’s microstructure,chemistry, mechanical properties, surface finish, machinability, and product consistency.The Company believes this process is essential to its sales effort and provides theCompany with a competitive advantage.

Sales of the Company's Other Tubing Products are directed by thePresident of P&J, and its sales staff, headquartered in Glen Ellyn, Illinois. TheCompany’s Other Tubing Products line and P&J's other sales representativeaccounts constitute over 50% of P&J's sales effort.
**Customers and DistributionThe Company manufactures and distributes specialty steel tubularproduct for sale to a diverse group of more than 1,100 customers. No single customerrepresents in excess of 7% of the Company’s net sales. The Company’s ten largestcustomers represent approximately 28% of net sales. The majority of the Company’ssales are made directly to industrial customers, including manufacturers of heatexchangers, high efficiency home heating furnaces, appliances, automotive components,power generation equipment, waste heat recovery systems, industrial and commercialboilers, and other consumer durable goods.
While the Company ships product throughout North America, many of itsmarkets and customers are located within a 500-mile radius of its manufacturing anddistribution locations. As it concerns these markets and customers, this geographicadvantage places the Company in a more cost competitive position relative to many of itscompetitors. The Company transports product for local delivery via Company-owned or leasedvehicles. Longer distance deliveries are generally made via independent trucking firms.

The Company offers its finished product for shipment directly from itsthree manufacturing locations. In addition, the Company also inventories finished goodsand functions as its own distributor in some of its markets. Such markets and customersare served on a just-in-time basis from the Company’s distribution locations inOklahoma, Texas, Illinois and Michigan. Finished goods inventories for distributiongenerally are suitable for sale to many customers and generally are not unique to aspecific customer’s needs.

The Company believes that its long-term relationships with many of itscustomers are a significant factor in its business and that pricing, quality, service andthe ability to deliver orders on a timely basis are the most critical factors inmaintaining these relationships. Company executive officers actively participate in theCompany’s marketing efforts and have developed strong business relationships withsenior management of many of the Company’s principal customers.
**Government RegulationThe Company’s distribution and manufacturing facilities aresubject to many federal, state, and local requirements relating to the protection of theenvironment. The Company continually examines ways to reduce emissions and waste andreduce costs related to environmental compliance. The Company has an in-houseenvironmental engineer leading the Company’s environmental program. Management’sphilosophy is to implement environmental controls that meet or exceed current andforeseeable legal requirements. Management believes the Company is in material compliancewith all environmental laws, does not anticipate any material expenditure to meetenvironmental requirements, and generally believes that its processes and products do notpresent any unusual environmental concerns. See "Item 3. Legal Proceedings."
The Company’s operations are also governed by laws and regulationsrelating to workplace safety and worker health, principally the Occupational Safety andHealth Act and regulations thereunder which, among other requirements, establish noise anddust standards. Management believes it is in material compliance with these laws andregulations and does not believe that future compliance with such laws and regulationswill have a material adverse effect on its results of operations or financial condition.
**EmployeesAs of September 30, 2001, the Company employed 747 people. Noneof the Company’s employees are covered by collective bargaining agreements. TheCompany has never experienced a significant work stoppage and considers its employeerelations to be good.**FORWARD-LOOKING STATEMENTS**
Certain statements in this Annual Report on Form 10-K, includingstatements preceded by, or predicated upon the words "believes","expects", "appears" or "plans", constitute"forward-looking statements" within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Such forward-looking statements involve known and unknownrisks, uncertainties and other important factors that could cause the actual results,performance or achievements of the Company, or industry results, to differ materially fromany future results, performance or achievements expressed or implied herein. Such risks,uncertainties and factors include, among others: 
**General Economic and Business ConditionsMany of the Company’s products are sold to industries that experience significantfluctuations in demand based on economic conditions or other matters beyond the control ofthe Company. No assurance can be given that the Company will be able to increase ormaintain its level of sales in periods of economic stagnation or downturn. Through thedate of this filing, the Company has not experienced a significant change in its saleslevels or order backlog due to the economic impacts of the terrorist attacks of September11, 2001, although there can be no assurances such stability will continue.
**Competition from ImportsThe level of imports of tubular products affects the domestic tubular products market,which has varied significantly over time. High levels of imports may reduce the volumesold by domestic producers and depress selling prices. In addition, the strength of theU.S. Dollar and volume motives of some foreign importers may create circumstances whereproduct pricing is at levels that are marginally profitable or even unprofitable. TheCompany believes that import levels and import pricing are affected by, among otherthings, overall worldwide demand for tubular products, global economic conditions, thetrade practices of and government subsidies to foreign producers, and the weakness orabsence of governmentally imposed trade restrictions in the United States. Given theuncertainty in certain economies of Asia, South America and Eastern Europe, competitionfrom foreign imports should be expected to continue.
**Changes in Manufacturing TechnologyOver the past 10 years, there have been significant advances in the technologyrelating to the manufacture of carbon and stainless steel tubing. Such advances haveimpacted the speed at which tubing can be manufactured, the quality of the tubing, and thetypes and densities of materials that can be welded into tubes for advanced manufacturingprocesses. In many circumstances, maintaining current manufacturing technologies isnecessary to be competitive with other domestic producers and foreign imports or to beable to provide goods for customers’ advancing manufacturing needs and processes.Maintaining current manufacturing technologies and capabilities requires investment ofcapital. Manufacturers that do not maintain current technologies may be rationalized bythe industry as a result of their inability to compete against more efficiently pricedproducts.
**Monetary Policy and Banking EnvironmentIn the course of managing the National economy, the Federal Reserve effects policythat impacts the cost and availability of money within the United States banking system.These policy decisions, along with the quality of the economy, have a direct impact uponbank credit policies. Continued tightening of credit availability could negatively impactthe Company's ability to refinance its debt upon maturity or to refinance at terms thatare not more costly than the current debt structure.
**Industry CapacityThe Company and many of its competitors in both the stainless and carbon steel tubingmarkets have expanded production capacity over the past decade and continue to do so inconnection with the growth in product demand and benefits related to current manufacturingtechnology. Continued significant expansion could result in industry over-capacity. Overcapacity could also result from a sudden decrease in demand or a significant increase inforeign imported supply.
**Domestic CompetitionSpecialty steel tube manufacturing is a highly competitive market in which companiescompete on the basis of price, quality, service and ability to fill orders on a timelybasis. The Company has different competitors within each of its markets served. Certain ofthese competitors are larger and have greater financial resources than the Company. Salesof some of the Company’s products represent a high percentage of the market demandfor these products, and could be targeted by competitors.
**Raw Material Costs and AvailabilityThe Company's largest component of cost of sales is raw material costs. These costscan vary over time due to changes in steel pricing which are influenced by numerousfactors beyond the control of the Company, including general economic conditions, foreignimports, domestic competition, labor costs, import duties and other trade restrictions.Typically, the Company passes on these changes in cost to customers. However, reductionsin the Company's raw material costs may lag behind pressure on the Company's sales pricesor increases in raw material costs may precede increases in the Company's sales prices,thus affecting the Company's profit margins.
**Loss of Significant Customers and Customer and Vendor Work StoppagesThe Company sells its tubular products to a diverse group of more than 1,100customers. Although no single customer represents in excess of 7% of the Company’s2001 net sales, and no one end-use sector represents more than 25% of 2001 net sales, theloss of any significant customer, or a work stoppage at a significant customer or in animportant end-use sector, such as automotive, could have an adverse effect on theCompany’s operating results.
**Technical and Data Processing Capabilities of Customers and VendorsFailure by the Company’s customers and vendors to find adequate solutions to anytechnical and data processing issues they may have could result in customers having asignificant interruption in their buying patterns and volumes, and vendors being unable todeliver product required for the Company’s manufacturing processes in a timelymanner.
**ITEM 2. PROPERTIES**
The Company’s principal properties presently consist of threemanufacturing plants and five distribution facilities. The following sets forth thelocation, area, and whether the property is owned or leased for each existing facility:

Location
Area
Owned or Leased**Sand Springs, Oklahoma**
281,000 square feet
OwnedManufacturing Facility
26 acres**Sand Springs, Oklahoma**
50,000 square feet
OwnedDistribution Facility
18 acres**Mannford, Oklahoma**
138,000 square feet
OwnedManufacturing Facility
13 acres**Nederland, Texas**
25,200 square feet
Long-term lease with a    purchaseDistribution Facility
Option of the greater of 93%    of
FMV or $475,000**Oil City, Pennsylvania**
205,000 square feet
OwnedManufacturing Facility
8 acres**Titusville, Pennsylvania**
30,600 square feet
Long-term leaseManufacturing Facility**Tulsa, Oklahoma**
24,400 square feet
Long-term lease with aCorporate Offices
Purchase option of $750,000**Tulsa, Oklahoma**
28,000 square feet
Long-term leaseFinning Facility**Glen Ellyn, Illinois**
25,700 square feet
Long-term leaseP&J Corporate Offices And Distribution Facility**Lyndon, Illinois**
33,700 square feet
Long-term leaseDistribution Facility**Grand Rapids, Michigan**
55,000 square feet
Long-term leaseDistribution Facility
The Company considers all of its properties, both owned and leased, together with therelated machinery and equipment contained therein, to be well maintained, in goodoperating condition, and suitable and adequate to carry on the Company’s business. 
** 

ITEM 3. 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 equipmentsold to the Company and installed on Mill 3, which did not perform to specifications. Thecase, filed in the United States District Court for the Northern District of Oklahoma(Case No. 97-CV-708H (W)), sought recoveries for the cost of the equipment and otherincidental and consequential damages, including lost profits, suffered by the Company. OnMay 27, 1999 a jury awarded the Company $1.1 million on its claims against Thermatool.Prior to the trial, the court had ruled that the Company could not collect lost profitsand certain other incidental and consequential damages, and limited the Company's possiblerecovery to the cost of the equipment and improvements plus interest. The damages awardedby the jury, accordingly, do not include lost profits by the Company. Now that the firsttrial has been decided in the Company’s favor, the Company has appealed the pre-trialorder that prevented the Company from recovering lost profits, and has appealed the trialcourt’s denial of attorneys’ fees and pre-judgment interest. There can be noassurances that the Company will be successful on appeal or that if successful, lostprofits 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 theCompany. Thermatool has appealed the jury’s verdict and there can be no assurances asto what the outcome of that appeal will be. 

The Company is also a party to various other lawsuits and claimsarising in the ordinary course of business. Management, after review and consultation withlegal counsel, believes that any liability resulting from these matters would notmaterially affect the results of operations or the financial position of the Company. TheCompany maintains liability insurance against risks arising out of the normal course ofbusiness.
**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
There were no matters submitted to Webco securityholders during the fourth quarter of fiscal year 2001.** 

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK               AND RELATED STOCKHOLDER MATTERS**
Webco's common stock is traded on the American Stock Exchange("AMEX") under the symbol "WEB." At the close of business on September30, 2001, there were 279 holders of record of Webco's common stock. The quarterly pricesof Webco's common stock were as follows:
Fiscal Year 2001:HighLowFourth Quarter4.352.50Third Quarter3.501.37Second Quarter2.69.63First Quarter3.252.25Fiscal Year 2000:Fourth Quarter4.252.69Third Quarter4.943.75Second Quarter3.882.50First Quarter4.882.75
 
**DividendsThe Company currently intends to retain earnings to support its growth strategy andreduce debt and does not anticipate paying dividends in the foreseeable future. The Boardof Directors may reconsider or revise this policy from time to time based upon conditionsthen existing, including the Company's results of operations, financial condition, andcapital requirements, as well as other factors the Board of Directors may deem relevant.Under the Company's loan agreement, the Company may not pay dividends without the lendersconsent.
**ITEM 6. SELECTED FINANCIAL DATA**
The following table presents selected financial information for theCompany as of the end of and for each of the five years in the period ended July 31,2001, which has been derived from the audited Financial Statements of the Company. Infiscal year 1998, Webco merged with Phillips & Johnston, Inc. ("P&J").Because the merger was accounted for as a pooling of interests, financial results for the1997 and 1998 periods are presented as though the companies have always been combined. 

The selected financial data should be read in conjunction with theFinancial Statements of the Company and notes thereto and "Management's Discussionand Analysis of Financial Condition and Results of Operations" appearing elsewhere inthis Form 10-K. 

WEBCO INDUSTRIES, INC. AND SUBSIDIARYSelected Financial DataFor the Years Ended July 31,(Dollars in thousands, except per share data)
**Income Statement Data:                                                                           2001                2000           1999              1998             1997 
Net sales (1)                                                                                            $151,760       $ 144,941     $ 138,581     $ 155,751       $132,352 Gross profit                                                                                                 15,906            19,368         21,353          28,486          20,228Income from operations                                                                              2,139              2,346(2)      5,564           11,305           7,234 (3)Income (loss) before income taxes                                                                                                (2,592)           (1,646)          3,012             9,009           5,187Net income (loss) (4)                                                                                  (1,602)           (1,025)          1,876             6,207           3,931

Net income (loss) per share (4):Basic                                                                                                              (0.23)              (0.14)              .26                 .87                .55Diluted                                                                                                           (0.23)              (0.14)              .26                 .86                .55

Pro forma net income (5)                                                                                                                                                5,511            3,179

Pro forma net income per share (5):Basic                                                                                                                                                                                      .77                .44Diluted                                                                                                                                                                                   .76               .44
**Balance Sheet Data:Working capital                                                                                     $ 30,219         $ 30,129        $ 32,346        $ 30,861        $33,837 

Total assets                                                                                             128,347          130,123         120,481         111,758        102,142Long-term debt (net ofcurrent portion)                                                                                        46,010            43,979           39,746           32,894          34,470 

Stockholders' equity                                                                                47,046            48,648           49,673           48,245          45,220

 - The 1997 thru 2000 periods presented have been adjusted to reflect the Company's change    in accounting for freight expense to include it as a cost of sales rather than as a    reduction of revenue. The amounts reclassified for the periods 1997 thru 2000 were    $3,759,000, $4,320,000, $3,837,000 and $4,021,000, respectively. The reclassification had    no effect on gross profit or net income (loss).
- Includes a $1,400,000 ($868,000, or $.12 per diluted share after tax) charge related to    the write-off of certain QuikWater long-term assets and excess tubing equipment.
- Includes a $884,000 ($548,000, or $0.08 per diluted share after tax) charge related to    the replacement and write-off of faulty equipment on the Company’s Mill 3.
- P&J was an S-Corporation for Federal and state income tax purposes through June 29,    1998, and accordingly did not incur any Federal or state income taxes prior to that date.
- The 1997 and 1998 periods presented have been adjusted on a pro forma basis for assumed    Federal and state income taxes for P&J, which had not previously recognized income    taxes due to their S-Corporation status. Pro forma income taxes were based upon the    statuary (Federal & state) tax rate of 38 percent.
** 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF               FINANCIALCONDITION AND RESULTS OF OPERATIONS**
The following discussion should be read in conjunction with the"Selected Financial Data" and the Financial Statements of the Company and notesthereto appearing elsewhere in this Form 10-K.
**OverviewThe Company's philosophy is to pursue growth and profitability through theidentification of niche markets that preferably involve specialty tubular products thatrequire a high level of value engineering and can be dominated from an industry orcustomer standpoint. The Company uses its quality standards, customer service andmanufacturing technology to achieve such market penetration.

The Company experienced sequential improvement in quarterly income(loss) from operations during the year ended July 31, 2001 as shown in the following table(dollars in thousands):

                                                                                                     Quarters Ended                                                                                                    October 31,         January 31,         April 30,         July 31,         Total                                                                           2000                    2001                 2001              2001              YearNet sales                                                       $37,995                $38,703              $37,065        $37,997         $151,760Gross profit                                                      3,156                    3,770                4,153             4,827             15,906Income (loss) from operations                       (625)                        73                   653             2,038               2,139Net income (loss)                                          (1,153)                     (755)                (300)               606             (1,602)

The first quarter of fiscal 2001 was negatively impacted by a one-weeksuspension at the Sand Springs facility in August for repair and maintenance projects. Thesecond quarter of fiscal 2001 was further hampered by increased costs during the start-upphase of the plant expansion in Oil City. A fire at the Oil City facility in February 2001further delayed the start-up, making the fourth quarter of fiscal 2001 the first fullyoperational quarter for all facilities for the year. Now that the major expansion projectin Oil City is complete, the Company is focusing on improving its profitability and debtreduction. Please see Part II, Item 8: "Supplementary Data" of this Form 10-Kfor complete quarterly financial data. 
**Results of OperationsThe following table sets forth certain income statement data for each of the threeyears in the period ended July 31, 2001 (certain amounts may not calculate due torounding):

2001
2000
                   1999
DollarAmount
%    of Net Sales
DollarAmount
%    ofNet Sales
DollarAmount
%    of Net Sales(Dollars in    millions)Net sales 
         $151.8
100.0%
$144.9
100.0%
$138.6
    100.0%Gross profit
             15.9
        10.5
         19.4
      13.4
       21.4
     15.4Selling, general    and administrative expenses
             13.8
      9.1
         15.6
      10.8
       15.8
     11.4Income from    operations
               2.1
    1.4
          2.3
       1.6
        5.6
       4.0
 

The following discussions of sales levels, prices and gross profitrevolve around the Company's Manufactured Tubing Products (carbon and stainless steeltubing from its three plants in Oklahoma and Pennsylvania), Other Tubing Products(purchased tubular goods made of stainless steel, carbon steel, copper, and brass) andQuikWater. In Fiscal 2001, the Company changed its method of accounting for freightexpense to include it as a cost of sale rather than a reduction of revenue, accordinglythe 2000 and 1999 periods have been adjusted to reflect this change. 
**Fiscal 2001 Compared with Fiscal 2000Manufactured Tubing Product sales increased $4.4 million, or 3.4 percent, to $134.2million in 2001 from $129.8 million in 2000. The increase in net sales reflects a 5.0percent increase in the average net sales price per ton realized during 2001, which waspartially offset by a 1.6 percent decrease in the tonnage of tubing sold. The overallincrease in the average net sales price per ton reflects the growth in sales of theCompany’s stainless and heat exchanger products during 2001 combined with a decreasein sales of lower priced carbon mechanical tubing products. The decrease in the tonnage oftubing sold is a combination of a change in sales mix most impacted by the decreaseddemand for general mechanical tubing products. 

Gross profit for Manufactured Tubing Products decreased to $12.4million, or 9.2 percent of net sales, in 2001 from $16.4 million, or 12.6 percent of netsales, in 2000. This decrease is a function of a 9.1 percent increase in the averagemanufactured cost per ton of tubing sold, driven mostly by increased raw material pricesmost notably in stainless material, offset by the 5.0 percent increase in the average netselling price per ton, noted above. A one-week suspension at the Sand Springs facility inAugust and higher payrolls and operating expenses at the Oil City facility due to theplant expansion negatively impacted margins in the current fiscal year. Margins werefurther reduced by increased natural gas prices and continued pricing pressure in thecarbon mechanical tubing product markets.

Other Tubing Products sales are made primarily by Webco’ssubsidiary, P&J. Sales of these products increased 12.7 percent to $14.1 million in2001 from $12.5 million in 2000. Gross profit from Other Tubing Products decreased to $2.5million, or 17.7 percent of net sales, in 2001 from $2.7 million, or 21.6 percent of netsales, in 2000. The increase in sales and decline in gross profit is a result of increasedvolumes at reduced sales prices among most specialty tubing lines. Pricing pressureremains strong throughout the mechanical and specialty stainless tubing markets.

Sales for QuikWater increased 31.5 percent to $3.5 million in 2001 from$2.6 million in 2000. Gross profit for QuikWater was $975,000, or 28 percent of net sales,in 2001 as compared with $263,000, or 10.2 percent of net sales, in 2000. The increase insales and gross profit is a result of improved market conditions for the QuikWater productdue to changes in certain environmental standards, primarily on the West coast of theUnited States, and further development of marketing strategies along with marketdiversification. In addition, the gross profit percentage increase is a reflection ofimproved volumes along with the outsourcing arrangement for the manufacturing of theunits, which has greatly reduced the amount of unproductive overhead costs incurred.

During the fourth quarter of fiscal 2000, the Company recorded a$986,000 pre-tax charge related to the write-off of QuikWater intangible, and certainother long-lived, assets. QuikWater continues to operate and the remaining asset valuesare being depreciated as part of the normal course of business. In addition, during thefourth quarter of fiscal 2000, the Company recorded a $414,000 pre-tax charge related tothe write-down of underutilized tubing equipment. 

Selling, general and administrative expenses decreased 11.5 percent to$13.8 million in fiscal 2001 from $15.6 million in fiscal 2000. The decrease in thecurrent year is primarily the result of a decrease of $189,000 in legal fees principallyrelated to labor matters, a $516,000 decrease in information technology expenses incurredas a result of cost cutting efforts, a $225,000 decrease in amortization expenseprincipally related to the QuikWater intangibles written off in fiscal year 2000, and a$630,000 decrease in administrative labor and overhead expenses realized as a result ofcertain cost savings measures implemented during the first and second quarters of fiscal2001. The Company also realized a $236,000 gain on the sale of real estate that isincluded as part of selling, general and administrative expenses in 2001.

Interest expense for fiscal 2001 increased to $4.7 million (net of$375,000 capitalized) from $4.0 million (net of $313,000 capitalized) in fiscal 2000. Theincrease in interest prior to interest capitalization is the result of the average levelof debt under the bank Loan and Security Agreement increasing $3.8 million to $48.5million for 2001 as compared with $44.7 million for 2000. In addition, the related averageinterest rate increased to 8.9 percent in 2001 from 8.8 percent in 2000. The Company hashistorically elected for its term debt and a significant portion of its outstandingrevolver to bear interest at a floating rate based on LIBOR. Higher borrowing levels haveresulted from declines in operating cash flow and the expansion in Oil City, Pennsylvania.LIBOR, much like the prime rate, has experienced decreases during fiscal 2001, however,due to the amortization of loan costs to interest expense and the Company's amended bankagreement with its primary lender, the Company has not yet fully realized the benefit ofthose decreases. With the additional interest rate reductions since July, the Companyanticipates a slightly lower average interest rate in the first quarter of fiscal 2002.
**Fiscal 2000 Compared with Fiscal 1999Manufactured Tubing Product sales increased $6.9 million, or 5.6 percent, to $129.8million in 2000 from $122.9 million in 1999. The increase in net sales reflects a 7.0percent increase in the tonnage of tubing sold during 2000, which was partially offset bya 1.4 percent decrease in the average net sales price per ton. The overall increase in thetonnage of tubing sold reflects the growth in the Company’s stainless, boiler and OEMmechanical tubing markets. The decrease in the average net selling price is a combinationof a change in sales mix and eroded pricing in the heat exchanger market and generalmechanical tubing products.

Gross profit for Manufactured Tubing Products decreased to $16.4million, or 12.6 percent of net sales, in 2000 from $18.4 million, or 15.0 percent of netsales, in 1999. This decrease is a function of the 1.4 percent decline in average netselling price per ton, noted above. This combined with an increase of 10.9 percent in theaverage manufactured cost per ton of tubing sold caused by increased raw material prices.

Other Tubing Products sales are made primarily by Webco’ssubsidiary, P&J. Sales of these products increased 3.1 percent to $12.5 million in2000 from $12.1 million in 1999. Gross profit from Other Tubing Products increased to $2.7million, or 21.6 percent of net sales, in 2000 from $2.6 million, or 21.4 percent of netsales, in 1999. The slight increase in sales and gross profit was the result of volumeincreases and a change in sales mix from the prior year period.

Sales for QuikWater decreased 23.5 percent to $2.6 million in 2000 from$3.4 million in 1999. Gross profit for QuikWater was $263,000, or 10.2 percent of netsales, in 2000 as compared with $388,000, or 11.4 percent of net sales, in 1999. Thedecrease in sales is a result of a decline in demand in the food processing industry andpending environmental standards in California. As a result of low volumes, gross profitpercentages remained low due to the under-utilization of available manufacturing capacity.Beginning in late 2000, the Company contracted with an entity owned by the majoritystockholders to subcontract the production of the QuikWater units. Management believesthis will enable the company to achieve improved margins by not having to incur the costsof personnel and overhead.

During the fourth quarter of fiscal 2000, the Company recorded a$986,000 pre-tax charge related to the write-off of QuikWater intangible, and certainother long-lived, assets. QuikWater continues to operate and the remaining asset valuesare being depreciated as part of the normal course of business. In addition, the Companyrecorded a $414,000 pre-tax charge related to the write-down of underutilized tubingequipment that the Company anticipates selling. 

Selling, general and administrative expenses decreased 1.3 percent to$15.6 million in fiscal 2000 from $15.8 million in fiscal 1999. The decrease in thecurrent year is primarily the result of an approximately $930,000 decrease in legalexpenses, primarily related to the Thermatool litigation and labor related matters, and adecrease of $145,000 in profit sharing to employees. These decreases were principallyoffset by an increase of approximately $435,000 in depreciation related to the ERP systemand $465,000 of additional information technology expenses incurred in support of the newERP system.

Interest expense for fiscal 2000 increased to $4.0 million (net of$313,000 capitalized) from $2.6 million (net of $437,000 capitalized) in fiscal 1999. Theincrease in interest prior to interest capitalization is the result of the average levelof debt under the bank Loan and Security Agreement increasing $9.3 million to $44.7million for 2000 as compared with $35.4 million for 1999. In addition, the related averageinterest rate increased to 8.8 percent in 2000 from 7.2 percent in 1999. The Company hashistorically elected for its term debt and a significant portion of its outstandingrevolver to bear interest at a floating rate based on LIBOR. LIBOR, much like the primerate, experienced increases during fiscal 2000. Higher borrowing levels have resulted fromincreased inventories, implementation of the ERP system, and the expansions in Oil City,Pennsylvania, and Mannford, Oklahoma.
**Liquidity and Capital ResourcesNet cash provided by operations was $3.2 million, $4.2 million and $8.6 million infiscal 2001, 2000 and 1999, respectively. Accounts receivable increased in 2001 and 2000primarily as a result of the increase in sales from the prior year. Inventories decreasedin 2001 and increased in 2000 and 1999. Inventories decreased in 2001 primarily due tomanagement's efforts to reduce raw material inventory levels at the manufacturingfacilities, which was partially offset by increases in finished goods levels. The increasein inventory in 2000 and 1999 was partly the result of the Company’s ability to makestrategic volume purchases in anticipation of rising prices and the result of an overallincrease in raw material prices. Accounts payable increased in 2000 and 1999 primarily asa result of the increase in inventory. Over the past three years, the Company has onaverage turned its steel tube inventories approximately 4 times per year.

Net cash used in investing activities was $5.4 million, $10.5 millionand $12.9 million in fiscal 2001, 2000 and 1999, respectively. During the third quarter offiscal 2001, the Company completed the expansion of the Oil City facility, which includedthe installation of a new mill along with other supporting equipment and plantconstruction. In 2000, the Company added a new mill and upgraded technology on existingmills at the stainless plant, completed the installation of its ERP system, and continuedthe expansion of facilities and machinery at its Oil City plant. In 1999 the Company addednew mills at its stainless plant, continued the development and installation of the ERPsystem, and began the expansion of facilities and operations at its Oil City plant. 

The Company’s capital requirements have historically been to fundequipment purchases and for general working capital needs resulting from the growth thatthe Company has experienced. The Company has followed an aggressive capital expenditureplan as part of its growth strategy and to enable it to continue to be a leader in tubularmanufacturing technologies. With the major expansion project in Oil City now complete, theCompany plans to focus on debt reduction and working capital management. The Companycurrently intends to retain earnings to support this strategy and does not anticipatepaying dividends in the foreseeable future.

The Company's senior debt facilities provide for a term loan of $25million, 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, Pennsylvaniaplant. As of July 31, 2001, the Company had $22.5 million outstanding on the term loan,$20.3 million under the revolving line of credit and $3.8 million outstanding on the CAPEXfacility. These loans mature on August 31, 2002, and are collateralized by substantiallyall of the Company’s assets other than the Sand Springs real estate. The Company mayhave borrowings and outstanding letters of credit ($1,056,000 at July 31, 2001) under therevolving credit facility up to the lesser of $25 million or an amount determined by aformula based on the amount of eligible inventories and accounts receivable. At July 31,2001, $3.7 million was available for borrowing under this line of credit. The CAPEX loanwas fully funded up to the $5 million cap during the second quarter of fiscal 2001.Principal payments on the term loan and CAPEX facility of $208,000 and $80,000,respectively, plus interest, are due each month until maturity.

Due to the August 31, 2002, maturity date of the Company's senior debtfacilities, the Company is currently in discussions to refinance or extend the currentdebt agreement. If the Company is unable to refinance or extend the agreement, asignificant portion of its long-term debt will be classified as a current liability in thefinancial statements contained in its Form 10-Q for its first fiscal quarter ended October31, 2001, since the maturity date will be within 12 months of the balance sheet date. Thedebt will not be due on demand or otherwise callable by the lender at that time, and theCompany will have until the maturity date to refinance or extend the agreement. Althoughthe Company believes it will be successful in its efforts to refinance or extend theagreement, there can be no assurances the Company will be successful in its efforts.

The Company's debt agreement, as amended on November 13, 2000, containscovenants regarding debt coverage and the ratio of indebtedness to equity. The covenantsalso limit capital expenditures and dividends and require the Company to maintain aminimum borrowing base availability without considering the $25 million revolving loancap. As of July 31, 2001, the Company was in compliance with all such covenants.

The Company has arranged financing with various public agencies relatedto the Oil City facility, of which, $2.96 million is outstanding and no additional amountsremain available for borrowing as of July 31, 2001. The agency loans are collateralized bythe underlying real estate and/or equipment and the guarantee of the principalstockholder/officer. The notes mature over a 3 to 10 year period and bear interest atrates ranging from 3 to 5 percent.

P&J has a line of credit agreement for $2,000,000 and a term loanof $500,000 with its primary lender. As of July 31, 2001, the Company had $298,000outstanding on the term loan. The line of credit matures on November 30, 2001, and theterm loan matures in April 2004. Both loans are collateralized by P&J’s assets.At July 31, 2001, $2.0 million was available for borrowing under the line of credit.

In the past, the Company has funded its capital growth expenditureswith a combination of cash flow from operations and debt. The Company is currently focusedon reducing debt and does not have any major expansions planned. Capitalspending plans for fiscal year 2002 primarily consist of minor projects and normalmaintenance spending, which is expected to total less than $4.5 million for the year.**Outstanding LitigationOn May 27, 1999, a jury awarded the Company $1.1 million on its claims against avendor of certain cut-off equipment that did not perform to specifications. In a pre-trialorder, the court ruled that the Company could not collect lost profits and certain otherincidental and consequential damages, and limited the Company's possible recovery to thecost of the equipment and improvements plus interest. The vendor has appealed thejury’s verdict and the Company has appealed the pre-trial order. There can be noassurances as to what the outcome of the appeals will be or that ultimate damagescollected by the Company, if any, will be commensurate with losses incurred by theCompany. Please see Part I, Item 3: "Legal Proceedings" of this Annual Report onForm 10-K for additional information regarding this matter.

The Company is also a party to various other lawsuits and claimsarising in the ordinary course of business. Management, after review and consultation withlegal counsel, believes that any liability resulting from these matters would notmaterially affect the results of operations or the financial position of the Company. TheCompany maintains liability insurance against risks arising out of the normal course ofbusiness.
**Stock Repurchase PlanIn 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 acquired95,000 shares of stock for approximately $448,000 during fiscal year 1999. The Companycurrently does not anticipate any additional repurchases in the near-term.
**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

REPORT OF INDEPENDENT ACCOUNTANTS**
 

 

To the Board of Directors and Shareholders of

Webco Industries, Inc.

In our opinion, the accompanying consolidated balance sheets and therelated consolidated statements of operations, stockholders' equity and cash flows presentfairly, in all material respects, the financial position of Webco Industries, Inc. andsubsidiary at July 31, 2001 and 2000, and the results of their operations and their cashflows for each of the three years in the period ended July 31, 2001, in conformity withaccounting principles generally accepted in the United States of America. In addition, inour opinion, the financial statement schedule listed in the index appearing under item14(a)(2), presents fairly, in all material respects, the information set forth thereinwhen read in conjunction with the related consolidated financial statements. Thesefinancial statements and financial statement schedule are the responsibility of theCompany's management; our responsibility is to express an opinion on these financialstatements and financial statement schedule based on our audits. We conducted our auditsof these statements in accordance with auditing standards generally accepted in the UnitedStates of America which require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 
*PricewaterhouseCoopers LLP*
 

Tulsa, Oklahoma

September 19, 2001

 

 

**WEBCO INDUSTRIES, INC. AND SUBSIDIARY****CONSOLIDATED BALANCE SHEETS****July 31, 2001 and 2000**(Dollars in thousands, except share amounts and par value)

                                                                                                                                                            2001                                   2000                                                                       ASSETS
Current assets:    Cash                                                                                                                                       $       989                           $     1,633    Accounts receivable, net                                                                                                        19,399                                17,536    Inventories                                                                                                                                33,351                                35,765     Prepaid expenses                                                                                                                           295                                     435    Deferred income tax asset                                                                                                         2,210                                   2,047
        Total current assets                                                                                                            56,244                                 57,416

Property, plant and equipment, net                                                                                           67,090                                 68,067

Notes receivable from related parties                                                                                          1,801                                   1,801 

Other assets, net                                                                                                                            3,212                                   2,839
        Total assets                                                                                                                      $ 128,347                           $ 130,123                                                                                                                                                       ======                             ======

                                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:    Accounts payable                                                                                                               $  16,923                              $  17,938    Accrued liabilities                                                                                                                     5,160                                     5,259    Current portion of long-term debt                                                                                          3,942                                     4,090
        Total current liabilities                                                                                                       26,025                                   27,287

Long-term debt                                                                                                                           46,010                                   43,979

Deferred income tax liability                                                                                                       9,266                                   10,209

Commitments and contingencies (Note 7) 

Stockholders' equity     Common stock, $.01 par value, 12,000,000 shares         authorized, 7,073,723 shares issued andoutstanding                                                       71                                           71    Additional paid-in capital                                                                                                   35,732                                    35,732    Retained earnings                                                                                                                11,243                                    12,845

        Total stockholders' equity                                                                                             47,046                                    48,648
        Total liabilities and stockholders' equity                                                                 $ 128,347                               $ 130,123                                                                                                                                                  ======                                  ======

 

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

**WEBCO INDUSTRIES, INC. AND SUBSIDIARY****CONSOLIDATED STATEMENTS OF OPERATIONS****For the Years Ended July 31, 2001, 2000 and 1999**(Dollars and shares in thousands, except per share amounts)

 
                                                                                                                                        2001               2000                 1999 -

Net sales                                                                                                                $ 151,760         $ 144,941         $ 138,581Cost of sales                                                                                                            135,854            125,573            117,228
Gross profit                                                                                                                15,906             19,368              21,353

Selling, general and administrative expenses                                                       13,767             15,622              15,789Special item: asset write-off                                                                                              -               1,400                       -Income from operations                                                                                             2,139               2,346               5,564 

Interest expense                                                                                                          4,731               3,992               2,552

Income (loss) before income taxes                                                                         (2,592)              (1,646)               3,012 

Provision (benefit) for income taxes                                                                         (990)                (621)               1,136

Net income (loss)                                                                                                  $  (1,602)           $ (1,025)          $    1,876                                                                                                                                   ======             ======           ====== 

Net income (loss) per share: Basic                                                                                                                       $      (.23)          $     (.14)          $        .26                                                                                                                                   ======             ======           ======Diluted                                                                                                                   $      (.23)          $      (.14)          $       .26                                                                                                                                   ======             ======           ======

Weighted average shares outstanding:Basic                                                                                                                           7,074                7,074                 7,135                                                                                                                                  ======             ======           ======Diluted                                                                                                                      7,074                 7,074                 7,139                                                                                                                                  ======             ======           ======

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

**WEBCO INDUSTRIES, INC. ANDSUBSIDIARY****CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY****For the Years Ended July 31, 2001, 2000 and1999**(Dollars in thousands)
 

                                                                                                                                Additional                                             Total                                                                                                            Common          Paid-In               Retained         Stockholders’                                                                                                               Stock            Capital                Earnings              Equity

Balances, July 31, 1998                                                                     $      72          $36,179               $ 11,994             $ 48,245

Purchases of common stock                                                                    (1)               (447)                           -                 (448)

Net income                                                                                                   -                     -                     1,876               1,876
Balances, July 31, 1999                                                                            71              35,732                   13,870              49,673

Net loss                                                                                                        -                      -                   (1,025)              (1,025)

Balances, July 31, 2000                                                                            71              35,732                   12,845              48,648

Net loss                                                                                                        -                      -                   (1,602)              (1,602)

Balances, July 31, 2001                                                                    $      71           $35,732                $ 11,243            $ 47,046                                                                                                             =====             =====                  =====               =====
 

 
The accompanying notes are an integral part of theconsolidated financial statements.

 

**WEBCO INDUSTRIES, INC. AND SUBSIDIARY****CONSOLIDATED STATEMENTS OF CASH FLOWS****For the Years Ended July 31, 2001, 2000 and 1999**(Dollars in thousands)

 

                                                                                                                          2001                     2000                   1999   -
Cash flows from operating activities: Net income (loss)                                                                                                $ (1,602)             $ (1,025)          $   1,876 Adjustments to reconcile net income (loss) to    net cash provided by operating activities:        Depreciation and amortization                                                                       6,188                   5,910               5,158        (Gain) loss on write-off and disposition             of property, plant andequipment                                                               (202)                  1,417                  (10)        Deferred tax expense (benefit)                                                                      (1,070)                   (787)               1,069        (Increase) decrease in:            Accounts receivable                                                                                  (1,863)               (1,335)                2,211            Inventories                                                                                                    2,414                 (4,498)              (3,010)            Prepaid expenses                                                                                           (283)                   (146)                  (84)        Increase (decrease) in:            Accounts payable                                                                                         (179)                  4,335               2,907            Accrued liabilities                                                                                          (183)                    307               (1,536)Net cash provided by operating activities                                                            3,220                 4,178                 8,581
Cash flows from investing activities:        Capital expenditures                                                                                       (6,487)              (10,462)            (12,555)        Proceeds from sale of property, plant andequipment                                1,038                     107                     21        (Increase) decrease in other assets                                                                    12                    (98)                 (340)Net cash used in investing activities                                                                   (5,437)             (10,453)            (12,874)

Cash flows from financing activities:        Proceeds from long-term debt                                                                    137,862              125,100              132,960        Principal payments on long-term debt                                                     (135,979)           (117,672)           (126,495)        Debt Issue Costs                                                                                               (140)                       -                        -        Purchases of common stock                                                                                 -                         -                   (448)        Increase (decrease) in book overdrafts                                                         (170)                    300               (1,810)Net cash provided by financing activities                                                           1,573                  7,728                4,207
Net increase (decrease) in cash                                                                              (644)                 1,453                     (86)Cash, beginning of period                                                                                      1,633                     180                   266
Cash, end of period                                                                                            $      989             $   1,633            $      180                                                                                                                                 ======             ======             ======

Supplemental disclosure of cash flow information:        Interest paid, net of amount capitalized of$375, $313,             and $437 in 2001, 2000and 1999, respectively                                   $   4,816             $   3,834            $  2,664                                                                                                                                 ======             ======             ======           Income taxes paid                                                                                       $     150              $      216            $     467                                                                                                                                 ======             ======             ======

 

The accompanying notes are an integral part of the consolidatedfinancial statements.
** 

WEBCO INDUSTRIES INC. AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The consolidated financial statementsinclude the accounts of Webco Industries, Inc. ("Webco" or together with itssubsidiary, the "Company") and its wholly owned subsidiary Phillips &Johnston, Inc. ("P&J"), a Chicago based sales organization and value-addedprocessor of tubular products. All significant intercompany accounts and transactions havebeen eliminated in the accompanying financial statements.
**NATURE OF OPERATIONS - Webco is a specialty manufacturer ofhigh-quality carbon and stainless steel tubing products designed to industry and customerspecifications. Webco's tubing products consist primarily of: heat exchanger and weldedcarbon boiler tubing, stainless tube and pipe, and specialty carbon mechanical tubing foruse in consumer durable and capital goods. The Company's subsidiary, P&J, representsseveral manufacturers who produce various non-competing mechanical and specialty tubularproducts made from copper, brass, aluminum and stainless and carbon steel, among others.This access to other tubing products allows the Company to better serve its customers byoffering a full range of tubing products. Through its QuikWater division, the Companymanufactures and markets a patented direct contact water heater for commercial andindustrial applications. The Company, headquartered in Sand Springs, Oklahoma, has threeproduction facilities in Oklahoma and Pennsylvania and five distribution facilities inOklahoma, Texas, Illinois and Michigan, serving more than 1,100 customers throughout NorthAmerica.
**CONCENTRATIONS - The Company maintains its cash in bank depositaccounts, which at times may exceed the federal insurance limits. As of July 31, 2001 and2000, the Company had cash in banks totaling $886,000 and $1,558,000, respectively, inexcess of federal depository insurance limits, respectively. The Company has notexperienced any losses on such accounts in the past.
**ACCOUNTS RECEIVABLE - Accounts receivable represent short-termcredit granted to the Company's customers for which collateral is generally not required.Accounts receivable at July 31, 2001 and 2000, are net of an allowance foruncollectible amounts of $620,000 and $237,000, respectively. Credit risk on receivablesis considered by management to be limited due to the variety of industries served andgeographic dispersion of customers.
**INVENTORIES - The Company values its inventories at the lower ofcost or market. Cost for raw materials, work-in-process, finished goods and maintenanceparts and supplies are determined on the weighted average cost method. Inventories at July31, 2001 and 2000 are net of reserves for obsolescence of $853,000 and $566,000,respectively.
**PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment,including tooling, is stated at historical cost and includes interest capitalized on majorconstruction projects. Gains or losses on sales and retirements of property are reflectedin operations. Depreciation is computed using the straight-line method over the followingestimated useful lives: buildings and improvements - 10 to 40 years, machinery andequipment - 3 to 25 years, computer equipment and software – 3 to 7 years, andfurniture and fixtures - 3 to 10 years. Repair and maintenance costs are expensed asincurred.

Depreciation expense for the years ended July 31, 2001, 2000 and 1999,amounted to $6,188,000, $5,697,000 and $4,817,000, respectively. Fully depreciated assetsstill in use at July 31, 2001 and 2000, amounted to $13,179,000 and $11,719,000,respectively.
**BOOK OVERDRAFTS - Included in accounts payable at July 31,2001 and 2000, are outstanding checks in excess of bank deposits totaling $289,000 and$459,000, respectively. 
**ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS – The Companyevaluates its assets for impairment in accordance with Statement of Financial AccountingStandards No. 121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of"("SFAS 121"). The Company reviews itslong-lived assets (including intangibles) for impairment based on estimated futurenon-discounted cash flows attributable to the assets. In the event such cash flows are notexpected to be sufficient to recover the recorded value of the assets, the assets arewritten down to their estimated fair values (Note 4).
**ACCOUNTING ESTIMATES - The preparation of financial statements inconformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.
**REVENUE RECOGNITION - The Company recognizes revenue at the dateproducts are shipped or at the date services are completed. 

In fiscal year 2001, the Company changed its accounting for freightexpense to include it as a cost of sales rather than as a reduction of revenue. Net Salesand Cost of Sales for each of the fiscal years 2000 and 1999 have been adjusted in theaccompanying statements of operations to conform to the new presentation. The amountsreclassified for 2000 and 1999 were $4,021,000 and $3,837,000, respectively. Thisreclassification had no effect on gross profit or net income(loss) for either period.
**EARNINGS PER SHARE - Earnings per share are calculated based on thenumber of weighted average common shares outstanding, including the effect of dilutiveoptions when applicable, in accordance with the computation, presentation and disclosurerequirements of Financial Accounting Standards Board Statement No. 128, "Earnings PerShare" ("SFAS No. 128").
**INCOME TAXES - The Company accounts for income taxes in accordancewith Statement of Financial Accounting Standards No. 109, "Accounting for IncomeTaxes" ("SFAS No. 109"). The provisions of SFAS No. 109 requirethe recording of deferred tax assets and liabilities to reflect the expected taxconsequences in future years of differences between the tax basis of assets andliabilities and their financial reporting amounts at each year end. 
**2. INVENTORIES**
Inventories at July 31, 2001 and 2000, consisted of the following:
**2001 **2000
(Dollars in    Thousands)Raw materials 
$ 11,269
$ 17,708Work-in-process
1,908
2,155Finished goods
17,558
13,469Maintenance parts and supplies
2,616
2,433Total inventories
$    33,351=====
$ 35,765=====**3. PROPERTY, PLANT AND EQUIPMENT**
Net property, plant and equipment at July 31, 2001 and 2000, consisted of thefollowing:
**2001 **2000**(Dollars    in Thousands)Land 
$ 1,247 
$ 1,436Buildings and improvements
18,432
19,077Machinery and equipment
81,496
70,531Computer equipment and software
9,341
9,259Furniture and fixtures
1,225
1,208Construction in progress
          416
       5,832
112,157
107,343Less accumulated depreciation and    amortization
      45,067
      39,276Net property, plant and equipment
$    67,090=====
$ 68,067=====** 

4. SPECIAL ITEM: ASSET WRITE-OFF

The Company periodically reviews the recorded value of itslong-lived assets to determine if the future cash flows to be derived from these assetswill be sufficient to recover the remaining recorded asset values. In accordance with SFAS121 during the fourth quarter of fiscal 2000, based upon a review of the Company’slong-lived assets, the Company recorded a non-cash charge of $1.4 million. This included a$986,000 pre-tax charge related to the write-off of the recorded asset values of certainQuikWater fixed assets that were still being used in operations as of July 31, 2000, alongwith unamortized patent and goodwill costs. Also included was a $414,000 pre-tax chargerelated to the write-down of certain tubing equipment that the Company anticipatesselling. The Company considers continued operating losses and significant and long-termchanges in industry conditions to be its primary indicators of potential impairment. TheCompany’s estimates of fair value were based on appraised values, industrycomparisons, or other estimates of fair value such as discounted future cash flows.Accordingly, actual results could vary significantly from such estimates. The Company hascontinued to depreciate the remaining book value, if any, of these assets. ** 

5. LONG-TERM DEBT**
Long-term debt at July 31, 2001 and 2000, consisted of the following:
**2001**2000
(Dollars    In Thousands)Term loans (A)
$ 26,311
$ 27,889Revolving loan (A)
20,270
17,673Revolving loan (B)
-
110Term loan (C)
298
392Real estate and equipment term loans (D)
2,961
1,613Other note payable (E)
-
205Other 
        112
        187
49,952
48,069Less current maturities 
  3,942
  4,090Long-term debt
$ 46,010=====
$ 43,979=====
Based upon the borrowing rates currently available to the Company forborrowings with similar terms and average maturities, the Company believes that thecarrying amount of its long-term debt approximates fair value.
- The Company has a $25 million term loan, a $25 million revolving line of credit and a    capital expenditure ("CAPEX") facility in the amount of $5 million to finance    equipment at the Oil City, Pennsylvania plant with its primary lender group. The term    loans and revolving credit loan bear interest at the prime rate (6.75% at July 31, 2001)    plus 1.0%. At the Company’s option, borrowings under any facility can bear interest    at LIBOR (3.85% at July 31, 2001) plus 3.75% in the case of the term loan or CAPEX    facility borrowings or plus 3.5% in the case of revolving loan advances. Interest rate    margin percentages (percentage paid over prime or LIBOR) may drop subject to Company    performance and the achievement of certain covenant ratio levels and borrowing base    availability.  These loans mature on August 31,    2002, and are collateralized by substantially all of the Company’s assets. Principal    payments on the term loan and CAPEX facility of $208,000 and $80,000, respectively, plus    interest, are due each month until maturity. The Company may have borrowings and    outstanding letters of credit ($1,056,000 at July 31, 2001) under the revolving credit    facility up to the lesser of $25.0 million or an amount determined by a formula based on    the amount of eligible inventories and accounts receivable. The Company pays a commitment    fee of 0.25% per annum on any unused and available line of credit and a fee of 3.0% on the    outstanding amount of letters of credit. At July 31, 2001, $3.7 million was available for    borrowing under the line of credit.  The CAPEX facility was fully    funded up to the $5 million cap during the second quarter of fiscal 2001.      Pursuant to the terms of the loan agreement, the Company is subject to various restrictive    covenants, including requirements to maintain a minimum debt coverage ratio and to not    exceed a ratio of indebtedness to net worth. The covenants also limit capital expenditures    and dividends and require the Company to maintain a minimum borrowing base availability    without considering the $25 million revolving loan cap. In addition, the loan agreement    provides for acceleration of the loans, at the option of the lender, if F. William Weber    and Dana S. Weber fail to possess the power to direct or cause the direction of management    and policies of the Company, or the Weber Family ceases to own at least 35 percent of the    outstanding voting stock, or upon the occurrence of a material adverse change in the    business. All financial covenants are measured on the basis of the Company without    consolidating its wholly owned subsidiary, P&J.    Due to the August 31, 2002, maturity date of the Company's senior debt facilities, the    Company is currently in discussions to refinance or extend the current debt agreement. If    the Company is unable to refinance or extend the agreement, a significant portion of its    long-term debt will be classified as a current liability in the financial statements    contained in its Form 10-Q for its first fiscal quarter ended October 31, 2001, since the    maturity date will be within 12 months of the balance sheet date. The debt will not be due    on demand or otherwise callable by the lender at that time, and the Company will have    until the maturity date to refinance or extend the agreement. Although the Company    believes it will be successful in its efforts to refinance or extend the agreement, there    can be no assurances the Company will be successful in its efforts.- P&J has a line-of-credit agreement for $2,000,000. The line of credit matures on    November 30, 2001, bears interest at the lessor of prime rate (6.75% at July 31, 2001) or    LIBOR (3.85% at July 31, 2001) plus 2%, and is collateralized by P&J's assets and    guaranteed by Webco.
- The Company's subsidiary, P&J, has a $500,000 term note with a bank, which matures    in April 2004. The note bears interest at 7.5% with monthly installments of $10,000, and    is collateralized by P&J’s assets and guaranteed by Webco.
- These loans were entered into with various public agencies payable in monthly    installments aggregating approximately $30,000, including interest, at rates ranging from    3 to 5 percent. 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    3 to 10 year period.
 - This note was payable in 36 monthly installments of $30,000 with interest at 9 percent.    The loan was retired in March 2001.  
At July 31, 2001, the aggregate future maturities of long-termdebt are as follows: 2002 - $3,942,000; 2003 - $43,657,000; 2004 - $465,000; 2005 -$306,000; 2006 - $299,000; and thereafter - $1,283,000.
**6. INCOME TAXES**
The provision for income taxes for fiscal 2001, 2000 and 1999 consistsof the following:
  **2001**2000**1999
(Dollars    in Thousands)**Current:**Federal    $           -    $          -      $           -State             80        166                67**Deferred:**Federal       (957)       (705)              956State       (113)            (82)              113Total income tax expense (benefit)    $ (990)    =====    $ (621)    =====     $ 1,136     =====
 

The actual income tax expense (benefit) for fiscal 2001, 2000 and 1999differs from income tax based on the federal statutory rate (34%) due to the following:
**2001**2000**1999
(Dollars in    Thousands)Expected tax expense (benefit)
$ (881)
$ (560)
$ 1,024State income taxes, net of federal benefit
(104)
(66)
120Other
    (5)

            5
          (8)Total income tax expense (benefit)
$ (990)=====
$ (621)=====
$ 1,136=====
At July 31, 2001 and 2000, deferred tax assets and deferred tax liabilities consistedof the following:
**2001
**2000**
(Dollars in    Thousands)Net current deferred tax assets (liabilities):Accounts receivable
$    236
$    102Inventories
515
375Accrued liabilities
1,459
1,570Net current deferred tax asset
$ 2,210=====
$ 2,047=====Net non-current deferred tax assets    (liabilities):Property plant and equipment
         $ (13,929)
          $ (12,445)General business credit carry forward
38
38Alternative minimum tax credit carry forward
452
452Intangible assets
358
409Operating loss carry forwards
    3,815
    1,337Net non-current deferred tax    liability
$ (9,266)======
$ (10,209)======
At July 31, 2001, the Company has operating loss carry forwards for regular taxpurposes of approximately $9,725,000, which expire in 2012 to 2016.
**7. COMMITMENTS AND CONTINGENCIES

LITIGATION - On May 27, 1999, a jury awardedthe Company $1.1 million on certain claims against an equipment vendor. Because of apre-trial ruling by the courts, the jury was unable to award the Company lost profits andcertain other incidental and consequential damages. The Company is currently pursuingattorneys’ fees and has appealed the pre-trial order to obtain lost profits. Therecan 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 actuallost profits suffered by the Company. The vendor has appealed the jury’s originalverdict and there can be no assurances as to what the outcome of that appeal will be. Dueto the uncertainty surrounding the case, the financial statements do not include anyportion of the jury award or other recoveries.
The Company is also a party to various other lawsuits and claimsarising out of the ordinary course of business. Management believes that any liabilityresulting from these matters would not materially affect the results of operations or thefinancial position of the Company.
**LEASES - The Company leases certain buildings and machinery andequipment under non-cancelable operating leases. Under certain of these leases the Companyis required to pay property taxes, insurance, repairs and other costs related to theleased property. At July 31, 2001, future minimum payments under non-cancelableleases accounted for as operating leases are $2,102,000 in 2002; $1,706,000 in 2003;$1,157,000 in 2004; $961,000 in 2005; and $861,000 in 2006. Total rent expense for alloperating leases was $2,916,000, $2,268,000 and $2,191,000 in 2001, 2000 and 1999,respectively. 
**SELF-INSURANCE - The Company maintains a hospitalization andmedical coverage program for its employees. Claims under this program are limited toannual losses of $60,000 per participant, and aggregate annual claims of up to $2,000,000through the use of a stop-loss insurance policy. Additionally, the Company self-insuresOklahoma workers' compensation claims up to $225,000 per occurrence and retains a maximumaggregate liability of $2,000,000 per two-year policy term with respect to alloccurrences. The Company has a performance bond in the amount of $550,000 on file with theState of Oklahoma Workers’ Compensation Court, as required by self-insuranceregulations. Provisions for claims under both programs are accrued based upon theCompany's estimate of the aggregate liability for claims (including claims incurred, butnot yet reported). The total reserve for self-insurance for medical and workers’compensation was $1,445,000 and $1,500,000 at July 31, 2001 and 2000, respectively.
**PURCHASE COMMITMENTS - At July 31, 2001 and 2000, the Companywas committed on outstanding purchase orders for inventory approximating $12.4 million and$13.3 million, respectively. Additionally, the Company had on its premises atJuly 31, 2001 and 2000, raw material on consignment from certain vendors valued atapproximately $1.0 million and $2.2 million, respectively.
**8. EMPLOYEE BENEFIT PLANS**
The Company maintains 401-K benefit plans covering all employeesmeeting certain service requirements. The plans includes a cash or deferred compensationarrangement permitting elective contributions to be made by the participants. Companycontributions are made at the discretion of the Board of Directors. Company contributionswere $346,000, $327,000 and $419,000 in fiscal 2001, 2000 and 1999, respectively. 
**9. STOCKHOLDERS' EQUITY AND STOCK OPTIONS**
In January 1994, the Company's stockholders approved the 1994 StockIncentive Plan (the "Plan"), in which directors, employees and consultants areeligible to participate. Four types of benefits may be granted in any combination underthe Plan: incentive stock options, non-qualified stock options, restricted stock and stockappreciation rights. The Plan also provides for certain automatic grants to outsidedirectors. All options expire ten years from the date of grant (except the vice-chairman'soptions, which expire five years from the date of grant) and are exercisable at a pricewhich is at least equal to fair market value on the date of grant (110% of fair marketvalue in the case of the vice-chairman). The employee options vest evenly over a period oftwo to five years from the date of grant. The maximum number of shares of common stockwith respect to which incentive stock options, non-qualified stock options, restrictedstock, and stock appreciation rights may be issued under the Plan is 850,000.

Activity under the Plan for the last three fiscal years was as follows:
Activity under the Plan was    as follows:
Number of Shares
Weighted AverageExercise Price**Balance, July 31, 1998**
514,500
6.69Granted
  66,200
6.17Forfeited
(42,700)
7.23**Balance, July 31, 1999**
538,000
6.58Granted
230,300
4.17Forfeited
(36,800)
6.03**Balance, July 31, 2000**
731,500
5.85Granted
138,000
1.60Forfeited
(61,500)
5.88**Balance, July 31, 2001**
808,000======
5.12
Outstanding options and exercisable options at July 31, 2001 were as follows:
 
Exercise Prices
Number    OfShares
Weighted Average RemainingContractual Life
Weighted    AverageExercise Price**Outstanding**:$1.44 - $2.75
138,000
9.3 years
$1.60$3.31 - $5.75
251,000
7.8 years
$4.31$6.13 - $8.75
419,000
5.4 years
$6.77**Exercisable:**$1.44 - $2.75
7,500
9.4 years
$1.56$3.31 - $5.75
83,260
7.3 years
$4.55$6.13 - $8.75
343,060
5.2 years
$6.71
As of July 31, 2000 and 1999, exercisable options were 332,460 and198,600, respectively, with weighted average exercise prices of $6.48 and $6.53,respectively.

The Company has elected tofollow APB Opinion No. 25, "Accounting for Stock Issued to Employees," inaccounting for its employee stock options rather than the alternative fair valueaccounting provided for under SFAS No. 123, "Accounting for Stock-BasedCompensation." Under APB No. 25, because the exercise price of the Company’sstock options is at least equal to the market price of the underlying stock on the date ofgrant, no compensation expense is recognized in the Company’s financial statements.Pro forma information regarding net income and earnings per share is required by SFAS No.123. This information is required to be determined as if the Company had accounted for itsemployee stock options granted subsequent to July 31, 1995, under the fair value method ofthat statement.
The fair value of options granted in fiscal years 2001, 2000 and 1999reported below has been estimated at the date of grant using a Black-Scholes optionpricing model with the following assumptions:

2001
2000
1999Weighted average life
4.1 years
4.0 years
4.0 yearsRisk-free interest rate
5.52-6.0%
5.92-6.26%
5.14%Expected volatility
59%
55%
56%Expected dividend yield
None
None
None
The Black-Scholes option valuation model was developed for use inestimating the fair value of traded options that have no vesting restrictions and arefully transferable. In addition, option valuation models require the input of highlysubjective assumptions, including the expected stock price volatility. Because theCompany’s options have characteristics significantly different from those of tradedoptions, and because changes in the subjective input assumptions can materially affect thefair value estimate, in the opinion of management, the existing models do not necessarilyprovide a reliable single measure of fair value of its options. The weighted averageestimated fair value of employee stock options, whose exercise price equals the marketvalue on the grant date, granted during 2001, 2000 and 1999 was $.81, $1.92 and $2.88 pershare, respectively. The weighted average exercise price and estimated fair value ofemployee stock options, whose exercise price exceeds the market value on the grant date,granted during 2000 was $4.00 and $1.69, respectively. There were no options granted in2001 or 1999 with an exercise price exceeding market value on the grant date.

For purposes of pro forma disclosures, the estimated fair value of theoptions is amortized to expense over the options’ vesting period. The Company’spro forma information for fiscal years 2001, 2000 and 1999 is as follows:

2001
2000
1999Pro forma net income (loss)
$ (1,743,000)
$ (1,253,000)
$ 1,625,000Pro forma net income (loss) per    share, diluted
$ ( 0.25)
$ ( 0.18)
$ 0.23
The above SFAS No. 123 pro forma disclosures are not necessarily representative of theeffect SFAS No. 123 will have on the pro forma disclosure of future years.

In March 1999, the Company's Board of Directors approved a plan toacquire up to $500,000 of its common stock. Of the approved $500,000 repurchase, theCompany acquired 95,000 shares of stock for approximately $448,000 during fiscal year1999. The Company currently does not anticipate any additional repurchases in thenear-term.
**10. EARNINGS PER SHARE**
Presented below is a reconciliation of the differences between actualweighted average shares outstanding, which are used in computing basic earnings per share,and diluted weighted average shares, which are used in computing diluted earnings pershare. 
**2001**2000 **1999(shares in thousands)
Basic EPS:

  Weighted average shares outstanding

7,074
7,074
7,135 
  Effect of dilutive securities: Options

         - 
         - 
         4 
Diluted EPS:

  Diluted weighted average shares outstanding

7,074
7,074
7,139
Anti-dilutive options outstanding (1):

  Number of options

      808
   732
      480
Weighted average exercise price

$      5.12=====
$  5.85=====
$      6.76=====**- Anti-dilutive options and their average exercise prices were not included in the    computation of diluted earnings per share due to a current period net loss or the option    exercise prices being greater than the average market price of the common shares.
**11. SEGMENT INFORMATION**
The Company applies the provisions of FAS 131 "Disclosures aboutSegments of an Enterprise and Related Information." The Company has two reportablesegments: tubing products and QuikWater, representing the Company's two strategic businessunits offering different products. The Company internally evaluates its business byfacility, however, because of the similar economic characteristics of the tubingoperations, including the nature of products, processes and customers, those operationshave been aggregated for segment reporting purposes. The tubing products segmentmanufactures as well as distributes tubular products principally made of carbon andstainless steel. QuikWater manufactures a patented direct contact, high efficiency waterheater.

The accounting policies of the segments are the same as those describedin the summary of significant accounting policies. In fiscal 2001, the Company changed itsmeasure of segment profit or loss to earnings before interest and income taxes("EBIT") versus income before income taxes. Segment profit(loss) for fiscal 2000and 1999 have been restated accordingly. Information about the Company's segments is asfollows:
**Tubing**Products**** QuikWater** **Total**
(Dollars    in Thousands)
**Fiscal year-ended July 31, 2001**:

Net sales

$ 148,279
$ 3,481
$    151,760
Depreciation and amortization

6,140
48
6,188
Segment profit (loss)

2,314
(175)
2,139
Segment assets

118,638
1,217
119,855
Capital expenditures

6,478
9 
6,487
**Fiscal year-ended July 31, 2000:**

Net sales (1)

142,293
2,648
144,941
Depreciation and amortization

5,512
398
5,910
Segment profit (loss)

4,822
(2,476)
2,346
Segment assets

119,970
1,398
121,368
Capital expenditures

10,401
61
10,462
**Fiscal year-ended July 31, 1999**:

Net sales (1)

135,058
3,523
138,581
Depreciation and amortization

5,008
150 
5,158
Segment profit (loss)

7,084
(1,520)
5,564
Segment assets

110,000
3,396
113,396    
Capital expenditures

12,495 
60
12,555
(1) Net sales figures have been adjusted to reflect the Company's change in accountingfor freight expense to include it as a cost of sales rather than as a reduction ofrevenue. The reclassification had no effect on segment profit (loss).

A reconciliation of the Company's segment information to the consolidated financialstatements is as follows:
**2001**2000**1999
(Dollars    in Thousands)
Total segment profit

$       2,139
$       2,346
$        5,564
   Costs not allocated to segments:

   Interest expense

      4,731
      3,992
      2,552
**Total income (loss) before income taxes**

$ (2,592)======
$ (1,646)======
$        3,012======
Total assets reported for segments

$ 119,855
$ 121,368
$ 113,396
   Assets not allocated to segments:

   Current assets

3,479
4,115
3,482
   Notes receivable and other assets

      5,013
      4,640
      3,603
**Total assets:**

$ 128,347======
$ 130,123======
$ 120,481======** 

12. RELATED PARTY TRANSACTIONS

In October 1995, the Company entered into an agreement with an entityowned by the majority stockholders to subcontract certain manufacturing services.Beginning in late 2000, the Company contracted with the same entity to subcontract theproduction of the QuikWater units. Payments made by the Company under the agreementstotaled $603,000 and $506,000 in fiscal 2001 and 2000, respectively. In addition, theCompany had a receivable balance of $988,000 and $949,000 at July 31, 2001 and 2000,respectively, for amounts paid on behalf of this entity.

The Company purchases certain specialty packaging and shippingmaterials from an entity owned by the principal stockholder. Payments made by the Companytotaled $28,000 in fiscal 2001 and $163,000 in fiscal 2000. In addition, the Company had areceivable balance of $22,000 and $1,000 at July 31, 2001 and 2000, respectively, foramounts paid on behalf of this entity.

The Company leases its distribution facility in Nederland, Texas froman entity owned by certain Company executives. The amount of the monthly lease paymentswas determined at the beginning of the lease by an independent evaluation. During 2001,2000 and 1999, lease expense under the agreement totaled $64,800 in each year.

Advances were made from time to time during fiscal 1998 and prior years(none during 1999-2001) to the principal stockholder with the highest amounts outstandingbeing $1,200,000 in 2001 and 2000. The balance outstanding at July 31, 2001 and 2000, was$1,200,000. The advance is evidenced by a one-year promissory note from the principalstockholder and is collateralized by Company stock. The note bears interest at theprevailing rate under the Company’s loan agreement with its primary lender and ispayable at maturity of the note on August 15, 2002. Accrued interest on the notereceivable was $594,000 and $489,000 at July 31, 2001 and 2000, respectively, and isincluded in other assets in the accompanying balance sheets.

Other advances on various terms were made to certain executives priorto fiscal 2000, with the highest amount outstanding being $601,000 in 2001 and 2000. Thebalance outstanding at July 31, 2001 and 2000, was $601,000. Certain of the advances arecollateralized by shares of the Company's common stock. Accruedinterest on the notes receivable from related parties totaled $19,000 and $61,000 at July31, 2001 and 2000, respectively, and is included in other assets in the accompanyingbalance sheets.
 

**WEBCO INDUSTRIES, INC.****SUPPLEMENTAL CONSOLIDATED QUARTERLY FINANCIAL DATA****(UNAUDITED)**(Dollars in thousands, except per share data)

 

                                                                                                                                       Quarters Ended                                                                                                                                     October 31,            January 31,                 April 30,             July 31,             Total                                                                                                       2000                        2001                       2001                   2001                 Year **2001**Net sales (1)                                                                            $37,995                    $38,703                  $37,065              $37,997             $151,760Gross profit                                                                                 3,156                        3,770                      4,153                4,827                15,906Income (loss) from operations                                                   (625)                           73                         653                2,038                  2,139Net income (loss)                                                                      (1,153)                        (755)                      (300)                  606                (1,602)Net income (loss) per    diluted common share                                                        $    (.16)                   $    (.11)                  $   (.04)              $   .08              $    (.23)Weighted average shares     outstanding, diluted                                                              7,074                        7,074                      7,074                7,138                 7,074 
                                                                                                                                       Quarters Ended                                                                                                                                     October 31,            January 31,                 April 30,             July 31,              Total                                                                                                      1999                         2000                         2000                   2000                   Year **2000**Net sales (1)                                                                            $34,297                    $35,792                    $37,388                $37,464              $144,941Gross profit                                                                                 4,939                        5,259                        4,821                    4,349                19,368Income (loss) from operations                                                    861                        1,280                        1,110                     (905) (2)             2,346(2)Net income (loss)                                                                            66                           180                             69                  (1,340)               (1,025)Net income (loss) per    diluted common share                                                       $      .01                   $      .03                     $      .01               $    (.19)              $   (.14) Weighted average shares    outstanding, diluted                                                            7,074                         7,074                        7,082                   7,074                  7,074
 
(1) Quarterly net sales figures have been adjusted to reflect the Company's change in    accounting for freight expense to include it as a cost of sales rather than as a reduction    of revenue. The reclassification had no effect on gross profit or net income (loss). The    reclassification to net sales for the fiscal 2001 quarters ended October 31, January 31,    and April 30 was $1,038, $1,261 and $1,184, respectively. The reclassification to net    sales for the fiscal 2000 quarters ended October 31, January 31, April 30 and July 31 was    $975, $894, $1,099 and $1,053, respectively. 

(2) Includes a special item: asset write-off of $1,400,000 of certain QuikWater fixed    assets and unamortized patent and goodwill costs along with certain tubing equipment. 
** 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE**
There have been no changes in or disagreements between the Company and its independentauditors.
**PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**
The information required by this item is hereby incorporated by reference from theCompany's definitive proxy statement for the Annual Meeting of Stockholders to be filedwith the Securities and Exchange Commission (the "Commission") within 120 daysof the end of the Company's fiscal year.
**ITEM 11. EXECUTIVE COMPENSATION**
The information required by this item is hereby incorporated by reference from theCompany's definitive proxy statement for the annual Meeting of Stockholders to be filedwith the Commission within 120 days of the end of the Company's fiscal year.

**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

The information required by this item is hereby incorporated by reference from theCompany's definitive proxy statement for the annual Meeting of Stockholders to be filedwith the Commission within 120 days of the end of the Company's fiscal year.
**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
The information required by this item is hereby incorporated by reference from theCompany's definitive proxy statement for the annual Meeting of Stockholders to be filedwith the Commission within 120 days of the end of the Company's fiscal year.
** 

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS

ON FORM 8-K**
(a) The following documents are filed as part of this report:

    (1)    Financial Statements of Webco Industries, Inc.which are included in Part II,            Item 8:

            Reports ofIndependent Accountants            Consolidated BalanceSheets as of July 31, 2001 and 2000            Consolidated Statementsof Operations for each of the three years in the period ended July 31, 2001            Consolidated Statementsof Stockholders' Equity for each of the three years in the period ended July 31, 2001             Consolidated Statementsof Cash Flows for each of the three years in the period ended July 31, 2001            Notes to ConsolidatedFinancial Statements            SupplementalConsolidated Quarterly Financial Data (Unaudited)

    (2)    Financial Statement Schedule:               Schedule II - Valuation and Qualifying Accounts

    (3)    Exhibits:

ExhibitNumber     Description                                   
3 (i)             Form ofAmended and Restated Certificate of Incorporation (incorporated by reference to Exhibit3(i) to the Company's Registration Statement on Form S-1, No. 33-72994).

3 (ii)            By-Laws(incorporated by reference to Exhibit 3(ii) to the Company's Registration Statement onForm S-1, No.33-72994).

10.1            Form of 1994Stock Incentive Plan, as amended (incorporated by reference to Exhibit 4.1 to theCompany's Registration Statement on Form S-8,No. 333-49219).

10.2            Loan andSecurity Agreement, dated as of July 15, 1997, between American National Bank and TrustCompany  of Chicago, as agent, certain financial institutions as lender, and theCompany (incorporated by reference to Exhibit 10.2 to the Company's Form 10-K dated July31, 1997, File No. 0-23242).

10.3            Amendment No. 1and Waiver Agreement to Loan and Security Agreement dated July 15, 1997, between  American National Bank and Trust Company of Chicago, as agent, certain financialinstitutions as lender, and the Company (incorporated by reference to Exhibit 10.3 to theCompany's Form 10-K dated July 31, 1998, File No.0-23242).

10.4            Lease, datedOctober 22, 1996, between the Company andBaker Performance Chemicals Incorporated (incorporated by reference to Exhibit 10.3to the Company's Form 10-K dated July 31, 1997, File No.0-23242).
10.5            EmploymentAgreement dated December 31, 1996, between the Company and F. William Weber (incorporatedby reference to Exhibit 10.4 to the Company's Form 10-K dated July 31, 1997, File No.0-23242).

10.6            EmploymentAgreement dated December 31, 1996, between the Company and Dana S. Weber (incorporated byreference to Exhibit 10.5 to the Company's Form 10-K dated July 31, 1997, File No.0-23242).

10.7            EmploymentAgreement dated June 30, 1998, between Phillips & Johnston, Inc., the Company andChristopher L. Kowalski (incorporated by reference to Exhibit 10.7 to the Company's Form10-K dated July 31, 1998, File No.0-23242). 

10.8            Lease, datedMarch 16, 1998, between the Company and Tubular Properties, Ltd. (incorporated byreference to Exhibit 10.8 to the Company's Form 10-K dated July 31, 1998, File No.0-23242). 

10.9            Agreement andPlan of Reorganization dated as of June 29, 1998 by and among Webco Industries, Inc.,P&J Acquisition Corp., Phillips & Johnston, Inc., Christopher L Kowalski andRobert N. Pressly (incorporated by reference to Exhibit 99.1 to the Company's Form 8-K,File No. 0-23242).

10.10          Loan and SecurityAgreement, dated as of April 9, 1997, between American National Bank and Trust Company ofChicago, as agent, certain financial institutions as lender, and Phillips & Johnston,Inc. (incorporated by reference to Exhibit 10.10 to the Company's Form 10-K dated July 31,1998, File No. 0-23242).

10.11          Loan Agreement, datedDecember 1, 1998, between Pennsylvania Economic Development Financing Authority and WebcoIndustries, Inc. (incorporated by reference to Exhibit 10.11 to the Company's Form 10-Qdated January 31, 1999, File No. 0-23242).

10.12          Reimbursement Agreement,dated as of December 1, 1998, between American National Bank and Trust Company of Chicagoand Webco Industries, Inc. (incorporated by reference to Exhibit 10.12 to the Company'sForm 10-Q dated January 31, 1999, File No. 0-23242).

10.13         Amendment No. 2 to Loan andSecurity Agreement dated July 15, 1997, between American National Bank and Trust Companyof Chicago, as agent, certain financial institutions as lender, and the Company(incorporated by reference to Exhibit 10.13 to the Company's Form 10-Q dated January 31,1999, File No. 0-23242).

10.14         Amendment No. 5 to Loan andSecurity Agreement dated July 15, 1997, between American National Bank and Trust Companyof Chicago, as agent, certain financial institutions as lender, and the Company.

23.1           Consent ofPricewaterhouseCoopers LLP

(b)              Reports on Form 8-K:                       None

 

 
**SIGNATURES**
Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. 

                                                  WEBCO INDUSTRIES, INC.

October 26, 2001             By: /s/ F.William Weber                                                F. William Weber                                               Chairman, Chief Executive                                                Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

October 26, 2001             By: /s/ F.William Weber                                                F. William Weber                                               Chairman, Chief Executive                                               Officer and Director

October 26, 2001             By: /s/ DanaS. Weber                                                Dana S. Weber                                               President, Chief Operating Officer                                               and Director

October 26, 2001             By: /s/Michael P. Howard                                                Michael P. Howard                                               Chief Financial Officer

October 26, 2001             By: /s/Christopher L. Kowalski                                                Christopher L. Kowalski                                               President-Phillips & Johnston, Inc.                                               and Director 

October 26, 2001             By: /s/Frederick C. Ermel                                                Frederick C. Ermel                                               Director

October 26, 2001             By: /s/Kenneth E. Case                                                Kenneth E. Case                                               Director

October 26, 2001             By: /s/Bradley S. Vetal                                                Bradley S. Vetal                                               Director

 

 

**WEBCO INDUSTRIES, INC.****SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS****For the Three Years Ended July 31, 2001**(Dollars in Thousands)  
Additions   
Description
Balance at Beginning of Period
Charged to Costs and Expenses
Charged to Other

Accounts
(1)

Deductions
Balance at End of PeriodAllowance for bad debts:     1999
179
45
-
(7)
2172000
217 
35
-
(15)
2372001
237
387
-
(4)
620      Reserve for inventory     Obsolescence:     1999
1,180
261
-
(850)
5912000
591
360
-
(385)
5662001
566
792
-
(505)
853
 
- Amounts represent write-offs, net of recoveries or disposals.

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