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 (Fee required) For The Fiscal Year Ended September 30, 1996
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from _____________ to ______________
COMMISSION FILE NUMBER 1-10651
MAVERICK TUBE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 43-1455766
(State of Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Chesterfield Center, Second Floor
Chesterfield, Missouri 63017
(Address of principal executive offices) (Zip Code)
(314) 537-1314
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01
per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No
The aggregate market value of the 6,653,591 shares of Common Stock held by non
affiliates of the Registrant as of December 12, 1996 was $84,833,285 based
upon the closing price as reported on the NASDAQ National Market on that date.
As of December 12, 1996, the Registrant had outstanding 7,472,071 shares of
Common Stock.
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MAVERICK TUBE CORPORATION AND SUBSIDIARY
INDEX
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PART I.
Item 1. BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 A. EXECUTIVE OFFICERS OF THE REGISTRANT
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
SIGNATURES
EXHIBIT INDEX
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This Form 10-K contains certain forward-looking statements within the meaning of
the federal securities laws which, while reflective of management's beliefs or
expectations, involve certain risks and uncertainties, many of which are beyond
the control of the Company. Accordingly, the Company's actual results and the
timing of certain events could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, oil and gas price volatility , steel price volatility and those
other factors discussed in the Sections captioned "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
those risk factors discussed in Exhibit 99.1 hereto.
PART I
ITEM I
BUSINESS
General
Maverick Tube Corporation (together with its subsidiary, Maverick Tube
International, Inc.), ("Maverick" or the "Company") manufactures electric
resistance welded ("ERW") pipe used in the energy industry for drilling and
production applications ("oil country tubular goods" or "OCTG") and line pipe
for surface handling and transportation of oil and natural gas. OCTG and line
pipe products are produced through both ERW and seamless processes, and ERW pipe
is generally a lower priced, comparable quality alternative to seamless pipe in
many applications. The Company believes it is one of the leading domestic
producers of OCTG products.
In October 1994, the Company expanded its manufacturing capabilities into
structural tubing and now sells both structural tubing (shapes and rounds) and
standard pipe. Structural tubing is ERW products used predominately in
construction, transportation, agricultural, material handling and recreational
applications. Standard pipe, as in OCTG, are produced through both ERW and
seamless processes, with the significant majority of producers being ERW.
Standard pipe is generally used in various industrial applications.
For information with regard to total revenue, operating profit or loss and
identifiable assets attributable to each of the energy and industrial product
segments, see footnote 9 of the footnotes to the consolidated financial
statements on page 23 of the Annual Report, portions of which are filed as
Exhibit 13.
The Energy Pipe Industry
OCTG products are finished pipe which are used in drilling, completion and
production applications in the energy industry. The domestic consumption of OCTG
products depends on several factors, the most significant being the number of
oil and natural gas wells being drilled. In addition, OCTG production tubing may
be periodically replaced during the life of a producing well. OCTG consumption
is satisfied by domestic production, imports and draw-downs of inventories owned
by manufacturers, distributors and end users.
A significant factor affecting the market for production of OCTG products is the
level of industry inventories maintained by manufacturers, distributors and end
users. For calendar year 1994, part of the 1993 inventory build was liquidated
resulting in OCTG market penetration of 6%. For calendar year 1995, this
inventory liquidation continued at a decreasing rate with a resulting market
penetration of only 0.1%. For the nine months ended September 30, 1996,
increasing industry inventory levels added 5% in OCTG demand. Despite this
build,The Company believes that inventory levels at September 30, 1996 were
close to the lowest level per rig observed during the same period.
OCTG products are produced in numerous sizes, weights, grades and end finishes.
The Company believes that most OCTG products are produced to American Petroleum
Institute ("API") specifications. In addition, the Company and other producers
manufacture pipe in certain custom or proprietary grades. The grade of pipe used
in a particular application depends on technical requirements for strength,
corrosion resistance and other performance qualities. OCTG products are
generally classified into groupings of "carbon" and "alloy" grades. Carbon
grades of OCTG (strength levels of 75,000 pounds per square inch or less) are
generally used in oil and natural gas wells drilled to depths of approximately
8,000 to 11,000 feet. Alloy grades of OCTG (strength levels of 75,000 pounds per
square inch or more) are generally used in oil and natural gas wells drilled to
depths in excess of 11,000 feet.
Carbon and alloy grades of OCTG products are available from both ERW and
seamless producers. ERW pipe is produced by processing flat rolled steel into
strips which are cold-formed, welded, heat-treated or seam-annealed and
end-finished with threads and couplings. Seamless products are produced by
individually heating and piercing solid steel billets into pipe. The Company
believes the seamless manufacturing process involves higher costs than the ERW
process and that, as a result, seamless products are generally priced higher
than comparable ERW products.
Based on published industry statistics, ERW products, which did not have
significant market penetration prior to the mid-1970's, now account for
approximately forty-eight percent of the tonnage of domestic OCTG products
consumed annually. The Company believes ERW products have captured a significant
majority of the carbon grade OCTG market, while seamless products retain a
significant majority of the alloy grade OCTG market. The Company believes that
further market penetration of ERW products will depend upon increased market
acceptance of ERW products and technological advances in the types of raw
materials and equipment utilized in the ERW manufacturing process.
Line pipe, which is used for surface transmission of oil, natural gas and other
fluids, is produced principally by companies with capabilities to produce OCTG
products and is produced in both ERW and seamless form. Line pipe markets are
dependent not only on the factors which influence the OCTG market, but also on
the level of pipe line construction activity, line pipe replacement
requirements, new residential construction and utility purchasing programs. The
Company shipped 30,112 tons of line pipe in fiscal 1996, as compared to 41,458
tons and 50,832 tons of line pipe in fiscal 1995 and 1994, respectively. This
decreased focus by the Company on the line pipe market in the past year was due
to limited steel availability and lack of Company manufacturing capacity as the
it concentrated on the improving OCTG demand.
Products
The Company produces both OCTG products and line pipe products. Prior to 1994,
OCTG products constituted approximately 90% of the Company's net sales. During
fiscal 1994, that percentage decreased to 77% as the Company sold more line pipe
than in the previous years. During fiscal 1995, this percentage decreased to 58%
primarily because of the Company's entry into the structural tube market. During
fiscal 1996, the percentage was 65% due to the improving OCTG demand.
The Company's OCTG products include production tubing, which is used to convey
oil and natural gas to the surface of a well, production casing, which is used
to line a newly completed well, and surface casing, which is used to protect
water-bearing formations during the drilling of a well. Generally, deeper wells
drilled to depths greater than 14,000 feet require products that presently
cannot be made by the Company's ERW process. Line pipe products are used for
surface production flow lines, gathering systems and pipeline transportation and
distribution systems for oil, natural gas and other fluids. The Company's energy
products meet API or other proprietary standards. The Company's proprietary OCTG
and line pipe products are generally designed to be utilized in similar
applications as products meeting API standards and are engineered to provide
performance features comparable to products meeting API standards. The Company
warrants its API casing and tubing to be free of defects in material or
workmanship in accordance with applicable API specifications and warrants its
proprietary grade products against defects in accordance with the Company's
standards which are disclosed to customers in connection with their purchase of
such products. The Company has not incurred significant costs in connection with
this warranty. The Company maintains insurance coverage against potential claims
in an amount which it believes to be adequate.
The Company manufactures finished products in either carbon or alloy steel
grades. Virtually all of the Company's products are fully completed or
"end-finished" at the Company's facilities, in contrast to certain of the
Company's competitors which do not end-finish their products or which end-finish
their products at different locations, thus adding to their freight and handling
costs. The end-finish process includes, as appropriate, upsetting, beveling,
threading, pressure testing and the application of couplings. The Company's
fully finished OCTG products are ready to be installed in oil or natural gas
wells. By end-finishing its products, the Company is better able to control both
quality and cost. Both of the Company's facilities provide heat-treatment
capabilities necessary for the production of alloy grade pipe. The Company's
alloy grade tubing and casing products accounted for 27%, 23% and 24% of net
sales in fiscal 1996, 1995 and 1994, respectively.
Marketing
The Company sells its products primarily throughout the United States and Canada
to numerous distributors which resell the pipe to major and independent oil and
natural gas production, gathering and pipeline companies. During the fiscal
years ended September 30, 1996, 1995 and 1994, sales by the Company to Canadian
customers constituted $12.9 million, $12.1 million and $15.0 million,
respectively. Sales to other foreign customers in fiscal 1996, 1995 and 1994
made up an additional $300,000, $900,000, and $900,000, respectively. The
Company's marketing philosophy emphasizes delivering competitively priced
quality products and providing a high level of service to its customers. The
Company maintains inventories of finished goods which are housed at both of its
production facilities and at field locations close to areas of drilling activity
which allows the Company to provide timely delivery of its products. As of
September 30, 1996, 1995 and 1994, the Company's backlog orders were
approximately $49.4 million, $20.4 million and $23.4 million, respectively. All
of the backlog orders as of September 30, 1996 are expected to be filled in
fiscal 1997. The Company's backlog orders as of any particular date may not be
indicative of the Company's actual operating results for any fiscal period.
There can be no assurance that the amount of backlog at any particular date
ultimately will be realized.
Raw Materials
All steel purchases are made centrally at the Company's headquarters in order to
optimize the Company's ability to influence pricing, quality, availability and
delivery considerations. The Company consumes approximately 2% of the total
amount of hot rolled steel produced annually in the United States and believes
it is generally considered to be a significant purchaser by its suppliers. The
Company presently purchases substantially all of its steel from several domestic
suppliers, with virtually all of the Arkansas facilities' steel purchases and
approximately 60% of consolidated purchases are made from Nucor Corporation. The
Company maintains favorable working relationships with its steel suppliers and
believes that is it treated favorably with respect to volume allocations and
deliveries. To date, the Company has not experienced any significant disruption
in its supply of raw materials.
Manufacturing
The Company manufactures OCTG and line pipe products at its facilities in
Conroe, Texas and Hickman, Arkansas. The facilities are strategically located to
serve the energy markets in the United States. The Company can produce at a
maximum rate of approximately 435,000 tons of pipe per year. The Company is
currently operating its facilities at a capacity utilization of approximately
75%. Substantially all of the Company's products are finished on site for
immediate drilling, production or line pipe applications.
In order to control its manufacturing costs, the Company attempts to maximize
production yields from purchased steel and reduce unit labor costs. Purchased
steel represents approximately 70% of the Company's cost of goods sold. Labor
costs are controlled by automation of certain activities and by optimizing
product throughput. For fiscal 1996, direct and indirect labor costs accounted
for approximately 9% of the cost of goods sold. The Company maintains an
innovative compensation plan at both of its manufacturing facilities, whereby
employees receive quarterly bonuses for superior productivity, cost savings and
margin improvements. In addition, some employees are eligible to receive annual
profitability bonuses based upon the Company's consolidated earnings. The
maximum achievable incentives and bonuses range from 15% to 65% of an employee's
annual pre-incentive, pre-bonus gross wages.
During fiscal 1996, the Company spent $3.8 million on new capital equipment,
excluding equipment for its new structural tube facility. These capital
expenditures are expected to result in manufacturing cost savings and expanded
production capabilities.
Competition
The market for OCTG and line pipe products is highly competitive. The Company
believes that the principal competitive factors affecting its business are
price, quality, delivery, availability and service. The Company believes it
enjoys an excellent reputation for quality products and outstanding customer
service. The Company competes with approximately nine domestic and numerous
foreign producers of OCTG products, some of which have greater financial
resources than the Company. The Company's more significant ERW pipe OCTG
competitors are Lone Star Steel Co., Newport Steel Co. and Belleville Tube
Corporation and its more significant seamless pipe OCTG competitors include
United States Steel Corporation, North Star Steel Co. and C F & I Limited
Partnership. The Company also competes in the line pipe market against these
same competitors, and with foreign producers of OCTG products, most of which are
units of large foreign steel makers. During calendar year 1994, 1995 and the
first nine months of 1996, domestic OCTG market penetration by imports was
21.4%, 11.6% and 11.9%, respectively, of tons consumed.
The Structural Tube and Standard Pipe Industry
Structural tubing products are used in construction, transportation,
agricultural, material handling and recreational applications. The uses for
structural tubing include handrails, building columns, walkway components,
bridge frames, recreational vehicle frameworks, boat trailers, farm implement
components, tillage equipment, storage rack systems, conveying systems support
and exercise equipment. Demand for structural tubing is believed to be
influenced primarily by the level of general economic activity in the United
States. In addition, structural tubing is an attractive alternative to other
structural steel forms, such as I-beams and H-beams, because tubing products can
offer strength and other product characteristics similar to beams, but with less
steel content, resulting in lower costs to the end user in certain applications.
The Company believes that domestic consumption of structural tubing during
calendar 1995, 1994 and 1993 was 1.5 million, 1.4 million and 1.4 million tons,
respectively. Based on published industry statistics, the Company believes that
the types of structural tubing products it is capable of manufacturing accounts
for more than 85% of the domestic tonnage of all types of domestic structural
tubing products consumed annually.
Standard pipe products are used in industrial applications such as steam, water,
air and gas lines, and plumbing and heating. Demand for standard pipe is
believed to be influenced primarily by the level of general economic activity in
the United States. In recent years, standard pipe has faced new competition from
plastic pipe in certain applications.
The Company believes that domestic consumption of standard pipe during calendar
1995, 1994 and 1993 was 2.6 million, 2.3 million, and 2.1 million tons,
respectively. Based on published industry statistics, the Company believes that
the types of standard products it is capable of manufacturing accounts for
approximately 30% of the domestic tonnage of all types of domestic standard pipe
products consumed annually.
Products
The Company is currently producing structural tubing square and rectangular
shaped products on two tubing mills in the new Hickman, Arkansas facility. The
larger mill is utilized to manufacture pipe up to 8 inch square and up to 0.500
inch thick, and the smaller mill is utilized to manufacture pipe of up to 3 inch
square and up to 0.250 inch thick. The Company is currently producing structural
round tubing products and standard pipe at its two energy facilities in Conroe,
Texas and Hickman, Arkansas. Because of the large number of applications for
structural tubing and standard pipe, the number of different structural tubing
and standard pipe products produced for the market is considerably larger than
that produced for the OCTG market. The Company expects to produce square,
rectangular and round structural tubing at its facilities in sizes ranging from
one and one half to eight inch square (and the equivalent sizes in rectangular
and round tubing) and in thicknesses of 0.120 to 0.500 inches. The annual
capacity of the structural tubing mills is approximately 200,000 tons, although
the Company does not intend to fully utilize this capacity in the near future.
The Company is currently operating the structural tubing facility at
approximately 45% of capacity.
Marketing
The structural tubing and standard pipe markets are somewhat regional in nature,
primarily because order sizes are smaller and lead time requirements are shorter
than for OCTG products. In contrast to many producers of structural tubing and
standard pipe who sell to both distributors and their large end-user customers,
the Company sells its structural tubing and standard pipe products primarily to
distributors. As in the case of OCTG products, the Company's marketing strategy
emphasizes delivering competitively priced quality products and providing a high
level of service to its customers. As indicated above, the application of
structural tubing and standard pipe products is diverse, and a short lead time
is required for customer satisfaction. Consequently, the Company maintains
inventory levels comparable to those for OCTG products (in terms of months
supply), but such finished goods inventory will consist of a larger number of
stock keeping units than in the case of OCTG. The Company is utilizing several
experienced agency firms in its sales efforts. As of September 30, 1996, the
Company's backlog orders was approximately $6 million. All of the backlog orders
as of September 30, 1996 are expected to be filled in fiscal 1997. The Company's
backlog orders as of any particular date may not be indicative of the Company's
actual operating results for any fiscal period. There can be no assurance that
the amount of backlog at any given time ultimately will be realized.
Manufacturing
The manufacturing process for structural tubing and standard pipe products is
similar to the process of manufacturing plain-end OCTG products. The machinery
and equipment used for the manufacture of structural tubing products is similar
to equipment used for the manufacture of OCTG products. Structural tubing and
standard pipe is not, however, subject to the same degree of tolerances as are
OCTG products, which results in lower production costs relating to testing and
inspection than for OCTG products. Moreover, structural tubing does not require
end finishing, flash elimination from the welding process or seam annealing.
Because less finishing is required of structural tubing products as compared to
OCTG, the average cost per ton to convert steel into structural tubing is
significantly less than OCTG. Unlike OCTG products, all structural tubing
products are ERW.
Consistent with its manufacturing strategy for OCTG production, the Company
intends to become a low-cost, high-volume producer of quality structural tubing
and standard pipe products. The Company believes that the application of its
efficient manufacturing process developed for the production of OCTG products,
the labor costs at its Arkansas facility and the strategic location of the new
facility provides a conversion cost advantage relative to the majority of
existing structural tubing and standard pipe manufacturers.
During fiscal 1996, the Company spent approximately $894,000 on additional
equipment needed for manufacturing and information needs.
Competition
Although a significant market for structural tubing is located within a 400 mile
radius of the new facility, no other major structural tubing facility is
currently located within this area. Foreign competition, primarily from Canada,
represented 29% and 23% of total domestic sales of structural tubing in calendar
1995 and 1994. The Company competes primarily against approximately seven
domestic and numerous foreign producers of structural tubing. The Company's more
significant structural tube competitors are Leavitt Tube Company, Inc., Welded
Tube Corporation of America, Copperweld and Bull Moose Tube Corporation.
A significant market for standard pipe also exists. Foreign competition has had
a large presence in the standard pipe market despite earlier progress on unfair
trade cases. Foreign competition represented approximately 29% and 50% of total
domestic sales of standard pipe in calendar 1995 and 1994. The Company's more
significant domestic competitors are Wheatland Tube Company, Armco, Inc. Sawhill
Tubular Division and Laclede Steel Company.
Employees
As of September 30, 1996, the Company had approximately 867 employees, of whom
approximately 20% were salaried and approximately 80% were employed on an hourly
basis. None of the Company's employees are represented by a union. The Company
considers its employee relations to be excellent.
ITEM 2
PROPERTIES
The Company leases approximately 17,000 square feet of office space in
Chesterfield, Missouri for its executive offices pursuant to a lease which
expires in August 1999. The Company owns a 21,000 square foot office facility
located on a 14 acre site in Union, Missouri which is leased to an unaffiliated
third-party. The Company's 113 acre site in Hickman, Arkansas includes two
buildings with approximately 300,000 square foot of OCTG manufacturing and
storage space, utilizing 55 acres. The 285,000 square feet structural tube
manufacturing plant is located adjacent to the existing OCTG facility.
Approximately 120,000 square feet of this facility is utilized for manufacturing
with the remainder used for inventory and material storage and shipping.
Approximately 40 acres remain in Hickman, Arkansas for future expansion. Both
facilities are leased with purchase options exercisable on the expiration dates
of the leases. The expiration dates are August 1, 2007 for the OCTG facility and
February 1, 2004 for the structural tube facility. The Company also owns 117
acres and a 208,000 square foot manufacturing facility located in Conroe, Texas.
Of the 117 acres, approximately 50 acres are used for manufacturing and storage
and 67 acres are available for future expansion. Each manufacturing facility
operated by the Company is served by truck, has its own rail spur and is within
close proximity of barge facilities.
The Company believes the facilities are in good condition , are adequately
insured and are adequate and suitable for its planned level of operations.
ITEM 3
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. The Company believes that it is not presently a party
to any litigation in which the outcome would have a material adverse effect on
its business or it operations.
The Company is subject to federal, state and local environmental laws and
regulations concerning among other things, waste water disposal and air
emissions. The Company believes it is currently in compliance with all
applicable environmental regulations.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of fiscal 1996 covered
by this Report to a vote of the Company's security holders through the
solicitation of proxies or otherwise.
ITEM 4A
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EXECUTIVE OFFICERS OF THE REGISTRANT
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Name Age Title
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Gregg Eisenberg 46 Chairman of the Board President and
Chief Executive Officer
Charles O. Struckhoff 47 Vice President - Finance and Administration, Treasurer,
Secretary and Chief Financial Officer
Sudhakar Kanthamneni 49 Vice President - Manufacturing and Technology
T. Scott Evans 49 Vice President - Commercial Operations
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Set forth below are descriptions of the backgrounds of the executive officers of
the Company and their principal occupations for the last five years:
Mr. Eisenberg has served as Chairman of the Board since February, 1996. He has
served as President, Chief Executive Officer and a director of the Company since
1988. He is a former director and past chairman of the Committee on Pipe and
Tube Imports.
Mr. Struckhoff has served as Vice President - Finance and Administration and
Chief Financial Officer since November 1993 and as Secretary of the Company
since 1988. From 1988 to November 1993, Mr. Struckhoff also served as Vice
President - Administration of the Company.
Mr. Kanthamneni has served as Vice President - Manufacturing and Technology
of the Company since August 1992. From May 1991 to August 1992, Mr. Kanthamneni
served as the Company's Vice President - Manufacturing. From 1988 to May 1991,
Mr. Kanthamneni served as Vice President - Engineering of the Company.
Mr. Evans has served as Vice President - Commercial Operations of the
Company since September 1992. From May 1991 to September 1992, Mr. Evans served
as the Company's Vice President - Sales. From January 1990 to May 1991, Mr.
Evans served as Vice President - Marketing of the Company. From 1988 to January
1990, Mr. Evans served as General Sales Manager of the Company.
PART II
ITEM 5
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for the Company's Common Equity and Related Stockholder Matters is on
page 28 of the annual shareholders report for the year ended September 30, 1996
portions of which are filed as Exhibit 13.
ITEM 6
SELECTED FINANCIAL DATA
Selected Financial Data is on page 27 of the annual shareholders report for the
year ended September 30, 1996 portions of which are filed as Exhibit 13.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is on pages 12 through 16 of the annual shareholders report for the
year ended September 30, 1996 portions of which are filed as Exhibit 13.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements included is on pages 17 through 25 of the
annual shareholders report for the year ended September 30, 1996 portions of
which are filed as Exhibit 13.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 in incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year. Also See Part I, Item 4A hereof.
ITEM 11
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. 1. Financial Statements
The following consolidated financial statements of Maverick Tube
Corporation and Subsidiary, included in the annual report of the
Registrant to its shareholders for the year
ended September 30, 1996, are incorporated herein by reference
in Item 8:
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 1996
and 1995.
Consolidated Statements of Operations for the years
ended September 30, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for
the years ended September 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years
ended September 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements as of
September 30, 1996.
2. Financial Statement Schedules
The following consolidated financial statement schedule of
Maverick Tube Corporation and subsidiary is included with the
annual report on Form 10-K:
Schedule II Valuation and qualifying
accounts for the years ended
September 30, 1994, 1995 and 1996.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
3. Exhibits:
See Exhibit Index.
The following is a list of each management contract
or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form
10-K pursuant to Item 14(c) of this Report:
Maverick Tube Corporation Amended and Restated 1990
Stock Option Plan
Maverick Tube Corporation Savings for Retirement Plan
as revised on January 1, 1993
Amended Maverick Tube Corporation 1994 Stock Option
Plan
Amended Maverick Tube Corporation 1994 Director Stock
Option Plan
Form of Severance Agreement with Executive Officers
b. Reports on 8-K:
No Reports of Form 8-K were filed during the fourth
quarter of the Registrant's fiscal year ended
September 30, 1996
<TABLE>
Maverick Tube Corporation
and Subsidiary
Schedule II - Valuation and Qualifying Accounts
(In thousands)
<CAPTION>
Additions
-----------------------------
Balance at Charged to Charged
beginning cost and to other Deductions Balance at
Classification of year expenses accounts describe end of year
- -----------------------------------------------------------------------------------------------------------------
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Year ended September 30, 1994:
Deducted from asset accounts:
Accounts receivable allowances $ 310 $ 44 $ -- $ 101 (1) $ 253
Valuation allowance for deferred
taxes $1,824(2) $ -- $ -- $ 181 (3) $1,643
Year ended September 30, 1995:
Deducted from asset accounts:
Accounts receivable allowances $ 253 $ 53 $ -- $ -- $ 306
Valuation allowance for deferred
taxes $1,643 $ -- $ -- $1,094 (4) $2,737
Year ended September 30, 1996:
Deducted from asset accounts:
Accounts receivable allowances $ 306 $339 $ 109 $125 (1) $ 629
Valuation allowance for deferred
taxes $2,737 $ -- $ -- $1,590 (3) $1,147
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) Resulted from the adoption of SFAS No. 109 "Accounting for Income Taxes"
at October 1, 1993.
(3) Resulted from the utilization of additional net operating loss carry-
forwards.
(4) Resulted from an additional net operating loss carryforward generated for
the current year which was not valued for financial statement purposes.
</FN>
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on December 12, 1996.
Maverick Tube Corporation
(registrant)
December 12, 1996 /s/ Gregg M. Eisenberg
-------------------------------
Gregg M. Eisenberg, President
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on behalf of the Company by the following persons in the
capacities on the dates indicated.
December 12,1996 /s/ Gregg M. Eisenberg
----------------------------------
Gregg M. Eisenberg, Director,
President and Chief Executive
Officer
December 12, 1996 /s/ Charles O. Struckhoff
-----------------------------------
Charles O. Struckhoff, Vice
President Finance and Administration
(Principal Financial and Accounting
Officer)
December 12, 1996 /s/ William E. Macaulay
--------------------------------
William E. Macaulay, Director
December 12, 1996 /s/ John A. Hill
-------------------------
John A. Hill, Director
December 12, 1996 /s/ C. Robert Bunch
----------------------------
C. Robert Bunch, Director
December 12, 1996 /s/ C. Adams Moore
---------------------------
C. Adams Moore, Director
December 12, 1996 /s/ David H. Kennedy
-----------------------------
David H. Kennedy, Director
Exhibit 10.21
SIXTH AMENDMENT TO SECURED CREDIT AGREEMENT
AND SECURED REVOLVING CREDIT NOTES
Harris Trust and Savings bank
Chicago, Illinois
Mercantile bank of St. Louis
National Association
St. Louis, Missouri
Gentlemen:
The undersigned, Maverick Tube Corporation, a Delaware corporation (the
"Borrower") refers to the Secured Credit Agreement dated as of May 15, 1992, as
amended (the "Agreement") and currently in effect between the Company and you
(the "Banks") and Harris Trust and Savings Bank, as agent for the Banks (the
"Agent"). All capitalized terms used herein without definition shall have the
same meanings as they have in the Agreement.
The Borrower hereby applies to the Agent and the banks for certain
modifications to the Agreement and the Borrower's borrowing arrangements with
the Agent and the Banks.
1. AMENDMENT
Upon your acceptance hereof in the space provided for that purpose
below, the Agreement shall be and hereby is amended as follows:
(a) Effective 6/30/96, Section 7.8 subsection (a) of the Agreement
shall be and hereby is amended by deleting the ratio "1.80 to 1" appearing in
the last line of the first paragraph of said Section and substituting therefor
the ratio "1.50 to 1".
(b) Section 1.1(a) of the Agreement, the last line of the first
paragraph, shall be amended and as so amended shall read as follows:
"...date hereof to and including May 31, 1998 (the "Termination Date").
(c) The Secured Revolving Credit Note of the Borrower to Harris Trust
and Savings Bank, dated May 15, 1992, is hereby amended by replacing the date
"May 31, 1997" appearing in the first paragraph thereof with the date "May 31,
1998."
(d) The Secured Revolving Credit Note of the Borrower to Mercantile
Bank of St. Louis National Association, dated May 15, 1992, is hereby amended by
replacing the date "May 31, 1997" appearing in the first paragraph thereof with
the date "May 31, 1998."
2. CONDITIONS PRECEDENT
The effectiveness of this Sixth Amendment is subject to the
satisfaction of all of the following conditions precedent:
(a) The Borrower and the Banks shall have executed this Sixth Amend-
ment.
(b) The Banks shall have received copies executed or certified (as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery hereof and the other instruments and documents
contemplated hereby.
(c) All legal matters incident to the execution and delivery hereof and
of the instruments and documents contemplated hereby shall be satisfactory to
the Banks and their counsel.
3. REPRESENTATIONS
In order to induce the Banks to execute and deliver this Sixth
Amendment, the Borrower hereby represents to the Banks that as of the date
hereof and as of the time that this Sixth Amendment becomes effective, each of
the representations and warranties set forth in Section 5 of this Agreement are
and shall be and remain true and correct (except that the representations
contained in Section Sixth shall be deemed to refer to the most recent financial
statements of the Borrower delivered to the Banks) and the Borrower is in full
compliance with all of the terms and conditions of the Agreement and no Default
as defined in the Agreement as amended hereby nor any Event of Default as so
defined, shall have occurred and be continuing or shall arise after giving
effect to this Sixth Amendment.
4. MISCELLANEOUS
(a) Collateral Security Unimpaired. The Borrower hereby agrees that
notwithstanding the execution and delivery hereof, the Security Documents shall
be and remain in full force and effect and that any rights and remedies of the
Banks thereunder, obligations of the Borrower thereunder and any liens or
security interests created or provided for thereunder shall be and remain in
full force and effect and shall not be affected, impaired or discharged hereby.
Nothing herein contained shall in any manner affect or impair the priority of
the liens and security interest created and provided for by Security Documents
as to the indebtedness which would be secured thereby prior to giving effect
hereto.
(b) Effect of Amendment. Except as specifically amended and modified
hereby, the Agreement shall stand and remain unchanged and in full force and
effect in accordance with its original terms. Reference to this specific
Amendment need not be made in any note, instrument or other document making
reference to the Agreement, and reference to the Agreement in any of such to be
deemed to be a reference to the Agreement as amended hereby.
(c) Costs and Expenses. The Borrower agrees to pay on demand all
out-of-pocket costs and expenses incurred by the Banks in connection with the
negotiation, preparation, execution and delivery of this Sixth Amendment and the
documents and transactions contemplated hereby, including the fees and expenses
of counsel to the Banks with respect to the foregoing.
(d) Counterparts; Governing Law. This Sixth Amendment may be executed
in any number of counterparts and by different parties hereto an separate
counterparts, each of which when so executed shall be an original but all of
which to constitute one and the same agreement. This Amendment shall be governed
by the internal laws of the State of Illinois.
Dated October 16, 1996.
MAVERICK TUBE CORPORATION
By: /s/ Charles Struckhoff
Its: Chief Financial Officer
Accepted and agreed to at Chicago, Illinois, as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Bonnie A. Polic
Its: Vice President
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By: /s/ David Higbee
Its: Vice President
Exhibt 10.22
MAVERICK TUBE CORPORATION
DEFERRED COMPENSATION PLAN
1. Purpose. The Maverick Tube Corporation Deferred Compensation Plan (the
"Plan") is established to provide additional incentive to executive personnel to
remain in the employ of Maverick Tube Corporation (the "Corporation") for a
period of five years by offering deferred compensation to such personnel subject
to such continued employment.
2. Administration. The Plan shall be administered by the Compensation Committee
of the Board of Directors of the Corporation (the "Committee"), which Committee,
subject to any permitted action by the Board of Directors, shall have complete
discretion and authority with respect to the Plan and its application except to
the extent that discretion is limited by the Plan.
3. Participants. Any key employee ("Employee") of the Corporation, who has been
designated as eligible to participate under the Plan by the Compensation
Committee, shall become a participant ("Participant"). Employees who have been
designated as Participants by the Committee shall be listed in Schedule A,
attached hereto and made a part hereof by reference. The Committee may amend
Schedule A from time to time by adding additional Participants thereto.
4. Deferred Compensation. At the time of designation of an Employee as a
Participant, the Compensation Committee shall designate with respect to each
Participant the amount of compensation to be deferred annually and the number of
years for which such annual amount will be so deferred. Any deferred
compensation pursuant to this Section shall be recorded by the Corporation in a
deferred compensation account ("Account") maintained in the name of the
Participant, which Account shall be credited as of the first day of each fiscal
calendar year of the Corporation (except for fiscal year 1995, as to which such
amount shall be credited to a Participant's Account on or before February 29,
1996) in the designated amount and for the designated number of years. No amount
shall be credited to the Account of a Participant in respect of any fiscal year
unless the Participant is employed by the Corporation on the first day of such
fiscal year.
5. Investment of Deferred Amounts. The Participant shall designate, in a form
prescribed by the Corporation, the allocation of amounts credited to his Account
as though invested as designated by the Participant from those investments made
available by the Corporation. Such designations may be changed annually by the
Participant and shall be effective only as of the first day of the fiscal year
after receipt by the Corporation of written notice of such change from the
Participant. All interest, other earnings, gains or losses on any investment
medium into which amounts are so allocated (collectively, the "Earnings") shall
be owned by the Corporation and the Participant shall have no ownership or
control over any amounts of deferred compensation or the Earnings thereon.
6. Distribution of Deferred Amounts. Unless a Participant's employment with the
Corporation has been terminated by reason of death or disability or unless there
occurs a Change of Control as hereinafter provided, if the Participant is
employed by the Corporation on October 1, 2000 (the "Normal Vesting Date"), the
Corporation shall direct distribution of the amounts credited to a Participant's
Account, including Earnings credited thereon pursuant to Section 5 hereof, to
the Participant in a lump sum no later than 120 days following the end of the
Corporation's fiscal year ending in the year 2000.
7. Termination of Employment.
(a) Subject to Section 8 hereof, upon termination of the
employment of a Participant with the Corporation for any reason other
than death or disability on or prior to September 30, 2000 (I) the
Participant shall forfeit the entire balance of his Account (including
all Earnings thereon), and (ii) all obligations of the Corporation to
the Participant with respect to deferred compensation hereunder shall
thereupon cease.
(b) Upon termination of the employment of a Participant with
the Corporation by reason of his death, the Participant's designated
beneficiary or beneficiaries shall be entitled to receive all amounts
credited to the Account of the Participant, together with all Earnings
thereon, as of the date of his death, in a single sum payable not later
than 120 days after the end of the fiscal year in which such death
occurs. If there is no designated beneficiary, such amount shall be
paid to the estate of the deceased Participant.
(c) Upon termination of the employment of a Participant with
the Corporation by reason of the Participant's Disability, the
Participant shall be entitled to receive all amounts credited to his
Account, together will all Earnings thereon, as of the date of his
termination of employment, in a single sum payable not later than 120
days after the end of the fiscal year in which termination of
employment occurs.
8. Change of Control. Notwithstanding the foregoing, in the event of a Change of
Control of the Corporation, the Participant shall immediately thereupon vest in
all amounts in his Account. A "Change of Control" shall mean the purchase or
other acquisition by any person, entity or group of persons, within the meaning
of section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any
comparable successor provision, of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Act) of thirty-five (35%) or more of either the
outstanding shares of common stock or the combined voting power of Corporation's
then outstanding voting securities entitled to vote generally, or the approval
by the stockholders of Corporation of a reorganization, merger, or
consolidation, in each case, with respect to which persons who were stockholders
of Corporation immediately prior to such reorganization, merger or consolidation
do not, immediately thereafter, own more than fifty percent (50%) of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated Corporation's then outstanding
securities, or a liquidation or dissolution of Corporation or the sale of all or
substantially all of Corporation's assets. If a change of Control occurs, the
Plan shall continue an all amounts credited to the Account of the Employee shall
be paid at the time that such amount would be otherwise payable to him, without
respect to the provisions of paragraph (a) of Section 7 hereof, until the
earlier of (I) the termination of employment of the Participant with the
Corporation, regardless of the reason therefor, (ii) the Normal Vesting Date
whereupon the Participant shall be entitled to receive all amounts credited to
his Account, together with all Earnings thereon, in a single sum payable not
later than 120 days after the end of the fiscal year in which such termination
occurred or the Normal Vesting Date, as the case may be.
9. Participant's Rights Unsecured. The Corporation may, at is sole discretion,
elect to segregate funds representing annual deferred compensation amounts may
deposit such funds into a trust constituting a grantor trust under Sections 671
through 679 of the Internal Revenue Code of 1986, as amended, and meeting the
requirement of Rev. Proc. 92-64 ("Rabbi Trust"). The right of the Participant or
his designated beneficiary to receive a distribution hereunder shall be an
unsecured claim against the general assets of the Corporation, and neither the
Participant nor his designated beneficiary shall have any rights in or against
any amount credited to his Account, whether or not separate funds are being held
in a Rabbi Trust, or any other specific assets of the Corporation. All amounts
credited to an Account or deposited in or held by a Rabbi Trust shall constitute
general assets of the Corporation and, subject to the provisions of the Rabbi
Trust, may be disposed of by the Corporation at such time and for such purposes
as it may deem appropriate. The Plan shall constitute a mere promise to make
benefit payments in the future.
10. Prohibition Against Assignment. The payments, benefits or interest provided
for under this Plan shall not be subject to any claim of any creditor of any
Participant or the beneficiary of any Participant in law or in equity and shall
not be subject to attachment, garnishment, execution or other legal process by
any such creditor; nor shall the Participant have any right to sell, assign,
transfer, pledge, encumber, anticipate, alienate or otherwise dispose of any
such payments, benefits or interest.
11. Amendment to the Plan. The Board of Directors of the Corporation may amend
the Plan at any time, without the consent of the Participants or their
beneficiaries; provided, however, that no amendment shall divest any Participant
or beneficiary of the balance in his Account, or of any rights to which he would
have been entitled under the Plan prior to such amendment, or relieve the
Corporation of any obligation hereunder, including, without limitation, its
obligation for subsequent credit of deferred compensation with respect to such
Participants.
12. Termination of the Plan. This Plan shall terminate on February 1, 2002
unless sooner terminated by the Board of Directors of the Corporation; provided,
however, that no such termination shall affect the rights of the Participants to
whom obligations for deferred compensation then still exist.
13. Notices. Any notice or election required or permitted to be given
hereunder shall be in writing and shall be deemed to be filed:
(a) on the date it is personally delivered to the Secretary of the
Corporation;
or
(b) three business days after it is sent by registered or
certified mail, addressed to the Corporation's Secretary at
Maverick Tube Corporation, 400 Chesterfield Center,
2nd Floor, Chesterfield, Missouri 63017.
14. Effective Date. This plan shall be effective October 1, 1995.
<TABLE>
MAVERICK TUBE CORPORATION
DEFERRED COMPENSATION PLAN
Schedule A
<CAPTION>
Participant Annual Deferred Compensation Period of Participation
<S> <C> <C>
GRegg Eisenberg $15,000 10/1/1995 through 9/30/2000
S. Kanthamneni $20,000 10/1/1995 through 9/30/2000
S. Evans $15,000 10/1/1995 through 9/30/2000
</TABLE>
MAVERICK TUBE CORPORATION
DEFERRED COMPENSATION PLAN
Designation of Beneficiary
Pursuant to the Maverick Tube Corporation Deferred Compensation Plan
(the "Plan"), I hereby designate the following persons as my beneficiaries to
receive all amounts held for me under the Plan which have not been paid to me at
the date of my death:
Primary Beneficiary(ies):
Name Relationship Percentage
--------------------- -------------------------- ---------%
--------------------- -------------------------- ---------%
--------------------- -------------------------- ---------%
Secondary Beneficiary(ies):
Name Relationship Percentage
--------------------- -------------------------- ---------%
--------------------- -------------------------- ---------%
--------------------- -------------------------- ---------%
Date:_____________________ __________________________________________
Signature
------------------------------------------
Print Name
Reviewed and approved:
Date:_____________________ By:_______________________________________
Exhibit 10.23
FIRST AMENDMENT TO MAVERICK TUBE CORPORATION 1994 STOCK OPTION PLAN
THIS FIRST AMENDMENT TO THE MAVERICK TUBE CORPORATION 1994 STOCK OPTION
PLAN ("First Amendment") is adopted as of this 22nd day of October, 1996.
WHEREAS, Maverick Tube Corporation, a Delaware corporation ("Maverick") has
established the Maverick Tube Corporation 1994 Stock Option Plan (the "Plan")
dated November 16, 1994;
WHEREAS, Section IX of the Plan provides, among other things, that the
Board of Directors of Maverick (the "Board") may amend the Plan, subject to
certain conditions; and
WHEREAS, the Board believes that it would be in the best interest of
Maverick to amend the Plan as provided herein.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The first sentence of Section V of the Plan is hereby deleted in its
entirety and the following substituted in lieu thereof: "Subject to the
adjustment as provided in Article VII, the aggregate number of shares which may
be issued pursuant to the exercise of Options granted under the Plan shall not
exceed 1,000,000."
2. All references in the Plan to "the Plan" shall be deemed to include this
First Amendment from and after the date the First Amendment is adopted.
IN WITNESS WHEREOF, this First Amendment has been duly executed by
authority of the Board as of the day and year first above written.
MAVERICK TUBE CORPORATION
/s/ Gregg M. Eisenberg
By: Title: President and
Chief Executive Officer
Exhibit 10.24
FIRST AMENDMENT TO
MAVERICK TUBE CORPORATION
DIRECTOR STOCK OPTION PLAN
THIS FIRST AMENDMENT TO MAVERICK TUBE CORPORATION DIRECTOR STOCK OPTION
PLAN ("First Amendment") is adopted as of this 22nd day of October, 1996.
WHEREAS, Maverick Tube Corporation, a Delaware corporation ("Maverick") has
established the Maverick Tube Corporation Director Stock Option Plan (the
"Plan") dated February 15, 1995;
WHEREAS, Section 11 of the Plan provides, among other things, that the
Board of Directors of Maverick (the "Board") may amend the Plan as it shall deem
advisable and in the best interests of Maverick, subject to certain conditions;
and
WHEREAS, the Board believes that it would be in the best interest of
Maverick to amend the Plan as provided herein.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Paragraph (k) of Section 2 of the Plan is hereby amended by adding the
following proviso before the period ending said paragraph (a), which proviso
shall read as follows:
"; provided, however, that with respect to a director who has
served as a director since the beginning of a fiscal year but
first becomes an Eligible Director subsequent to the first
business day after the annual meeting of the stockholders of
the Company ensuing from the beginning of such fiscal year,
the Option Date shall mean the first business day after such
director becomes an Eligible Director."
2. Paragraph (a) of Section 5 of the Plan is hereby deleted in its entirety
and the following substituted in lieu thereof:
"(a) For fiscal year 1996, each person who is an
Eligible Director on an Option Date (commencing on the
Option Date for 1996) shall receive an Option to acquire
2,000 shares of Stock at a per share purchase price equal
to the Fair Market Value of the Stock on the Option Date;
provided, however, that each person who has served as a
director of Maverick since the beginning of fiscal year
of 1996 and, subsequent to the annual meeting held in 1996
becomes an Eligible Director on or before October 31, 1996
shall receive Options to acquire 2,000 shares of Stock at
a per share purchase price equal to the per share
Fair Market Value of the Stock on the applicable Option
Date. In each subsequent fiscal year (commencing with
fiscal year 1997), each person (i) who is an Eligible
Director on the first business day after the annual
meeting of the stockholders of the Company held in such
fiscal year, or (ii) who has served as a director of
Maverick since the beginning of such fiscal year and,
subsequent to the annual meeting occurring in such fiscal
year, becomes an Eligible Director on or before the end of
such fiscal year, shall receive Options to acquire 3,750
shares of Stock at a per share purchase price equal to
the per share Fair Market Value of the Stock on the
applicable Option Date."
3. Paragraph (a) of Section 4 of the Plan is hereby deleted in its entirety
and the following substituted in lieu thereof:
"(a) Subject to the provisions of Section 10 hereof,
a maximum of 100,000 shares of Stock may be issued pursuant
to the exercise of Options granted under the Plan."
4. This First Amendment shall be effective for fiscal year 1996 and all
subsequent fiscal years of Maverick, and all references in the Plan to "the
Plan" shall be deemed to include this First Amendment from and after the
effectiveness hereof.
IN WITNESS WHEREOF, this First Amendment has been duly executed by
authority of the Board as of the day and year first above written.
MAVERICK TUBE CORPORATION
/s/ Gregg M. Eisenberg
By:
Title: President and Chief
Executive Officer
<TABLE>
Exhibit 11.1
Maverick Tube Corporation
and Subsidiary
Computation of Per Share Earnings (Loss)
<CAPTION>
Year ended September 30
(In thousands except per share data)
-------------------------------------------
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Primary:
Average shares outstanding 7,470 7,440 6,397
Net effect of stock options 30 20 26
===========================================
7,500 7,460 6,423
===========================================
Net income (loss) used in per share calculations
$ 7,538 $(2,334) $ 429
===========================================
Net income (loss) per common and common equivalent
share $ 1.01 $ (.31) $ .07
===========================================
Fully Diluted:
Average shares outstanding 7,470 7,440 6,397
Net effect of stock options 100 20 29
===========================================
7,570 7,460 6,426
===========================================
Net income (loss) used in per share calculations
$ 7,538 $(2,334) $ 429
===========================================
Net income (loss) per common and common equivalent
share $ 1.00 $ (0.31) $ .07
===========================================
</TABLE>
Exhibt 13
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Market
The Company's Common Stock, par value $.01 per share, is traded on the
NASDAQ/National Market System under the symbol "MAVK."
Stock Price and Dividend Information
The high and low closing sales prices on the NASDAQ/National Market System of
the Company's Common Stock during the first, second, third and fourth quarters
of fiscal 1996 and fiscal 1995, respectively, were as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 8 1/8 6 1/8 10 3/4 7 3/4
Second 12 1/4 7 3/8 9 3/8 7 1/4
Third 13 1/2 11 1/8 10 3/8 7 5/8
Fourth 14 5/8 10 1/2 8 5/8 7 1/8
</TABLE>
The Company has not declared or paid cash dividends on its Common Stock since
its incorporation. The Company currently intends to retain earnings to finance
the growth and development of its business and does not anticipated paying cash
dividends in the near future. Any payment of cash dividends in the future will
depend upon the financial condition, capital requirements and earnings of the
Company as well as other factors the Board of Directors may deem relevant. The
Company's loan agreement with commercial lenders restricts the Company's ability
to pay dividends to its stockholders.
Approximate Number of Holders of Common Stock
There were 125 holders of record of the Company's Common Stock as of September
30, 1996.
Historical Financial Information
The selected financial data presented below have been derived from the Company's
consolidated financial statements. The financial statements of September 30,
1996 and 1995, and for each of the years in the three-year period ended
September 30, 1996 have been audited by Ernst & Young LLP, independent auditors,
and their report thereon is included elsewhere herein. The selected data should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto appearing elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended September 30,
1996 (1)(2) 1995(1) 1994 1993 1992
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $204,182 $167,896 $124,843 $133,729 $98,941
Cost of goods sold 182,042 159,865 117,833 121,596 92,342
Gross profit 22,140 8,031 7,010 12,133 6,599
Selling, general and administrative 10,198 7,728 4,896 6,059 4,783
Structural start-up costs -- 245 392 -- --
Relocation and restructuring costs -- -- -- 744 5,074
Income (loss) from operations 11,942 58 1,722 5,330 (3,258)
Interest (expense) (2,522) (3,164) (1,125) (861) (749)
Other income -- 772 -- -- --
Income (loss) before income taxes 9,420 (2,334) 597 4,469 (4,007)
Provision (credit) for income taxes 1,882 -- 168 894 (1,302)
Net income (loss) $7,538 ($2,334) $429 $3,575 (2,705)
Net income (loss) per common and
common equivalent share $1.01 ($0.31) $.07 $.58 ($.47)
Weighted average common and
common equivalent
shares outstanding 7,500,406 7,460,137 6,422,411 6,177,997 5,711,055
Other Data:
Depreciation and amortization 5,201 4,691 3,395 3,055 2,970
Capital expenditures 5,497 5,592 20,759 11,730 6,457
Balance Sheet Data:
(End of period)
Working capital 32,652 30,272 23,111 20,960 22,397
Total assets 125,556 106,494 99,434 78,124 71,494
Revolving credit facility 13,250 15,000 4,000 5,000 --
Current maturities of long-term
debt 1,843 2,795 1,880 1,216 1,508
Long-term debt (less
current maturities) 11,901 18,045 19,640 11,670 13,506
Stockholders' equity 57,247 49,503 51,837 42,693 39,118
<FN>
(1) Includes the results of operation of the Company's structural tube
facility which began operations in October, 1994.
(2) Includes the one-time effect of the change in accounting practice which
resulted in a reduction in net sales, gross profit, net income and net
income per common and common equivalent share of $8,700,000, $1,000,000,
$839,000 and $0.11, respectively.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's products consist of ERW Oil Country Tubular Goods (OCTG) and line
pipe which are sold primarily to distributors who supply end users in the energy
industry, and structural tubing and standard pipe which are sold primarily to
distributors who supply end users in construction, transportation, agriculture
and other industrial uses. Demand for the Company's energy related products
depends primarily upon the number of oil and natural gas wells being drilled in
the United States and Canada, the depth and drilling conditions of these wells
and the number of well completions, which are in turn primarily dependent on oil
and natural gas prices. Domestic consumption of OCTG is supplied by domestic and
foreign pipe producers and draw downs of existing inventories held by
distributors and end users. Demand for the Company's industrial related products
depends on the general level of economic activity in the United States and draw
downs of existing inventories.
According to published reports domestic drilling, the primary demand for the
Company's OCTG products, increased in fiscal 1996 by 2.8% from fiscal 1995. This
increase in drilling resulted from a 13.7% increase in gas related drilling
which was partially offset by an 8.5% decrease in oil related drilling. Energy
prices improved by year end with oil up 11.2% and gas up 55.2%. The increase in
gas prices positively affected gas drilling. However, the weakness of oil prices
early in the year and continued concerns over increased Iraqi oil production
caused oil related drilling to decline. At the end of the fiscal year, total
domestic drilling was at 822 rigs, up 8.9% from year ago levels. The consumption
of OCTG rose faster than the drilling rates. Management estimates that
consumption has increased by 11.1% due to several factors including the change
in mix toward more gas wells which are slightly more pipe intensive, increased
rig efficiency and higher completion rates. Published information suggests that
demand for line pipe was down by an estimated 2%.
The Company and other domestic producers of OCTG saw reduced competition from
imports and inventory draw downs during fiscal 1996. Import penetration declined
from 15.5% in 1995 to 11.1% in 1996 primarily due to the imposition of duties
resulting from trade cases successfully brought by the Company and other
producers and a strong international demand for OCTG. Industry inventory build
also positively impacted demand, as increases in inventories created 4.6%
additional demand as opposed to satisfying 2% of the demand in fiscal 1995.
Inventories remain at low levels in relation to current consumption rates.
As a result of increased drilling activity, decreased competition from imports
and inventories and increased consumption per rig, management estimates that
total domestic shipments of OCTG during fiscal 1996 rose by 30.1% as compared to
fiscal 1995. Maverick's shipments of OCTG were up 23.5%. This was primarily due
to the impact of a one-time adjustment which resulted from implementing a change
in the Company's policy for recording revenue. See Note 1 of the Notes to the
Consolidated Financial Statements as of September 30, 1996. Management estimates
that Maverick's market share remained relatively consistent from fiscal 1995 to
1996.
Management estimates that the demand for the Company's structural tube (commonly
referred to as hollow structural sections or HSS) products increased by 3.4% in
fiscal 1996 and total domestic producer shipments rose by 13.5%. According to
published reports, the standard pipe market demand decreased by an estimated
6.0% and total domestic producer shipments rose by an estimated 1.3%.
Pricing of the Company's products was mixed during the year. Pricing of OCTG,
due to increasing demand for higher value-added products, rose by approximately
1%. Line, standard and structural pipe product pricing fell by 4.7%, 5.6% and
9.1%, respectively. These prices decreased primarily due to the lower steel
costs experienced during fiscal 1996. Steel costs had fallen late last year by
$60 per ton, but had begun to rise in March through July for a net decrease
during the year of approximately $30 per ton.
As mentioned above, the replacement cost of steel had dropped during the year.
The Company's average steel cost of goods sold for energy products decreased $31
per ton or 8.6% and $50 per ton or 13.9% for industrial products from the
previous year. The lower costs were attributable to decreased inventory costs at
the beginning of the year and further lower purchase costs during the first six
months of the year. Replacement cost of steel increased by $30 per ton during
the last six months of the year. Based on year end inventory values and recently
announced increases effective January 1, 1997, the Company estimates steel costs
will rise by $24 per ton or 8% during 1997. Four manufacturers of flat rolled
steel have announced 6.5 million tons of capacity additions scheduled for
start-up in fiscal 1997. The Company anticipates that these additions could have
the effect of lowering the Company's purchase price of hot rolled steel during
fiscal 1997.
In general, uncertainty continues to exist as to future levels and volatility of
oil and gas price expectations and their effect on drilling levels and demand
for the Company's energy related products. Uncertainty also exists as to the
future impact on the Company of industry wide draw downs of OCTG inventories as
well as future import levels. Uncertainty exists as to the future demand levels
for HSS and other industrial related products. Finally, uncertainty exists as to
the price level of hot rolled steel, the Company's principal raw material.
RESULTS OF OPERATIONS The following table sets forth, for the periods presented,
certain information relating to the operations of the Company expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 89.2 95.2 94.4
----------------------------------------
Gross profit 10.8 4.8 5.6
Selling, general and
administrative 5.0 4.6 3.9
Structural start-up costs -- .2 .3
------------------------------------------
Income from operations 5.8 -- 1.4
Other income -- .5 --
Interest expense, net 1.2 1.9 .9
------------------------------------------
Income (loss) before
income taxes 4.6 (1.4) .5
Provision for income taxes .9 -- .2
------------------------------------------
Net income (loss) 3.7 (1.4) .3
==========================================
</TABLE>
Fiscal Year Ended September 30, 1996 compared to Fiscal Year Ended
September 30, 1995
In fiscal 1996, net sales increased $36.3 million or 21.6% from the preceding
fiscal year. Energy products sales increased $19.3 million or 15.1%, while
industrial products sales increased $17.0 million or 42.8%. These results were
attributable primarily to an increase of 24.9% in total product shipments, from
276,376 tons in fiscal 1995 to 345,232 tons in fiscal 1996. OCTG product
shipments increased 38,074 tons or 23.4%. During fiscal 1996 an increase in
consumption of OCTG resulted from the average rig count rising by 67. The
increased rig count was only one of many positive factors which caused the
increase in Maverick's OCTG product shipments and total sales. In addition,
decreased import activity and a build in existing inventories held by
distributors also positively affected shipments of OCTG. Also export sales,
primarily to Canada, increased by 10% from 20,000 tons in fiscal 1995 to 22,000
tons in fiscal 1996 as Canadian drilling rose by 14.2%. Line pipe shipments
decreased by 27.4% due to lack of capacity at Maverick and limited steel
availability. Industrial products shipments increased 58% from 72,600 tons in
fiscal 1995 to 114,728 tons in fiscal 1996 as the Company continues to gain a
foothold in the market. Total sales and total shipments were further positively
impacted by Maverick's strengthening position in the industrial products market.
Average selling prices decreased during fiscal 1996 by 2.7% (from an average of
$607 to $591 per ton). This reduction offset some of the volume-driven increase
in total sales. The average selling price for energy was $640, an increase of
$11 per ton. The increase was principally due to improved sales of higher
value-added products. The average selling price of industrial products was $494,
a decrease of $52 per ton. The decrease in the average industrial products
selling price was due to corresponding reduced steel costs during the fiscal
year.
Cost of goods sold increased $22.2 million or 13.9% in fiscal 1996 as compared
to fiscal 1995. Energy cost of goods sold increased $7.8 million or 6.4%, and
industrial products cost of goods sold increased $14.4 million or 37.8%. The
increase in cost of goods sold was due primarily to the increased level of
shipments offset by an approximate 10% decrease in steel cost of goods sold
compared to fiscal 1995.
Gross profit increased $14.1 million or 175.7% in fiscal 1996 as compared to
fiscal 1995. Gross profit for energy increased approximately $11.5 million or
203.5%, while industrial products gross profit increased $2.6 million or 210.1%.
Gross profit as a percentage of net sales was 10.8% for fiscal 1996 as compared
to 4.8% for fiscal 1995. Energy gross profit percentage was 11.6% and industrial
products gross profit margin was 8.9%. The improved gross profit percentages
were mainly attributable to lower steel costs during fiscal 1996.
Selling, general and administrative expenses increased $2.5 million, or 32.0%
from fiscal 1995 to fiscal 1996. These expenses increased principally as a
result of increased employee incentive compensation, salary increases, increased
selling expenses related to higher sales volumes and the increase in sales
commissions on industrial products. Selling, general and administrative expenses
as a percentage of net sales increased from 4.6% in 1995 to 5% in fiscal 1996.
Interest expense decreased $642,000 or 20.3%, in fiscal 1996 as compared to
fiscal 1995 as a result of decreased borrowings. The decreased borrowings were
principally the result of the net income and cash flow generated during 1996.
The provision for income taxes increased $1,882,000 in fiscal 1996 as compared
to fiscal 1995 as a result of the Company generating income before income taxes
in fiscal 1996, as compared to a loss before income taxes in fiscal 1995. The
Company continues to maintain a conservative valuation allowance of $1.1 million
on a gross tax asset of $6 million. As permitted under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes," realization of the Company's deferred tax assets was dependent on
utilizing tax planning strategies or generating sufficient taxable income prior
to expiration of the net operating loss carryforwards. Management evaluates, on
a continuing basis, the realizability of the deferred tax assets and the need
for an offsetting valuation allowance.
At September 30, 1996, the Company had available net operating loss
carryforwards of $6.4 million which it may use to offset future taxable income,
of which $2.9 million is available in 1997. In addition, at September 30, 1996,
the Company had alternative minimum tax credit carryforwards of $2.0 million
available for income tax purposes. See Note 7 of the Notes to the Consolidated
Financial Statements as of September 30, 1996.
As a result of the foregoing factors, net income increased $9.9 million from a
net loss of $2.3 million or $0.31 per share in fiscal 1995 to net income of $7.5
million or $1.01 per share in fiscal 1996.
Fiscal Year Ended September 30, 1995 compared to Fiscal Year Ended
September 30, 1994
In fiscal 1995, net sales increased $43.1 million or 34.5% from the
preceding fiscal year. The increase in total sales and total shipments was due
primarily to Maverick's entry into the HSS market in October 1994. Energy
products sales increased $3.4 million or 2.7%. Industrial products sales were
$39.7 million. This increase was attributable primarily to an increase of 28.8%
in total product shipments, from 214,652 tons in fiscal 1994 to 276,376 tons in
fiscal 1995. OCTG product shipments increased 6,999 tons or 4.3%. The increase
in sales of OCTG resulted from an increased market share for the Company,
decreased competition from imports resulting primarily from the trade cases and
reduced inventory draw-downs. These positive market factors were offset by
reduced domestic consumption as the average rig count fell by 46 rigs during the
year. Export sales, primarily to Canada, decreased 28.6% from 28,000 tons in
fiscal 1994 to 20,000 tons in fiscal 1995 as Canadian drilling fell by 11%. Line
pipe shipments decreased 9,374 tons or 18.4% due to reduced demand resulting
from drilling reductions. Industrial products shipments which consist of HSS and
standard pipe (which increased 10,696 tons or 125.8% from fiscal 1994 to fiscal
1995) accounted for 72,600 tons in fiscal 1995. The average selling price for
energy products was $629, up 8% as compared to the previous fiscal year, while
the average selling price of industrial products was $546. The increase in the
average energy selling price was principally due to improved mix and higher
demand for domestic products.
Cost of goods sold increased $42.0 million or 35.7% in fiscal 1995 as compared
to fiscal 1994. Energy cost of goods sold increased $3.5 million or 3.0%, and
industrial products cost of goods sold was $38.5 million. The increase in energy
cost of goods sold was due primarily to the increased level of shipments and an
approximate 5% increase in delivered steel costs compared to fiscal 1994.
Gross profit increased $1.0 million or 14.6%, in fiscal 1995 as compared to
fiscal 1994. Gross profit for energy products decreased approximately $100,000
or 1.5%, while industrial products contributed $1.1 million. Gross profit
percentage was 4.8% for fiscal 1995 as compared to 5.6% for fiscal 1994. Energy
gross profit percentage was 5.4% and industrial products gross profit margin
percentage was 2.8%. Gross profit percentage for industrial products was
negatively impacted by a $1.2 million charge to earnings for write-downs of
inventory resulting from a reduction in the replacement costs of flat rolled
steel which occurred in the fourth quarter. Excluding this charge to earnings,
industrial products gross profit margin percentage would have been 5.9%
Selling, general and administrative expenses increased by $2.8 million or 57.8%,
from fiscal 1994 to fiscal 1995. Industrial products incremental selling,
general and administrative costs accounted for $1.9 million or 68.0% of the
increase. Selling, general and administrative expenses as a percentage of net
sales increased from 3.9% in fiscal 1994 to 4.6% in fiscal 1995.
Operating income for fiscal 1995 was also negatively impacted by the effect of
additional start-up costs at the structural tube facility of $245,000 recorded
in the first fiscal quarter which were comprised primarily of salary and related
costs for the structural production and sales force. The facility began
production in late October 1994.
Interest expense increased $2.0 million or 181.2%, in fiscal 1995 as compared to
fiscal 1994 as a result of increased borrowings and increased interest rates.
The increased borrowings were principally the results of increased industrial
products inventory levels throughout the year that were financed through the
Company's Revolving Credit Facility. The increase in other borrowings was
primarily to finance the construction of the structural tube facility and
accounted for $1.5 million of the increased interest expense incurred during
fiscal 1995.
Other income was $772,000 in fiscal 1995 as a result of $1,000,000 of insurance
proceeds which were received during the quarter ended June 30, 1995.
Approximately $800,000 of these proceeds were for losses experienced in prior
fiscal years and this amount has been recorded in other income. The remaining
$200,000 of such recovery has been recorded as a reduction in cost of goods
sold.
Although the Company incurred a $2.3 million pre-tax loss, no credit provision
for income taxes was recorded in fiscal 1995. The Company maintained a
conservative valuation allowance of $2.7 million on a gross tax asset of $7.2
million and elected not to value any further future taxable income. As permitted
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes," realization of a portion of the Company's
deferred tax asset was based on expected future taxable income. The level of
estimated future taxable income was based on historical levels of income
generated from ordinary and recurring operations
As a result of the foregoing factors, net income decreased from $429,000 in
fiscal 1994 to a net loss of $2.3 million in fiscal 1995 or $0.31 net loss per
share. This net loss included $245,000 in start-up costs, a $1.2 million charge
to earnings for write-downs of industrial products inventory, and $800,000 of
insurance proceeds related to inventory losses. Excluding these unusual items,
the net loss would have been $1.7 million.
LIQUIDITY AND CAPITAL RESOURCESWorking capital at September 30, 1996 was $32.7
million and the ratio of current assets to current liabilities was 1.8 to 1 as
compared to September 30, 1995 when working capital was $30.3 and the current
ratio was 2.3 to 1. The increase in working capital was principally due to a $2
million increase in the deferred income tax asset and a $17.4 million increase
in inventory, (which includes approximately $7.2 million in customer-obligated
inventory) which was partially offset by a $5.6 million increase in accounts
payable, a $3.7 million increase in accrued expenses and a $8.2 million increase
in deferred revenue. The increase in the current deferred income tax asset is
due to the expectation that the net operating loss carryforwards and a portion
of the alternative minimum tax credit carryforwards will be utilized in fiscal
1997. The increase in accounts payable and accrued expenses is due to the
increased volume of business and the accrual of incentive compensation. The
increase in deferred revenue is due to the aforementioned change in accounting
practice. The increase in inventory is partially due to this change in
accounting practice and also to the increased volume of energy business. Cash
provided by operating activities for fiscal 1996 was $14.2 million. The primary
source of cash was net income, exclusive of the impact of non-cash items
(primarily depreciation and amortization), of $13.7 million.
During fiscal 1995 and 1994, net cash provided (used) by operations was ($6.3)
million and $2.5 million, respectively. In fiscal 1995, the Revolving Credit
Facility was used to fund operations and capital expenditures. In fiscal 1994,
the net cash provided by operations was primarily used to fund capital
expenditures.
Cash used in investing activities in fiscal 1996, 1995 and 1994 was $5.5
million, $5.6 million and $20.9 million, respectively. This use was primarily
for purchases of property, plant, and equipment of $5.5 million, $5.6 million
(of which $3.9 million was spent on the structural tube facility) and $20.8
million during fiscal 1996, 1995 and 1994, respectively.
During fiscal 1996, 1995 and 1994, cash provided (used) by financing activities
was ($8.6), $11.5 and $15.2 million. Cash used by financing activities in fiscal
1996 is primarily attributable to the pay-off of the $5.5 million term note, the
proceeds of which were used to finance the structural tube facility, a $1.8
million net decrease in the Company's Revolving Credit Facility and other
regularly scheduled term debt payments. The cash provided by financing
activities in fiscal 1995 was primarily attributed to an $11 million net
increase in the Company's Revolving Credit Facility. The cash provided by
financing activities in fiscal 1994 was primarily attributable to $8.7 million
in net proceeds received from the sale of 1.3 million shares of common stock and
the $6.5 million increase in borrowings under two new financing arrangements
incurred primarily in connection with the new structural tube facility.
The Company's capital budget for fiscal 1997 is $6.3 million which will be used
principally to acquire new equipment for its existing manufacturing facilities.
Such funds are expected to be provided from cash flows from operations.
The Company expects that it will meet its ongoing working capital and capital
requirements from a combination of cash flow from operations, which constitutes
its primary source of liquidity, and available borrowings under its Revolving
Credit Facility. The Revolving Credit Facility, as amended, provides for maximum
borrowings up to the lesser of the eligible borrowing base or $27.5 million, and
bears interest at either the prevailing prime rate or an adjusted Eurodollar
rate, plus an interest margin, depending upon certain financial measurements.
The Revolving Credit Facility is secured by the Company's accounts receivable
and inventories and will mature on May 31, 1998. As of September 30, 1996, the
applicable interest rate was 6.93 percent per annum, and the Company had $13.8
million in unused availability under the Revolving Credit Facility. As of
September 30, 1996, the Company had $613,000 in cash.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
Maverick Tube Corporation
and Subsidiary
Consolidated Balance Sheets
<CAPTION>
September 30
1996 1995
(In thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 613 $ 491
Accounts receivable, less allowances of $629
and $306 in 1996 and 1995, respectively 18,400 18,914
Inventories 50,624 33,272
Deferred income taxes 2,679 645
Prepaid expenses and other current assets 875 896
--------- --------
Total current assets 73,191 54,218
Property, plant and equipment 51,695 51,168
Other assets 670 1,108
-------- --------
$125,556 $106,494
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $23,042 $17,419
Accrued expenses and other liabilities 7,478 3,732
Deferred revenue 8,176 --
Current maturities of long-term debt 1,843 2,795
--------- --------
Total current liabilities 40,539 23,946
Long-term debt, less current maturities 11,901 18,045
Revolving credit facility 13,250 15,000
Deferred income taxes 2,619
- --
Commitments and contingencies (Notes 4, 10 and 11) -- --
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000
authorized shares -- --
Common stock, $.01 par value; 20,000,000
authorized shares; 7,472,071 and 7,440,229
shares issued and outstanding in 1996 and 1995,
respectively 75 74
Additional paid-in capital 37,674 37,469
Retained earnings 19,498 11,960
------- --------
57,247 49,503
------- --------
$125,556 $106,494
======= ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
Maverick Tube Corporation
and Subsidiary
Consolidated Statements of Operations
<CAPTION>
Year ended September 30
1996 1995 1994
---------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales $204,182 $167,896 $124,843
Cost of goods sold 182,042 159,865 117,833
----------------------------------------
Gross profit 22,140 8,031 7,010
Selling, general and administrative 10,198 7,728 4,896
Structural start-up costs -- 245 392
----------------------------------------
Income from operations 11,942 58 1,722
Other income (expense):
Interest (expense) (2,522) (3,164) (1,125)
Other income -- 772 --
----------------------------------------
Income (loss) before income taxes 9,420 (2,334) 597
Provision for income taxes 1,882 -- 168
-----------------------------------------
Net income (loss) $ 7,538 $ (2,334) $ 429
=========================================
Net income (loss) per common and
common equivalent share $ 1.01 $ (0.31) $ 0.07
========================================
</TABLE>
<TABLE>
Maverick Tube Corporation and Subsidiary
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
<CAPTION>
Common Stock
------------------------------------------------------
Additional
Paid-in Retained Earnings
Shares Amount Capital
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at October 1, 1993 6,140,229 $61 $28,767 $13,865
Net income -- -- -- 429
Sale of common stock 1,300,000 13 8,702 --
------------------------------------------------------------------------
Balance at September 30, 1994 7,440,229 74 37,469 14,294
Net loss -- -- -- (2,334)
------------------------------------------------------------------------
Balance at September 30, 1995 7,440,229 74 37,469 11,960
Net income -- -- -- 7,538
Exercise of options 31,842 1 205 --
------------------------------------------------------------------------
Balance at September 30, 1996 7,472,071 $75 $37,674 $19,498
========================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
Maverick Tube Corporation and Subsidiary
Consolidated Statements of Cash Flows
<CAPTION>
Year ended September 30
-----------------------------------------------------
1996 1995 1994
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 7,538 $ (2,334) $ 429
Adjustments to reconcile net income (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization 5,201 4,691 3,395
Deferred income taxes 585 -- 159
Provision for losses on accounts receivable 339 53 44
Gain on sale of equipment (3) (20) (28)
Changes in operating assets and liabilities:
Accounts receivable 175 (6,945) (898)
Inventories (17,352) (624) (4,820)
Income taxes refundable -- 117 68
Prepaid expenses and other current assets 5 (145) 110
Other assets 207 (168) (477)
Accounts payable 5,623 (1,313) 6,149
Accrued expenses and other liabilities 3,746 387 (973)
Deferred revenue 8,176 -- --
Accrued relocation and restructuring costs -- -- (644)
-----------------------------------------------------
Cash provided (used) by operating activities 14,240 (6,301) 2,514
Investing activities
Expenditures for property, plant and equipment (5,497) (5,592) (20,759)
Proceeds from disposals of equipment 3 20 33
Notes issued -- -- (225)
Collection of notes receivable 15 18 15
------------------------------------------------------
Cash used by investing activities (5,479) (5,554) (20,936)
Financing activities
Proceeds from long-term borrowings and notes 64,250 62,992 65,258
Principal payments on long-term borrowings and notes
(73,095) (51,530) (58,766)
------------------------------------------------------
(8,845) 11,462 6,492
Proceeds from exercise of stock options 206 -- --
Net proceeds from sale of common stock -- -- 8,715
------------------------------------------------------
Cash provided (used) by financing activities (8,639) 11,462 15,207
------------------------------------------------------
Increase (decrease) in cash and cash equivalents 122 (393) (3,215)
Cash and cash equivalents at beginning of year 491 884 4,099
======================================================
Cash and cash equivalents at end of year $ 613 $ 491 $ 884
======================================================
Supplemental disclosures of cash flow information: Cash paid (received) during
the year for:
Interest (net of amounts capitalized of $81, $142 and
$475) $ 2,677 $ 2,949 $ 1,115
Income taxes $ 1,370 $ (148) $ 99
<FN>
See accompanying notes.
</FN>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Maverick Tube
Corporation (the Company) and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition
The Company records revenue from product sales when the product is shipped from
its facilities. Prior to January 1, 1996, the Company had recorded revenue on
the sale of energy products to certain customers at the time the goods were set
aside for storage at the customer's request. Included in the results of
operations for the year ended September 30, 1996 was a one-time effect of this
change in practice which resulted in a reduction in net sales, gross profit, net
income and net income per common and common equivalent share of $8,700,000,
$1,000,000, $839,000 and $0.11, respectively.
Inventories
Inventories are principally valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost. Depreciation is
computed under the straight-line method over the respective assets' useful
lives. Useful lives of the Company's assets are as follows:
Land and leasehold improvements 10 to 20 years
Buildings 20 to 40 years
Transportation equipment 4 to 5 years
Machinery and equipment 5 to 12 years
Furniture and fixtures 3 to 7 years
Income Taxes
Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and other tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to periodically make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share were computed on net
income (loss) and the weighted average number of shares of common stock and
common stock equivalents outstanding during each period (7,500,406, 7,460,137
and 6,422,411 for the years ended September 30, 1996, 1995 and 1994,
respectively).
Business Segments
Effective late in October 1994, the Company commenced the production and sale of
structural tubing products. At that time the Company began reporting the results
of its operations on a segment basis. The two identifiable segments are energy
products, consisting of Oil Country Tubular Goods (OCTG) and line pipe products
sold primarily to customers in the energy industry and industrial products,
consisting primarily of structural tubing and standard pipe products. Energy
products are used in the completion of new wells and the handling and
transporting of the oil and natural gas produced from these wells. Industrial
products are sold to customers in various industries including construction,
agriculture and transportation. The Company's products are sold primarily to a
network of distributors and are sold throughout the United States and Canada.
Sales commission expenses are charged directly to the associated business
segments. Remaining selling, general and administrative expenses are allocated
based upon the net sales dollars generated by each segment.
Cash Equivalents
The Company's policy is to consider demand deposits and short-term investments
with a maturity of three months or less when purchased as cash equivalents.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable and long-term debt obligations. The carrying value of amounts
reported in the consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value. Management's
estimate of the fair value of long-term debt obligations is discussed in Note 4
to the consolidated financial statements.
2. Structural Start-Up Costs
During 1994, the Company constructed a new production facility in Hickman,
Arkansas and entered the structural tube business. The Company incurred costs of
$245,000 and $392,000 in 1995 and 1994, respectively, related to the
commencement of operations of this facility which began production in late
October 1994. These costs are comprised primarily of salary and related costs
for the production and sales personnel prior to the fully integrated operation
of the facility.
3. Stock Offering
In July 1994, the Company sold 1,300,000 shares of common stock. The net
proceeds to the Company of $8,715,000 (after public offering expenses) were used
to complete the construction and acquire and install equipment of the new
structural tube production facility and to repay indebtedness under the
Company's revolving credit facility.
4. Long-Term Debt and Revolving Credit Facility
Long-term debt and revolving credit facility at September 30, 1996 and 1995
consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
(in thousands)
<S> <C> <C>
Term loan notes payable, secured by machinery and equipment (net
book value $22,500,000 at September 30, 1996); payable in monthly
installments (including interest at 9.27%) of $130,920; final
payment due on May 19, 1999. $ 3,699 $ 4,868
Term loan notes payable, secured by machinery and equipment;
interest payable monthly at the London Interbank Offered Rate
plus 2.9%; balance paid September 4, 1996. -- 5,500
Capital lease obligation, secured by property, plant and equipment
(net book value $9,492,000 at September 30, 1996); payable in
monthly installments (including interest at 8.0%) of $59,479;
final payment due on August 1, 2007. 5,185 5,472
Capital lease obligation, secured by property and plant
(net book value $8,705,000 at September 30, 1996); interest of
7.5% payable monthly; payable in monthly principal installments
of $20,000 (plus interest) commencing on March 1, 1996;
increasing to $31,250 in years two through seven and
increasing to $240,417 in year eight; final payment due on
February 1, 2004. 4,860 5,000
Revolving credit notes, secured by all accounts receivable and
inventories; due on May 31, 1998; interest payable monthly
at either prime or the Eurodollar rate, plus an interest margin,
depending upon certain financial measurements. 13,250 15,000
------------------------------------
26,994 35,840
Less current maturities (1,843) (2,795)
------------------------------------
$ 25,151 $ 33,045
====================================
</TABLE>
The term loan agreement includes restrictive covenants relating to levels of
stockholders' equity and other financial measurements. It also restricts asset
disposals, capital expenditures, capital restructurings and borrowings and may
preclude payment of dividends on common stock.
During 1994, the State of Arkansas sold $5,000,000 of industrial development
bonds to finance a portion of the construction cost related to the new
structural tube production facility. In May 1994, the Company became obligated
by a lease under these bonds through February 2004, at which time the Company
has the option to purchase the facility for a nominal amount.
The revolving credit agreement provides for advances up to the lesser of
$27,500,000 or the eligible borrowing base. At September 30, 1996, there was
$13,250,000 outstanding under this line of credit at an interest rate of 6.93
percent. Additional available borrowings at that date were $13,800,000. The
agreement includes separate restrictive covenants relating to levels of working
capital and other financial measurements. It also restricts capital
expenditures, asset disposals, capital restructurings and borrowings and
currently precludes payment of dividends on common stock. The revolving credit
agreement requires an annual commitment fee based upon certain financial
measurements.
At September 30, 1996, the Company had outstanding letters of credit for
$450,000, expiring in September 1997.
Principal maturities of long-term debt and revolving credit facility at
September 30, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 1,843
1998 15,260*
1999 1,665
2000 708
2001 760
Thereafter 6,758
----------------
$ 26,994
================
<FN>
* Includes $13,250,000 revolving credit notes which mature on May 31, 1998.
</FN>
</TABLE>
Included in the above principal maturities of long-term debt and revolving
credit facility is the present value of future minimum lease payments under the
capital lease obligations at September 30, 1996 as follows (in thousands):
<TABLE>
<CAPTION>
Present Value of
Total Minimum Minimum Lease
Lease Payments Payments
Interest
------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
1997 $1,320 $758 $562
1998 1,317 712 605
1999 1,313 660 653
2000 1,320 612 708
2001 1,315 555 760
Thereafter 8,099 1,342 6,757
------------------------------------------------------------------
$14,684 $4,639 $10,045
==================================================================
</TABLE>
Property, plant and equipment at September 30, 1996 and 1995 include $19,864,000
and $18,821,000, respectively, under leases that have been capitalized.
Accumulated depreciation for these assets was $1,666,000 and $1,021,000 at
September 30, 1996 and 1995, respectively.
The fair value of the Company's long-term debt is based on estimates using
discounted cash flow analyses, based on quoted market prices for similar issues.
The estimated fair value of long-term debt and revolving credit facility at
September 30, 1996 was $28,266,000.
5. Property, Plant and Equipment
Property, plant and equipment at September 30, 1996 and 1995 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------------------
<S> <C> <C>
Land $ 1,576 $ 1,576
Land and leasehold improvements 700 676
Buildings 22,138 21,068
Transportation equipment 1,209 948
Machinery and equipment 45,582 41,900
Furniture and fixtures 2,266 1,824
--------------------------------
73,471 67,992
Less accumulated depreciation (21,776) (16,824)
--------------------------------
$ 51,695 $ 51,168
================================
</TABLE>
6. Inventories
Inventories at September 30, 1996 and 1995 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------------------
<S> <C> <C>
Finished goods $ 28,323 $ 16,457
Work-in-process 2,671 2,799
Raw materials 10,081 7,554
In-transit materials 6,274 3,458
Storeroom parts 3,275 3,004
--------------------------------
$ 50,624 $ 33,272
================================
</TABLE>
Finished goods at September 30, 1996 includes $7,200,000 of customer-obligated
inventory.
7. Income Taxes
The components of the provision for income taxes for the years ended September
30, 1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 1,297 $ -- $ --
9
State -- --
--
Deferred 585 --
159
------------------------------------------
$ 1,882 $ -- $ 168
==========================================
</TABLE>
The difference between the effective income tax rate and the U.S. federal income
tax rate for the years ended September 30, 1996, 1995 and 1994 is explained as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Provision (credit) at statutory tax rate $ 3,203 $ (794) $ 202
Alternative minimum tax 1,282 -- 9
Operating loss carryforwards (1,192) -- (56)
Increase (decrease) in valuation allowance (1,590) 1,094 --
Other items 179 (300) 13
-------------------------------------------
$ 1,882 $ -- $ 168
===========================================
</TABLE>
Temporary differences which give rise to deferred tax assets and liabilities at
September 30, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
Deferred tax assets:
Various accrued liabilities and reserves $ 1,586 $ 866
Net operating loss carryforwards 2,359 5,523
Alternative minimum tax 2,047 765
Valuation allowance (1,147) (2,737)
------ -------
Total deferred tax assets $ 4,845 $ 4,417
-------- ------
Deferred tax liabilities:
Accelerated depreciation $ 4,372 $ 3,342
Asset valuations 413 430
--- ---
Total deferred tax liabilities 4,785 3,772
--------- -------
Net deferred tax assets $ 60 $ 645
======== =====
</TABLE>
The net change in the valuation allowance for deferred tax assets was $1,590,000
in 1996. The decrease relates primarily to the utilization of net operating loss
carryforwards generated in previous years. Realization of the Company's deferred
tax assets is dependent on utilizing tax planning strategies or generating
sufficient taxable income prior to the expiration of the net operating loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that the net deferred tax assets will be realized.
The Company had available acquired net operating loss carryforwards of
$4,641,000 at September 30, 1996, which it may use to offset future taxable
income. In addition, the Company had $1,735,000 of net operating loss
carryforwards remaining from those generated in 1995, which expire in 2010. In
1997, $2,895,000 of the total net operating loss carryforwards will be available
for utilization. The acquired net operating loss carryforwards are limited to
approximately $1,160,000 annually. Any unused amounts can be carried forward to
increase the limitation in the following taxable year. These net operating loss
carryforwards expire in 2000. The total carryforwards will be applied to
financial statement earnings after temporary differences. At September 30, 1996,
the Company had alternative minimum tax credit carryforwards of $2,047,000
available for income tax purposes, all of which are available for use in 1997.
These credit carryforwards do not expire.
8. Employee Retirement Savings Plans
The Company sponsors a voluntary defined contribution 401(k) plan that is
available to substantially all employees. The Plan may be amended or terminated
at any time by the Board of Directors. The Company, although not required to,
has provided matching contributions to the plan for the years ended September
30, 1996, 1995 and 1994 of $343,000, $245,000 and $240,000, respectively.
9. Segment Information
The following table sets forth data for the years ended September 30, 1996 and
1995 for the reportable industry segments of energy products and industrial
products. Intersegment sales are not material. Identifiable assets are those
used in the Company's operations in each segment.
<TABLE>
<CAPTION>
Energy Industrial
Products Products Corporate Total
1996:
<S> <C> <C> <C> <C>
Net sales $ 147,555 $ 56,627 $ -- $ 204,182
Operating income 10,529 1,413 -- 11,942
Identifiable assets 87,091 32,033 6,432 125,556
Depreciation and amortization 3,375 1,331 495 5,201
Capital expenditures 3,757 894 846 5,497
<CAPTION>
1995:
<S> <C> <C> <C> <C>
Net sales $ 128,234 $ 39,662 $ -- $ 167,896
Operating income (loss) (1) 1,724 (1,666) -- 58
Identifiable assets 70,469 31,954 4,071 106,494
Depreciation and amortization 3,466 953 272 4,691
Capital expenditures 1,197 3,922 473 5,592
<FN>
(1) The operating loss from the industrial products segment includes a $1.2
million charge to earnings for the reduction in carrying value of
inventory, primarily related to a decline in the replacement cost of flat
rolled steel.
</FN>
</TABLE>
Transactions with one significant energy customer for the years ended September
30, 1996 and 1995 represented approximately 16 percent and 12 percent of total
sales, respectively. Transactions with another significant energy customer
represented approximately 12 percent of total sales for the year ended September
30, 1994.
Export sales were $13,244,000, $12,963,000 and $15,850,000 for the years ended
September 30, 1996, 1995 and 1994, respectively. These energy sales were
primarily to Canadian customers.
10. Operating Leases
The Company rents office facilities and equipment under various operating
leases. Future minimum payments under noncancelable operating leases with
initial or remaining terms in excess of one year, are as follows at September
30, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 720
1998 1,122
1999 1,110
2000 1,023
2001 1,010
-------------------
$ 4,985
===================
</TABLE>
Rent expense for all operating leases was $973,000, $742,000 and $484,000 for
the years ended September 30, 1996, 1995 and 1994, respectively.
11. Contingencies
Various claims, incidental to the ordinary course of business, are pending
against the Company. In the opinion of management, after consultations with
legal counsel, resolution of these matters is not expected to have a material
effect on the accompanying financial statements.
12. Stock Option Plans
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
employee and director stock options.
The Company sponsors two employee stock option plans (the "1991 Plan" and the
"1995 Plan") allowing for incentive stock options and nonqualified stock
options. The Company also adopted a stock option plan in 1995 for eligible
directors (the "Director Plan") allowing for nonqualified stock options. The
1991 Plan, 1995 Plan and the Director Plan provide that 170,000, 300,000 and
25,000 shares, respectively, may be issued under the plans at an option price
not less that the fair market value of the stock at the time the option is
granted. The 1991 Plan, 1995 Plan, and the Director Plan expire in December
2000, November 1999 and November 2004, respectively.
Summarized option data as of September 30, 1996 is as follows:
<TABLE>
<CAPTION>
Shares Under Price Per
Option Share
<S> <C> <C>
Options outstanding at
October 1, 1993 80,000 $6.50
Options granted 50,000 $10.13
------ -----
Options outstanding at
September 30, 1994 130,000 $6.50-$10.13
Options granted 269,000 $7.88-$13.50
Options outstanding at
September 30, 1995 399,000 $6.50-$13.50
Options exercised (31,842) $6.50
Options expired (73,158) $6.50-$13.50
Options granted 142,000 $8.00-$14.00
------- ------------
Options outstanding at
September 30, 1996 436,000 $6.50-$14.00
======= ============
</TABLE>
Of the outstanding options, 95,000 are exercisable at September 30, 1996. The
remaining 341,000 options outstanding will be exercisable as follows: 6,000
shares in 1997, 66,331 shares in 1998, 128,330 shares in 1999, 68,337 shares in
2000 and 72,002 shares in 2001.
13. Quarterly Financial Data (Unaudited)
The results of operations by quarter for 1996 and 1995 were as follows
(in thousands):
<TABLE>
<CAPTION>
Quarter Ended
December 31, 1995 March 31, June 30, 1996 September 30,
1996 1996
-------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C>
Net sales $ 44,878 $ 40,856 (1) $ 56,333 $ 62,115
Gross profit 4,225 4,373 (1) 6,583 6,959
Net income 1,101 1,049 (1) 2,555 2,833
Net income per common and common
equivalent share .15 .14 (1) .34 .38
<CAPTION>
Quarter Ended
December 31, 1994 March 31, June 30, 1995 September 30,
1995 1995
------------------------------------------------------------------------
1995
<S> <C> <C> <C> <C>
Net sales $ 44,204 $ 39,249 $ 38,031 $ 46,412
Gross profit 2,452 1,797 1,866 1,916
Net income (loss) 118 (2) (741) (304) (3) (1,407) (4)(5)
Net income (loss) per common and common
equivalent share .02 (.10) (.04) (.19)
<FN>
(1) Net sales, gross profit and net income for the quarter ended March 31,
1996 included a one-time effect of the change in the Company's revenue
recognition practices of $8.7 million, $1.0 million and $839,000,
respectively, or $.11 per share.
(2) Net income for the quarter ended December 31, 1994 included charges for
the start-up of the structural tube production facility of $245,000
($184,000 net income effect or $.02 per share).
(3) Net income for the quarter ended June 30, 1995 included other income of
$800,000 for insurance proceeds applicable to prior periods related to
recovery of an inventory loss ($600,000 net income effect or $.08 per
share).
(4) Net income for the quarter ended September 30, 1995 included a $1.2
million charge to earnings for the reduction in carrying value of
inventory, primarily related to a decline in the replacement costs of flat
rolled steel in the industrial products industry segment ($0.16 per
share).
(5) Net income for the quarter ended September 30, 1995 included a $309,000
charge to expense for the reversal of the recorded 1995 income tax credit
provision ($.04 per share).
</FN>
</TABLE>
Report of Independent Auditors
Board of Directors and Stockholders
Maverick Tube Corporation
We have audited the accompanying consolidated balance sheets of Maverick Tube
Corporation and subsidiary as of September 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Maverick Tube Corporation and subsidiary at September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
October 28, 1996
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Maverick Tube International, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 613
<SECURITIES> 0
<RECEIVABLES> 19,029
<ALLOWANCES> 629
<INVENTORY> 50,624
<CURRENT-ASSETS> 73,191
<PP&E> 73,471
<DEPRECIATION> 21,776
<TOTAL-ASSETS> 125,556
<CURRENT-LIABILITIES> 40,539
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 125,556
<SALES> 207,301
<TOTAL-REVENUES> 204,182
<CGS> 182,042
<TOTAL-COSTS> 10,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,522
<INCOME-PRETAX> 9,420
<INCOME-TAX> 1,882
<INCOME-CONTINUING> 7,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,538
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
Exhibit 23.1
Independent Auditor's Consent
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Maverick Tube Corporation of our report dated October 28, 1996, and of
the reference to our firm under the caption "Historical Financial Information",
both included in the 1996 Annual REport to Shareholders of Maverick Tube
Corporation.
Our audits also included the financial statement schedules of Maverick Tube
Corporation listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-56568) of Maverick Tube Corporation and in the related
Prospectus and in the Registration Statement (Form S-8 No. 33-89526) pertaining
to the Maverick Tube Corporation Amended and Restated 1990 Stock Option Plan,
the Maverick Tube Corporation 1994 Stock Option Plan, and The Maverick Tube
Corporation Director Stock Option Plan of Maverick Tube Corporation of our
reports dated October 28, 1996, with respect to the consolidated financial
statements and schedule of Maverick Tube Corporation included and incorporated
by reference in this Annual Report (Form 10-K) for the year ended September 30,
1996.
/s/ Ernst & Young LLP
St. Louis, Missouri
December 11, 1996
Exhibit 99.1
RISK FACTORS
Dependence of Energy Industry
The Company's principal products consist of OCTG and line pipe, and sales of
these products to the energy industry constitute the most significant source of
Maverick's revenues. Revenues from the sale of OCTG and line pipe to the energy
industry accounted for approximately 72%, 76% and 97% of total sales in fiscal
1996, 1995 and 1994, respectively. Demand for Maverick's OCTG products depends
primarily upon the number of oil and natural gas wells being drilled in the
United States and Canada, the depth and drilling conditions of those wells and
the number of well completions, all of which are in turn primarily dependent on
oil and natural gas prices. Substantial uncertainty exists as to the future
level and volatility of domestic oil and natural gas prices.
Effect of Changing Steel Prices
Purchased steel represents slightly more than two-thirds of Maverick's cost of
goods sold. The steel industry is highly cyclical in nature and steel prices are
influenced by numerous factors, many of which are beyond the control of the
Company, including general economic conditions, industry capacity utilization,
import duties and other trade restrictions and currency exchange rates. Maverick
was unable to recover the majority of the dramatic steel price increases which
occurred in fiscal 1993 through 1995 through price increases in its energy
products. While steel prices decreased in fiscal 1996 by approximately $40 per
ton, various steel producers have recently announced a steel price increase
(approximately $10 per ton) to be effective in January of 1997. It is expected
that this increase likely will negatively impact Maverick's profit margins by
the third and fourth quarters of fiscal 1997 to the extent that Maverick will be
unable to recover these increased steel costs through increased product prices.
There can be no assurance that steel prices will not rise again in the future
and, if so, whether or not Maverick will be successful in implementing price
increases on its products to recover all or some of such rising steel cost.
Conversely, when steel costs decline, the carrying cost for industrial products
inventory may be devalued to reflect the reduced selling prices of industrial
products, if any, which generally follow such steel cost declines.
Competition from Other Manufacturers
The production and marketing of the Company's energy and industrial products is
highly competitive. Some of Maverick's competitors have greater financial and
marketing resources and business diversification than Maverick. Unlike Maverick,
many of its large OCTG competitors are integrated steel producers which do not
purchase their raw materials in the open market. During periods of strong steel
demand and weak steel scrap prices, Maverick may be at a disadvantage to these
integrated competitors.
Competition from Imports
The domestic OCTG market is affected by the level of imports of OCTG products,
which has varied significantly over time. High levels of imports (which existed
in fiscal 1994 and most of fiscal 1995) reduced the volume sold by domestic
producers and suppressed selling prices of OCTG. The Company believes that
domestic import levels are affected by, among other things, overall world demand
for OCTG, the trade practices of and government subsidies to foreign producers,
and the presence and absence of governmentally imposed trade restrictions in the
U.S. In fiscal 1995, trade cases brought by the Company and other producers of
OCTG products were concluded and resulted in import duties on OCTG producers in
certain foreign companies which, in fiscal 1994, accounted for approximately 72%
of foreign OCTG imports. Domestic sales of structural tubing are also affected
by imports, most of which originate in Canada.
Company's Sales Influenced by Industry Inventory Levels
Industry-wide inventory levels of OCTG products can vary significantly from
period to period and have a direct effect on the demand for new production of
such products. As a result, the Company's OCTG sales and net income may be
impacted significantly from period to period. Although the Company believes that
industry-wide OCTG inventory is currently at or below normal levels, there can
be no assurance that OCTG inventory will not again become excessive or that
substantial draw downs of such inventories will not occur. Domestic sales of
structural tubing are also affected by changing industry inventory levels
generally resulting from corresponding changes in steel prices.
Company's Sales Affected by Seasonal Fluctuations
Maverick, as well as the OCTG industry in general, experiences seasonal
fluctuations in demand for its products. Because weather conditions during the
first half of the calendar year make drilling operations more difficult,
domestic drilling activity and the corresponding demand for Maverick's products
are generally lower during the second and third fiscal quarters, as compared
with the first and fourth fiscal quarters. Maverick also believes it experiences
seasonal fluctuations in demand for its industrial products, although the timing
of such fluctuations may differ from fluctuations experienced in the OCTG
industry.
Dependence on Significant Customers
In fiscal 1996 and 1995, one distributor, National Oilwell Supply, Inc.
("National Oilwell"), accounted for approximately 16% and 17% , respectively, of
Maverick's net sales. In fiscal 1994, one distributor, Fedmet, Inc. accounted
for approximately 12% of Maverick's net sales. Maverick currently utilizes
numerous distributors of its products and believes that additional qualified
distributors are available to assist Maverick in meeting end users' needs.
Although Maverick believes that it could replace any one distributor of its
products, including National Oilwell or Fedmet, Inc., with other qualified
distributors, no assurance can be given that the loss of either of these
distributors or any other customer would not have a material adverse effect on
Maverick's net sales or results of operations.
Product Liability
Drilling for oil and natural gas involves a variety of risks. Certain losses may
result or be alleged to result from defects in Maverick's products, thereby
subjecting Maverick to claims for consequential damages. Maverick warrants
certain of its OCTG and line pipe products to be free of certain defects. The
use of structural tubing can also involve risks, and losses may result or be
alleged to result from defects in such pipe and tubing products, thereby
subjecting the manufacturer of such products to claims for consequential
damages. Maverick maintains insurance coverage against potential product
liability claims in amounts which it believes to be adequate. Maverick, has not
historically incurred material product liability costs, nor has it experienced
difficulties in obtaining or maintaining adequate product liability insurance
coverage; however, no assurance can be given that in the future, product
liability in excess of such insurance coverage will not be incurred or that
Maverick will be able to maintain such insurance coverage levels.
Regulatory Matters
The business of Maverick is subject to numerous local, state and federal laws
and regulations concerning environmental and safety matters. Although Maverick
has not incurred material costs of compliance with such laws and regulations,
there can be no assurance that future changes in such laws and regulations will
not have a material effect on Maverick's operations.
