SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For The Fiscal Year Ended September 30, 1997
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the 15,291,072 shares of Common Stock held by
non affiliates of the Registrant as of December 3 was $495,048,456 based
upon the closing price as reported on the NASDAQ National Market on that
date. As of December 3, 1997, the Registrant had 15,437,474 outstanding
shares of Common Stock.
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
As provided herein, portions of the documents listed below are incorporated
herein by reference:
<TABLE>
<CAPTION>
Document Part - Form 10-K
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<S> <C>
Annual Report to Stockholders for the Year Ended September 30, 1997 Parts I, II and IV
Proxy Statement for the 1998 Annual Meeting of Stockholders Part III
</TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARY
INDEX
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
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 subsidiaries, Maverick Investment
Corporation, Maverick Tube, L.P. and 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.
The Company also manufactures 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 Note 9 to the Consolidated Financial Statements on pages 23 and 24
of the Company's 1997 Annual Report to Stockholders ("Annual Report"), portions
of which are filed as Exhibit 13, hereto.
Effective October 1, 1997, the operating assets and related liabilities of the
Company's two operating divisions (i.e. its Texas division and its Arkansas
Division), which constitutes substantially all of the assets and liabilities of
the Company, were contributed to Maverick Tube, L.P., a limited partnership (the
"Operating Company"). Maverick Tube Corporation holds a five percent equity
interest in the Operating Company as the sole general partner thereof. Maverick
Investment Corporation, a wholly-owned subsidiary of Maverick Tube Corporation,
holds the ninety-five percent equity interest in the Operating Company as the
sole limited partner thereof. This restructure was effected to more accurately
reflect the manner in which the Company conducts its business. As a result of
this restructure, Maverick now conducts substantially all of its operations
through the Operating Company.
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 1995, inventory liquidations of the 1993 inventory
build continued at a decreasing rate with a resulting market penetration of
0.1%. For calendar year 1996 and the nine months ended September 30, 1997,
increasing industry inventory levels added 4.7% and 17.3% in OCTG demand.
Despite this build, the Company believes that inventory levels at September 30,
1997 resulted in a lesser percentage increase in inventory per rig of only 13.3%
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 (yield 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 (yield 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 and then end
finishing such pipe into OCTG in a manner similar to ERW. 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-nine 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 significant 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 principally 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 26,501 tons of line pipe in fiscal 1997, as compared to 30,112
tons and 41,458 tons of line pipe in fiscal 1996 and 1995, respectively. The
decreased sales by the Company of line pipe in the past two years was
principally due to a shift in manufacturing capacity as it concentrated on the
improving OCTG market.
Products
The Company produces both OCTG and line pipe products. Prior to 1994, OCTG
products constituted approximately 90% of the Company's net sales. 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. During fiscal 1997, the percentage continued to
increase to 71.8% due to continued improvements in OCTG demand and increases by
the Company in the number of OCTG products offered.
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 15,000 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 both carbon and 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
quality, cost and service to customers. Both of the Company's energy facilities
provide heat-treatment capabilities necessary for the production of alloy grade
pipe. The Company's alloy grade tubing and casing products accounted for 23%,
27% and 23% of net sales in fiscal 1997, 1996 and 1995, 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, 1997, 1996 and 1995, sales by the Company to Canadian
customers constituted $26.3 million, $12.9 million and $12.1 million,
respectively. Sales to other foreign customers in fiscal 1997, 1996 and 1995
made up an additional $400,000 $300,000, 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, 1997, 1996 and 1995, the Company's backlog orders (including bill
and hold sales not yet shipped) were approximately $62.7 million, $57.6 million
and $20.4 million, respectively. All of the backlog orders as of September 30,
1997 are expected to be filled in fiscal 1998. 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.
In fiscal 1997, 1996 and 1995, one distributor, National Oilwell, accounted for
14%, 16% and 12% of the Company's net sales, respectively. In fiscal 1997,
another distributor, Master Tubulars, Inc. accounted for 11% of the Company's
net sales. The Company currently utilizes several distributors of its products
and believes that additional qualified distributors are available to assist the
Company in meeting the end-user's needs. While the Company believes that it
could replace any one distributor of its products, including National Oilwell or
Master Tubulars, Inc. with other qualified distributors, no assurance can be
given that the loss of National Oilwell or Master Tubulars, Inc. would not have
an adverse effect on the Company's net sales or results of operations.
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 72% of consolidated purchases 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 currently produce
at a consolidated maximum rate of approximately 600,000 tons of pipe per year
with approximately 420,000 currently dedicated to energy production The Company
is currently operating its facilities at a capacity utilization of approximately
92%. Substantially all of the Company's energy 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 1997, 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 and cost savings.
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 75% of an employee's annual
pre-incentive, pre-bonus gross wages.
During fiscal 1997, the Company spent $8.4 million on new capital equipment,
excluding equipment for its structural tube facility. These capital expenditures
are expected to result in manufacturing cost savings, quality improvements and
expanding or maintaining 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. and Newport Steel Co. 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 1995, 1996 and the first nine months of 1997,
domestic OCTG market penetration by imports was 11.6%, 11.8% and 18.9%,
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, as tubing products 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 1996, 1995 and 1994 was 1.4 million, 1.5 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 limited new
competition from plastic pipe in certain applications.
The Company believes that domestic consumption of standard pipe during calendar
1996, 1995 and 1994 was 2.6 million, 2.6 million, and 2.3 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 structural tube facility located in
Hickman, Arkansas. 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 this facility dedicated to
structural tubing is approximately 180,000 tons. The Company is currently
operating at approximately 82% 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. The Company currently sells principally to distributors,
but during fiscal 1997 significantly increased its sales to large end-user
customers. 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, 1997, the
Company's backlog orders was approximately $9.0 million. All of the backlog
orders as of September 30, 1997 are expected to be filled in fiscal 1998. 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
facility provides a conversion cost advantage relative to the majority of
existing structural tubing and standard pipe manufacturers.
During fiscal 1997, the Company spent approximately $363,000 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 26%, 29% and 23% of total domestic sales of structural tubing in
calendar 1996, 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, Bull Moose
Tube Corporation and Ex-L-Tube, Inc.
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 25%, 29% and 50% of
total domestic sales of standard pipe in calendar 1996, 1995 and 1994. The
Company's more significant domestic competitors are Wheatland Tube Company,
Armco, Inc. Sawhill Tubular Division, Laclede Steel Company and IPSCO Tubulars,
Inc.
Employees
As of September 30, 1997, the Company had approximately 1,079 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 160 acre site in Hickman, Arkansas includes two
buildings with approximately 315,000 square foot of OCTG manufacturing and
storage space, utilizing 55 acres. The 275,000 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 80 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 244,000 square foot manufacturing facility located in Conroe, Texas.
Of the 117 acres, approximately 30 acres are used for manufacturing and storage
and 60 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 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 1997 covered
by this Report to a vote of the Company's security holders through the
solicitation of proxies or otherwise.
ITEM 4A
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title
Gregg Eisenberg 47 Chairman of the Board
President and
Chief Executive Officer
Charles O. Struckhoff 48 Vice President - Finance and
Administration, Treasurer,
Secretary and Chief
Financial Officer
Sudhakar Kanthamneni 50 Vice President - Manufacturing
and Technology
T. Scott Evans 50 Vice President - Commercial
Operations
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.
Mr. Evans has served as Vice President - Commercial Operations of the Company
since September 1992.
PART II
ITEM 5
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding Maverick's Common Stock included on page 28 of Maverick's
1997 Annual Report under the captions "Market for the Company's Common Equity"
and "Related Stockholder Matters" is incorporated herein by this reference.
ITEM 6
SELECTED FINANCIAL DATA
Selected Financial Data included on page 27 of the Annual Report is incorporated
herein by this reference.
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 included on pages 12 through 16 of the Annual Report is incorporated
herein by this reference.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, the notes thereto and the Report of Ernst
& Young, LLP included on pages 17 through 26 of the Annual Report is
incorporated herein by this reference.
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 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. See also, 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,
1997, are incorporated herein by reference in Item 8:
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 1997
and 1996.
Consolidated Statements of Operations for the years
ended September 30, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for
the years ended September 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years
ended September 30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements as of
September 30, 1997.
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, 1997, 1996 and 1995.
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 Deferred Compensation Agreement with
Certain 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, 1997
<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
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995: Deducted from asset accounts:
Accounts receivable allowances $ 253 $ 53 $ -- $ -- $ 306
Valuation allowance for deferred
taxes $1,643 $ -- $ -- $1,094 (1) $2,737
Year ended September 30, 1996: Deducted from asset accounts:
Accounts receivable allowances $ 306 $ 339 $ -- $ 125 (3) $ 629
Valuation allowance for deferred
taxes $2,737 $ -- $ -- $(1,590)(2) $1,147
Year ended September 30, 1997: Deducted from asset accounts:
Accounts receivable allowances $ 629 $ 44 $ -- $ 285 (3) $ 388
Valuation allowance for deferred
taxes $1,147 $ -- $ -- $(1,147)(2) $ --
<FN>
(1) Resulted from an additional net operating loss carryforward generated
from the current year which was not valued for financial statement
purposes.
(2) Resulted from the utilization of net operating and alternative
minimum loss carryforwards and re-evaluation of remaining deferred
tax assets.
(3) Uncollectible accounts written off, net of recoveries.
</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 5, 1997.
Maverick Tube Corporation
(registrant)
December 5, 1997 /s/ Gregg M. Eisenberg
-------------------------------
Gregg M. Eisenberg, Chairman, President
and 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 5,1997 /s/ Gregg M. Eisenberg
-------------------------------------
Gregg M. Eisenberg, Chairman, President
and Chief Executive Officer
December 5, 1997 /s/ Charles O. Struckhoff
-------------------------------------
Charles O. Struckhoff, Vice President
Finance and Administration (Principal
Financial and Accounting Officer)
December 5, 1997 /s/ William E. Macaulay
-------------------------------------
William E. Macaulay, Director
December 5, 1997 /s/ John M. Fox
-------------------------------------
John M. Fox, Director
December 5, 1997 /s/ C, Robert Bunch
-------------------------------------
C. Robert Bunch, Director
December 5, 1997 /s/ C. Adams Moore
-------------------------------------
C. Adams Moore, Director
December 5, 1997 /s/ David H. Kennedy
-------------------------------------
David H. Kennedy, Director
December 5, 1997 /s/ Wayne P. Mang
------------------------------------
Wayne P. Mang, Director
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the N/A
Registrant, incorporated herein by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, File No. 33-37363
(the "1991 Registration Statement").
3.2 Amended and Restated Bylaws of the Registrant, incorporated N/A
herein by reference to Exhibit 3.3 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991 (the "1991
Form 10-K.")
4.1 Form of Stock Certificate for Common Stock, incorporated herein by N/A
reference to Exhibit 4.1 to the 1991 Registration Statement.
10.1 Secured Credit Agreement ("Secured Credit Agreement") dated May
15, N/A 1992, by and among the Registrant, Harris Trust and
Savings Bank ("Harris Trust") and Mercantile Bank of St. Louis,
N.A. ("Mercantile Bank"), incorporated herein by reference to
Exhibit 10.4 to the Registrant's Annual Report for the fiscal year
ended September 30, 1992 (the "1992 Form 10-K.")
10.2 Lease and Agreement dated July 24, 1992, by and between the Registrant N/A
and the Arkansas Development Finance Authority (the "Authority"),
incorporated herein by reference to Exhibit 10.7 to the 1992 Form 10-K.
10.3 Maverick Tube Corporation Amended and Restated 1990 Stock Option
N/A Plan, incorporated herein by reference to Exhibit 10.21 to the
1991 Form 10-K.
10.4 First Amendment to Secured Credit Agreement dated as of April 30,
N/A 1993, incorporated herein by reference to Exhibit 10.9 of the
Registrant's Registration Statement on Form S-2, File No. 33-80096
(the "1994 Registration Statement").
10.5 Second Amendment to Secured Credit Agreement dated as of N/A
December 31, 1993, incorporated herein by reference to Exhibit 10.10
of the 1994 Registration Statement.
10.6 Third Amendment to Secured Credit Agreement dated as of N/A
May 26, 1994, incorporated herein by reference to Exhibit 10.11 of
the 1994 Registration Statement.
10.7 Maverick Tube Corporation Savings for Retirement Plan effective on N/A
February 15, 1988, as amended, incorporated herein by reference
to Exhibit 10.11 to the 1993 Form 10-K.
10.8 Lease Agreement dated as of March 1, 1994, between the Authority, N/A
as lessor, and the Registrant as lessee, related to the New Facility,
incorporated herein by reference to Exhibit 10.14 to the 1994
Registration Statement.
10.9 First Supplemental Trust Indenture to Lease Agreement between the N/A
Authority, as lessor and the Registrant, as lessee relating to the
New Facility dated July 1, 1994, incorporated by reference to Exhibit
10.1 to the June 30, 1994 Form 10-Q
10.10 Fourth Amendment to Secured Credit Agreement dated as of June 29, N/A
1994, incorporated herein by reference to Exhibit 10.13 of the 1994
Form 10-K.
10.11 Supplement to the Second Term Loan Agreement dated December 15,
1994, N/A incorporated herein by reference to Exhibit 10.16 of the
1994 Form 10-K.
10.12 Maverick Tube Corporation 1994 Stock Option Plan, incorporated
herein N/A by reference to Exhibit 10.17 of the 1994 Form 10-K.
10.13 Maverick Tube Corporation Director Stock Option Plan, incorporated
N/A herein by reference to Exhibit 10.18 of the 1994 Form 10-K.
10.14 Fifth Amendment to Secured Credit Agreement dated as of November
10, 1995, N/A incorporated herein by reference to Exhibit 10.19 of
the 1995 Form 10-K.
10.15 Sixth Amendment to Secured Credit Agreement dated as of October
16, 1996, N/A incorporated herein by reference to Exhibit 10.21 of
the 1996 Form 10-K.
10.16 Form of Deferred Compensation Agreement between the Registrant and
N/A Messrs. Gregg M. Eisenberg, T. Scott Evans and Sudhakar
Kanthamneni Dated October 1, 1995, incorporated herein by
reference to Exhibit 10.22 of the 1996 Form 10-K.
10.17 Amendment #1 to Maverick Tube Corporation's Director Stock Option N/A
Plan, incorporated herein by reference to Exhibit 10. 24 of the 1996 Form 10-K.
10.18 Seventh Amendment to Secured Credit Agreement dated as of April 27
1997, N/A incorporated herein by reference to Exhibit 10 of the
1997 Form 10-Q for the period ended June 30, 1997.
10.19 Eighth Amendment to Secured Credit Agreement dated as of August 12, 1997,
filed herewith.
10.20 Ninth Amendment to Secured Credit Agreement dated as of October 1, 1997,
filed herewith
10.21 Amendment #1 to Maverick Tube Corporation's 1994 Stock Option Plan,
filed herewith
11.1 Statement re: Computation of Per Share Earnings (Loss).
13 Portions of Registrant's 1997 Annual Report to Shareholders which are incorporated by
reference herein.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
27.1 Financial Data Schedule
99.1 Risk Factors
</TABLE>
Exhibit 10.22
EIGHTH 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) The first paragraph of Section 1.1(1) of the Agreement is hereby
amended by deleting the date "May 31, 1998" appearing in the last line thereof
and substituting therefore the date "May 31, 1999".
(b) The Secured Revolving Credit Note of the Borrower to Harris Trust
and Savings Bank, dated May 15, 1992, is hereby amended by deleting the date
"May 31, 1998" appearing in the first paragraph thereof and substituting
therefore the date "May 31, 1999".
(c) 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, 1998" appearing in the first paragraph thereof
with the date "May 31, 1999."
(d) Exhibit A to the Agreement is hereby amended by deleting the date
"May 31, 1998" appearing in the first paragraph thereof and substituting
therefore the date "May 31, 1999".
(e) Each bank shall place the following legend on its Secured Revolving
Credit Note:
"This Secured Revolving Credit Note has been amended as provided for in that
certain Eighth Amendment to Secured Credit Agreement and Secured Revolving
Credit Notes dates as of August 12, 1997, including a change to the maturity
date hereof, to which Amendment reference is hereby made for a statement of the
terms thereof."
2. CONDITIONS PRECEDENT
The effectiveness of this Eighth Amendment is subject to the
satisfaction of all of the following conditions precedent:
(a) The Borrower and the Banks shall have executed this Eighth 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 Eighth
Amendment, the Borrower hereby represents to the Banks that as of the date
hereof and as of the time that this Eighth 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 Eighth 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) Counterparts; Governing Law. This Eighth 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 August 12, 1997.
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
Exhibit 10.23
MAVERICK TUBE CORPORATION
NINTH AMENDMENT TO SECURED CREDIT AGREEMENT
Harris Trust and Savings bank
Chicago, Illinois
Mercantile Bank National Association
(formerly known as Mercantile Bank of St. Louis
National Association)
St. Louis, Missouri
Ladies and Gentlemen:
Reference is hereby made to that certain Secured Credit Agreement
dated as of May 15, 1992, as heretofore amended (the "Credit Agreement") among
the undersigned, Maverick Tube Corporation, a Delaware corporation (the
"Borrower"), you (the "Banks") and Harris Trust and Savings Bank, as agent for
the Banks (the "Agent"). All defined terms used herein shall have the same
meaning as in the Credit Agreement unless otherwise defined herein.
Concurrently herewith the Borrower is transferring all or substantially
all of its assets and liabilities to Maverick Tube, L.P., a Delaware limited
partnership ("L.P.") in which Maverick Investment Corporation, A Delaware
corporation ("Investment") and a wholly-owned subsidiary of the Borrower, is the
sole limited partner and in which the Borrower is the sole general partner,
having a 95% and 5% equity interest, respectively, therein. In connection with
such transfers the Banks have required the L.P. and Investment guaranty the
payment when due of all of the Borrower's indebtedness, obligations and
liabilities to the Banks. The Borrower, the Agent and the Banks now wish to
amend the Credit Agreement to reflect such transfers and such guaranty by L.P.
and Investment, all on terms and conditions set forth in this Amendment.
Section 1. AMENDMENTS TO CREDIT AGREEMENT.
Upon satisfaction of all of the conditions precedent set forth in
Section 2 hereof, the Credit Agreement shall be
amended as follows:
1.1 Section 4 of the Credit Agreement shall be amended by adding
thereto the following definitions:
""Guarantors" shall mean Maverick Tube L.P., a Delaware
limited partnership, and Maverick Investment Corporation, A Delaware
corporation, and "Guarantor" shall mean any of the Guarantors.
"Subsidiary Guaranty" shall mean the Guaranty Agreement dated
as of October 1, 1997 from the Guarantors to the Banks, as the same may be
supplemented and amended from time to time."
1.2 Section 4.50 of the Credit Agreement shall be amended by adding the
phrase "the Subsidiary Guaranty," after the phrase "the Revolving Notes,"
appearing therein.
1.3 Section 5.9 of the Credit Agreement shall be amended and as
so amended shall be restated in its entirety to read as
follows:
"Section 5.9. Subsidiaries. As of the date hereof, the Borrower's
only Subsidiaries are identified on Exhibit E hereof. Each of said
Subsidiaries is duly organized and validly existing under the laws of
the state or country of its incorporation, has full and adequate cor-
porate power to carry on its business as now conducted, is duly licensed
or qualified to do business in all jurisdictions wherein the nature of its
activities requires such licensing or qualification except when the fail-
ure to be so licensed or qualified would not have material adverse
effect on the condition, financial or otherwise, of such Subsidiary. Each
Guarantor has full right, power and authority to enter into the Subsidiary
Guaranty, to guaranty the payment of the Borrower's indebtedness, obliga-
tions and liabilities to the Agent and the Banks, and to perform each and
all of the matters and things therein provided for; and the Subsidiary
Guaranty does not, nor does the performance or observance by any Guarantor
of any of the matters or things provided for therein, contravene any
provision of law or any charter, partnership agreement or b-law provi-
sion or any covenant, indentures or agreement of or judgment, order or
decree applicable to or affecting any Guarantor or any of their
respective Property."
1.4 Section 5.11 of the Credit Agreement shall be amended and as so
amended shall be restated in its entirety to read as follows:
"Section 5.11. Enforceability. This Agreement, when executed and
delivered by the Borrower, will be a legal, valid and binding agreement
of the Borrower, enforceable against it in accordance with its terms,
except as may be limited by (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws or judicial
decisions for the relief of debtors or the limitation of creditors'
rights generally; and (ii) any equitable principles relating to or
limiting the rights of creditors generally or any equitable remedy
which may be granted to cure any defaults; and the Revolving Notes, the
other Loan Documents to which the Borrower is a party and any other
instrument or agreement required hereunder to which the Borrower is a
party has been so authorized and, when executed and delivered, will be
similarly valid, binding and enforceable against the Borrower, except
as may be limited by (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other similar laws or judicial
decisions for the relief of debtors or the limitation of creditors'
rights generally; and (ii) any equitable principles relating to or
limiting the rights of creditors generally or any equitable remedy
which may be granted to cure any defaults; and the Subsidiary Guaranty,
when executed and delivered by each Guarantor, will be a legal, valid
and binding agreement of such Guarantor, enforceable against it in
accordance with its terms, except as may be limited by (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws or judicial decisions for the relief of debtors or the
limitation of creditors' rights generally; and (ii) any equitable
principles relating to or limiting the rights of creditors generally or
any equitable remedy which may be granted to cure any defaults.
1.5 Section 7.15 of the Credit Agreement shall be amended by deleting
the word "and" appearing after the semi-colon at the end of subsection (i)
thereof, by replacing the period appearing at the end of subsection (j) thereof
with the phrase "; and" and by adding thereto the following provision as
subsection (k) thereof:
"(k) indebtedness of the Guarantors to the Borrower and indebted-
ness of the Guarantors to the Agent and the Banks under the Subsidiary
Guaranty."
1.6 Section 7.16 of the Credit Agreement shall be amended by deleting
the word "and" appearing after the semi-colon at the end of subsection (g)
thereof, by replacing the period appearing at the end of subsection (h) thereof
with the phrase "; and" and by adding thereto the following provision as
subsection (i) thereof:
"(i) investments in and loans and advances to the Guarantors."
1.7 Section 7.17 of the Credit Agreement shall be amended by deleting
the word "and" appearing after the semi-colon at the end of subsection (a)
thereof, by replacing the period appearing at the end of subsection (b) thereof
with the phrase "; and" and by adding thereto the following provision as
subsection (c) thereof:
"(c) the transfer of all or substantially all of the Borrower's
assets and liabilities to the Guarantors."
1.8 The Credit Agreement shall be amended by adding the following
provision thereto as Section 7.26 thereof:
"Section 7.26. Guarantor Collateral. No later than November 30, 1997,
each Guarantor shall grant to the Agent for the benefit of the Banks a
security interest in its inventory and accounts and related proper-
ties pursuant to security agreements substantially identical to the
Security Agreement and shall take such actions as the Agent
may reasonably request in order to perfect the Agent's security
interests therein."
1.9 Section 8.1 of the Credit Agreement shall be amended by deleting
the word "or" appearing after the semi-colon at the end of subsection (h)
thereof, by replacing the period appearing at the end of subsection (i) thereof
with the phrase "; or" and by adding thereto the following provision as
subsection (j) thereof.:
"(j) Any Guarantor shall breach, repudiate, disavow or purport to
terminate its obligations under the Subsidiary Guaranty or any part
thereof, or the Subsidiary Guaranty or any part thereof shall for any
reason not be the legal, valid and binding obligation of any Guarantor
Subsidiary."
1.10 Exhibit E to the Credit Agreement shall be replaced by Exhibit
E attached to this Amendment.
SECTION 2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
2.1 The Borrower, the Agent and the Banks shall have executed this
Amendment (such execution may be in several counterparts and the several parties
hereto may execute on separate counterparts).
2.2 L.P. and Investment shall have executed and delivered to the
Agent for the benefit of the Banks a Guaranty Agreement satisfactory in form
and substance to each of the Banks.
2.3 The Agent for the benefit of the Banks shall have received:
(a) a good standing certificate or certificate of existence for the
Borrower and each Guarantor dated as of the date no earlier than
September 1, 1997, from the office of the Secretary of State of the
states of their respective organization;
(b) copies of the Certificate of Incorporation or Certificate of
Limited Partnership, and all amendments thereto, of each Guarantor,
certified by the office of the Secretary of State of Delaware as of the
date no earlier than September 1, 1997.
(c) copies of the By-Laws or Limited Partnership Agreement, and all
amendments thereto, of each Guarantor certified as true, correct and
complete on the date hereof by the Secretary of each Guarantor;
(d) copies, certified by the Secretary or Assistant Secretary of the
Borrower and each Guarantor, of resolutions regarding the transactions
contemplated by this Amendment, duly adopted by the Board of Directors
of the Borrower an each Guarantor, respectively, and satisfactory in
form and substance to all of the Banks;
(e) an incumbency signature certificate for the Borrower and each
Guarantor satisfactory in form and substance to all of the Banks; and
(f) the favorable written opinions of counsel for the Borrower and the
Guarantors in form and substance satisfactory to each of the Banks and
their respective legal counsel.
2.4 The Borrower shall be in full compliance with all of the terms and
conditions of the Loan Documents and no Event of Default or Potential Default
shall have occurred and be continuing thereunder or shall result after giving
effect to this Amendment.
2.5 Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to each of the Banks and their legal counsel.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
The Borrower, by its execution of this Amendment, hereby certifies and
warrants the following:
(a) each of the representations and warranties set forth in Section 5
of the Credit Agreement is true and correct as of the date hereof as if
made on the date hereof, except that the representations and warranties
made under Section 5.2 shall be deemed to refer to the most recent
annual report furnished to the Banks by the Borrowers; and
(b) the Borrower is in full compliance with all of the terms and
conditions of the Credit Agreement and no Event of Default or Potential
Default has occurred and is continuing thereunder.
SECTION 4. MISCELLANEOUS.
4.1 The Borrower has heretofore executed and delivered to the Agent the
Security Agreement and the Equipment Security Agreement, and the Borrower hereby
agrees that notwithstanding the execution and delivery hereof, such Security
Agreements shall be and remain in full force and effect and that any rights and
remedies of the Agent 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, shall not be affected, impaired or discharged
thereby and shall secure all of its indebtedness, obligations and liabilities to
the Agent and the banks under the Credit Agreement as amended hereby. Nothing
herein contained shall in any manner affect or impair the priority of the liens
and security interests created and provided for by the Security Agreement or the
Equipment Security Agreement as to the indebtedness which would be secured
thereby prior to giving effect hereto.
4.2 Reference to this specific Amendment need not be made in any note,
document, letter, certificate, any security agreement, or any communication
issued or made pursuant to or with respect to the Credit Agreement, any
reference to the Credit Agreement being sufficient to refer to the Credit
Agreement as amended hereby.
4.3 This Amendment may be executed in any number of counterparts, and
by the different parties on different counterparts, all of which taken together
shall constitute one and the same agreement. Any of the parties hereby may
execute this agreement by signing any such counterpart and each of such
counterparts shall for all purposes by deemed to be an original. This agreement
shall be governed by the internal laws of the State of Illinois.
4.4 The Borrower agrees to pay all reasonable costs and expenses,
including without limitation attorneys fees, incurred by the Agent and each of
the Banks in connection with the preparation, negotiation, execution and
delivery of this Amendment and the other documents contemplated hereby.
Upon acceptance hereof by the Agent and the Banks in the manner
hereinafter set forth, this Amendment shall be a contract between us for the
purposes hereinabove set forth.
Dated October 1, 1997.
MAVERICK TUBE CORPORATION
By: /s/ Gregg Eisenberg
Its: President
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 NATIONAL
ASSOCIATION
By: /s/ David Higbee
Its: Vice President
Exhibit 10.24
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 July.
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 11.1
Maverick Tube Corporation
and Subsidiary
Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
Year ended September 30
(In thousands except per share data)
-------------------------------------------
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Primary:
Average shares outstanding 15,018 14,940 14,880
Net effect of stock options 264 60 40
-------------------------------------------
15,282 15,000 14,920
===========================================
Net income (loss) used in per share calculations
$ 14,885 $ 7,538 $(2,334)
===========================================
Net income (loss) per common and common equivalent
share $ .97 $ .51 $ (.16)
===========================================
Fully Diluted:
Average shares outstanding 15,018 14,940 14,880
Net effect of stock options 379 200 40
-------------------------------------------
15,397 15,140 14,920
===========================================
Net income (loss) used in per share calculations
$ 14,885 $ 7,538 $ 429
===========================================
Net income (loss) per common and common equivalent
share $ .97 $ .50 $ (.16)
===========================================
</TABLE>
EXHIBIT 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." Prior to October 5, 1994,
the Company's shares were listed on the American Stock Exchange.
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 1997 and fiscal 1996, respectively, were as follows:
Fiscal 1997 Fiscal 1996
Quarter High Low High Low
First 8 1/4 5 5/8 4 1/16 3 1/16
Second 9 1/2 6 1/8 6 1/8 3 11/16
Third 19 3/8 8 3/4 6 3/4 5 9/16
Fourth 41 3/4 17 1/8 7 5/16 5 1/4
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 anticipate 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 134 holders of record of the Company's common stock as of September
30, 1997.
Maverick Tube Corporation and Subsidiary
Historical Financial Information
The following selected financial data are derived from the Company's
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors. The selected data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Year Ended September 30
1997 1996(2) 1995(1) 1994 1993
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $291,060 $204,182 $167,896 $124,843 $133,729
Cost of goods sold 252,803 182,042 159,865 117,833 121,596
Gross profit 38,257 22,140 8,031 7,010 12,133
Selling, general and administrative 13,966 10,198 7,728 4,896 6,059
Structural start-up costs -- -- 245 392 --
Relocation and restructuring costs -- -- -- -- 744
Income from operations 24,291 11,942 58 1,722 5,330
Interest expense 2,067 2,522 3,164 1,125 861
Other income -- -- 772 -- --
Income (loss) before income taxes 22,224 9,420 (2,334) 597 4,469
Provision for income taxes 7,339 1,882 -- 168 894
Net income (loss) $14,885 $7,538 $(2,334) $429 3,575
Net income (loss) per common and
common equivalent share (3) $0.97 $0.51 $(0.16) $0.04 $0.29
Weighted average common and common
equivalent shares outstanding (3) 15,281,653 15,000,812 14,920,274 12,844,822 12,355,994
Other Data:
Depreciation and amortization 5,697 5,201 4,691 3,395 3,055
Capital expenditures 9,537 5,497 5,592 20,759 11,730
Balance Sheet Data:
(End of period)
Working capital 44,992 32,652 30,272 23,111 20,960
Total assets 162,064 125,556 106,494 99,434 78,124
Revolving credit facility 10,000 13,250 15,000 4,000 5,000
Current maturities of long-term debt 604 1,843 2,795 1,880 1,216
Long-term debt (less current maturities) 8,879 11,901 18,045 19,640 11,670
Stockholders' equity 77,868 57,247 49,503 51,837 42,693
<FN>
(1) Includes the first period of 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 $0.06, respectively.
(3) On August 1, 1997, the Company declared a two for one stock dividend
effective in the form of a 100% stock dividend to all stockholders of
record as of August 12, 1997. All share and per share amounts have been
restated to reflect this stock dividend.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding matters that are not
historical facts (including statements as to the beliefs or expectations of the
Company) are forward-looking statements. Because such forward-looking statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. For example,
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, the future impact of industry-wide draw-downs
of inventories and future import levels. Uncertainty also exists as to the trend
and direction of both product pricing and purchased steel costs. Reference is
made to the "Risk Factors" discussed in Exhibit 99.1 of Maverick's Form 10-K for
its fiscal year ended September 30, 1997.
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 factor in
determining demand for the Company's OCTG products, increased in fiscal 1997 by
19.2% from fiscal 1996. Significant factors in this improvement in drilling was
an 18.5% increase in gas related drilling and a 23.6% increase in drilling for
oil. Energy prices improved for the year with oil up 7.9% and gas up 10.8%. The
increases in energy prices had a positive affect on drilling levels. At the end
of fiscal 1997, drilling was at 998 rigs, up 21.4% from its fiscal 1996 year end
level. Energy prices were mixed, with oil down 16.9% and gas up 54.4%.
Management estimates that consumption of OCTG rose faster than the drilling
rates by an estimated 21.4% during fiscal 1997 due to increased rig efficiency
and higher completion rates. Published information suggests that demand for line
pipe was also up during fiscal 1997 by an estimated 17.9%.
Competition from imports increased significantly during fiscal 1997 from 11.1%
in 1996 to 17.2%. Management believes that this increase is primarily
attributable to higher OCTG prices in the United States. Industry inventory
build positively impacted demand, as increases in inventories resulted in
additional demand of 14.2% of total domestic OCTG shipments as compared to 4.6%
in fiscal 1996. Management believes that inventories remain at low levels in
relation to current consumption rates, as inventories per rig have only
increased by approximately 5%.
As a result of increased drilling activity, increased inventories and increased
consumption per rig offset somewhat by increased imports, management estimates
that total domestic shipments of OCTG rose during fiscal 1997 by 29.0% as
compared to fiscal 1996. Maverick's shipments of OCTG were up 53.9% primarily
due to the strength of our energy product segment (including Canada) and the
early benefits of new product offerings. Management estimates that Maverick's
OCTG market share increased by approximately 15% during fiscal 1997.
Management estimates that the demand for structural tube products (commonly
referred to as hollow structural sections or HSS) of the type produced by the
Company increased by 10.4% in fiscal 1997 and total domestic producer shipments
rose by 11.0%. According to published reports, the standard pipe market demand
increased by an estimated 1.5% and total domestic producer shipments remained
relatively constant.
Pricing of the Company's products was mixed during the year. Pricing of OCTG,
due to increased product pricing and a favorable product mix, rose by
approximately 2.9%. Line and standard product pricing increased by 10.5% and
11.2%, respectively primarily due to high levels of demand in fiscal 1997.
Structural product pricing decreased by 1.9%, primarily due to increased
competitive pressures caused by excess supply in the industry.
Steel costs included in cost of goods sold increased during fiscal 1997 by $17
per ton or 5.1%. Replacement costs for steel fluctuated during the year as the
cost increased by $10 per ton in late December and remained at that level until
September. However, the Company's major supplier of steel has announced two
price decreases since mid-September which reduced the Company's current
replacement cost of steel by $35 per ton. Based on year end inventory levels and
the recently announced price decreases, the Company estimates that such price
reductions will be fully reflected in the Company's cost of goods sold in the
second quarter of fiscal 1998. The supply of steel is increasing significantly
as four new steel mills either have begun or are scheduled to begin production
ultimately resulting in the planned annual sale of 6.2 million tons of
additional hot rolled steel. The Company anticipates that these additions have
the potential to further lower the Company's purchase price of hot rolled steel
in the future.
The favorable market conditions discussed above enables Maverick to capitalize
on its position as an efficient producer of quality energy and industrial
tubular steel products. However, future levels of oil and gas prices are, by
their nature, volatile and can have a substantial effect upon drilling levels
and resulting demand for Maverick's energy related products. Uncertainty also
exists as to the future demand levels for HSS and other industrial related
products. Although the Company believes that these favorable market conditions
should continue throughout fiscal 1998 and beyond, no assurance can be given
that such will be the case.
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:
Year Ended September 30,
1997 1996 1995
---------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 86.9 89.2 95.2
----------------------------------------
Gross profit 13.1 10.8 4.8
Selling, general and
administrative 4.8 5.0 4.6
Structural start-up costs -- -- .2
-------------------------------------------
Income from operations 8.3 5.8 --
Other income -- -- .5
Interest expense, net .7 1.2 1.9
-------------------------------------------
Income (loss) before
income taxes 7.6 4.6 (1.4)
Provision for income taxes 2.5 .9 --
-------------------------------------------
Net income (loss) 5.1 3.7 (1.4)
===========================================
Fiscal Year Ended September 30, 1997 compared to Fiscal Year Ended September 30,
1996
In fiscal 1997, net sales increased $86.9 million or 42.5%, from the preceding
fiscal year. Energy product sales increased $76.3 million or 51.7%; while
industrial products sales increased $10.6 million or 18.6%. These results were
attributable primarily to an increase of 36.1% in total product shipments, from
345,232 tons in fiscal 1996 to 469,958 tons in fiscal 1997. OCTG product
shipments increased 108,036 tons or 53.9%. During fiscal 1997, an increase in
consumption of OCTG resulted from the average rig count rising by 146 or 19.2%
and a build in existing inventories held by distributors. Also export sales,
primarily to Canada, increased by 95.8%, from 20,985 tons in fiscal 1996 to
41,092 tons in fiscal 1997, as Canadian drilling rose by 18.8%. Line pipe
shipments decreased by 12.0% principally due to lack of available capacity at
Maverick. Industrial products shipments increased 17.7%, from 114,728 tons in
fiscal 1996 to 135,029 tons in fiscal 1997. Total sales and total shipments were
positively impacted by Maverick's strengthened position in the industrial
products market. Overall average selling prices increased during fiscal 1997 by
4.7% (from an average of $591 to $619 per ton). This increase augmented the
increase in volume of total sales. The average selling price for energy products
was $668, an increase of $28 per ton. The increase was principally due to higher
product pricing and improved sales of higher value products. The average selling
price of industrial products was $498, an increase of $4 per ton. This increase
was principally due to improved product pricing.
Cost of goods sold increased $70.8 million or 38.9% in fiscal 1997 as compared
to fiscal 1996. Energy products cost of goods sold increased $62.3 million or
47.7%, and industrial products costs of goods sold increased $8.5 million or
16.5%. The overall increase was due primarily to increased product shipments.
However, the overall unit cost per ton of products sold increased 2.0% (from an
average of $527 to $538 per ton) in fiscal 1997. This increase was due primarily
to an increased in delivered steel costs in the first half of fiscal 1997,
resulting in an increase in the average prime steel cost of goods sold of $17
per ton. See "Overview." The increase in steel costs was offset somewhat by the
operating efficiencies achieved by Maverick and improved fixed cost absorption.
Gross profit increased $16.1 million or 72.8% in fiscal 1997 as compared to
fiscal 1996. Gross profit for energy products increased approximately $14.1
million or 82.3%, while industrial products gross profit increased $2.0 million
or 40.3%. Gross profit as a percentage of net sales was 13.1% for fiscal 1997,
as compared to 10.8% for fiscal 1996. Energy products gross profit percentage
was 13.9% and industrial products gross profit percentage was 10.5%. The
improved gross profit percentages were primarily attributable to improved
product pricing and improved operating efficiencies during fiscal 1997.
Selling, general and administrative expenses increased $3.7 million, or 36.9%
from fiscal 1996 to fiscal 1997. 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 decreased from 5.0% in fiscal 1996 to 4.8% in
fiscal 1997.
Interest expense decreased $455,000 or 18.0%, in fiscal 1997 as compared to
fiscal 1996 as a result of decreased borrowings. The decreased borrowings were
principally the result of principal repayments from internally generated funds.
The provision for income taxes increased $5.5 million in fiscal 1997 as compared
to fiscal 1996 as a result of the Company generating $12.8 million in additional
income before income taxes in fiscal 1997, as compared to fiscal 1996. 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 asset is dependent on generating sufficient taxable income prior to
expiration of the net operating loss carryforwards.
At September 30, 1997, the Company had available net operating loss
carryforwards of $3.5 million which it may use to offset future taxable income,
of which $1.1 million is available in 1998. In addition, at September 30, 1997,
the Company had alternative minimum tax credit carryforwards of $390,000
available for income tax purposes. See Note 7 of the Notes to the Consolidated
Financial Statements as of September 30, 1997.
As a result of the foregoing factors, net income increased $7.4 million from net
income of $7.5 million or $0.51 per share in fiscal 1996 to net income of $14.9
million or $.97 per share in fiscal 1997.
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 product 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 20,985
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 of 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
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 costs of goods sold increased $14.4 million or 37.8%. The
increase in costs 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 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.
LIQUIDITY AND CAPITAL RESOURCESWorking capital at September 30, 1997 was $45.0
million and the ratio of current assets to current liabilities was 1.7 to 1 as
compared to September 30, 1996 when working capital was $32.7 and the current
ratio was 1.8 to 1. The increase in working capital was principally due to a
$9.3 million increase in accounts receivable, an $18.8 million increase in
inventory (which includes approximately $13.6 million in customer-obligated
inventory) and a $2.4 million increase in the deferred income tax asset, which
was partially offset by an $8.4 million increase in accounts payable, a $5.1
million increase in accrued expenses and an $8.1 million increase in deferred
revenue. The increase in accounts receivable, inventory, accounts payable and
accrued expenses is due to the increased volume of business. The increase in the
current deferred income tax asset is due to the elimination of the valuation
allowance and the Company will realize the tax benefits associated with the
exercise of nonqualified stock options. The increase in deferred revenue is due
to the OCTG customer purchases before an announced October price increase as
well as an overall increase in demand for the Company's energy products. Cash
provided by operating activities for fiscal 1997 was $16.7 million. The primary
source of cash was net income, exclusive of the impact of non-cash items
(primarily depreciation, amortization and deferred income tax expense), of $23.3
million.
During fiscal 1996 and 1995, net cash provided (used) by operations was $14.2
and ($6.3) million, respectively. In fiscal 1996, the net cash provided by
operations was primarily used to fund capital expenditures and the pay-down of
net long-term borrowings. In fiscal 1995, the Revolving Credit Facility was used
to fund operations and capital expenditures.
Cash used in investing activities in fiscal 1997, 1996 and 1995 was $9.4
million, $5.5 million and $5.6 million, respectively. This use was primarily for
purchases of property, plant, and equipment of $9.5 million, $5.5 million and
$5.6 million (of which $3.9 million was spent on the structural tube facility in
fiscal 1995) during fiscal 1997, 1996 and 1995, respectively.
During fiscal 1997, 1996 and 1995 cash provided (used) by financing activities
was $(5.0) million, ($8.6) million and $11.5 million. Cash used by financing
activities in fiscal 1997 is primarily attributable to the pay-off of $3.7
million term note, the proceeds of which were used to finance the relocation of
the Energy facility to Arkansas, a $3.3 million net decrease in the Company's
Revolving Credit Facility and other regularly scheduled term debt payments.
These debt pay-downs were partially offset by $2.5 million of proceeds from the
exercise of stock options. The cash used by financing activities in fiscal 1996
was primarily attributed to a $5.5 million term note, the proceeds of which were
used to finance the structural facility and a $1.8 million net decrease in the
Company's Revolving Credit Facility. 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 Company's capital budget for fiscal 1998 is $9.5 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, 1999. As of September 30, 1997, the
applicable interest rate was 6.78 percent per annum, and the Company had $17.2
million in available borrowings under the Revolving Credit Facility. The Company
anticipates renegotiating its Revolving Credit Facility during fiscal 1998. The
amount and terms of the renegotiated credit facility will depend on future
working capital requirements, projected cash flows and other anticipated funding
needs. As of September 30, 1997, the Company had $2.9 million in cash and cash
equivalents.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiary
Consolidated Balance Sheets
(In thousands, except share data)
September 30
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,886 $ 613
Accounts receivable, less allowances of $388
and $629 in 1997 and 1996, respectively 27,714 18,400
Inventories 69,436 50,624
Deferred income taxes 5,104 2,679
Prepaid expenses and other current assets 798 875
-------- ---------
Total current assets 105,938 73,191
Property, plant and equipment 55,506 51,695
Other assets 620 670
------- --------
$162,064 $125,556
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $31,477 $ 23,042
Accrued expenses and other liabilities 12,614 7,478
Deferred revenue 16,251 8,176
Current maturities of long-term debt 604 1,843
------- ---------
Total current liabilities 60,946 40,539
Long-term debt, less current maturities 8,879 11,901
Revolving credit facility 10,000 13,250
Deferred income taxes 4,371 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; 15,410,974 and 14,944,142
shares issued and outstanding in 1997 and 1996,
respectively 154 150
Additional paid-in capital 43,406 37,674
Retained earnings 34,308 19,423
--------- ----------
77,868 57,247
--------- ----------
$162,064 $125,556
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiary
Consolidated Statements of Operations
(In thousands, except per share data)
Year ended September 30
1997 1996 1995
<S> <C> <C> <C>
Net sales $291,060 $204,182 $167,896
Cost of goods sold 252,803 182,042 159,865
------------------------------------
Gross profit 38,257 22,140 8,031
Selling, general and administrative 13,966 10,198 7,728
Structural start-up costs -- -- 245
------------------------------------
Income from operations 24,291 11,942 58
Other income (expense):
Interest expense (2,067) (2,522) (3,164)
Other income -- -- 772
------------------------------------
Income (loss) before income taxes 22,224 9,420 (2,334)
Provision for income taxes 7,339 1,882 --
------------------------------------
Net income (loss) $ 14,885 $7,538 $(2,334)
====================================
Net income (loss) per common and
common equivalent share $ .97 $ .51 $ (.16)
====================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
Maverick Tube Corporation and Subsidiary
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
Common Stock
------------------------------------------------------------------------
Additional
Paid-in Retained Earnings
Shares Amount Capital
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at October 1, 1994 14,880,458 $149 $37,469 $14,219
Net loss -- -- -- (2,334)
------------------------------------------------------------------------
Balance at September 30, 1995 14,880,458 149 37,469 11,885
Net income -- -- -- 7,538
Exercise of stock options 63,684 1 205 --
------------------------------------------------------------------------
Balance at September 30, 1996 14,944,142 150 37,674 19,423
Net income -- -- -- 14,885
Exercise of stock options 466,832 4 2,482 --
Tax benefit associated with the
exercise of nonqualified stock
options -- -- 3,250 --
------------------------------------------------------------------------
Balance at September 30, 1997 15,410,974 $154 $ 43,406 $34,308
========================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Maverick Tube Corporation and Subsidiary
Consolidated Statements of Cash Flows
(In thousands)
Year ended September 30
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 14,885 $ 7,538 $ (2,334)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 5,697 5,201 4,691
Deferred income taxes 2,577 585 --
Provision for losses on accounts receivable 44 339 53
Loss (gain) on sale of equipment 50 (3) (20)
Changes in operating assets and liabilities:
Accounts receivable (9,358) 175 (6,945)
Inventories (18,812) (17,352) (624)
Prepaid expenses and other current assets 59 5 (145)
Other assets (67) 207 (168)
Accounts payable 8,435 5,623 (1,313)
Accrued expenses and other liabilities 5,136 3,746 504
Deferred revenue 8,075 8,176 --
-----------------------------------------------------
Cash provided (used) by operating activities 16,721 14,240 (6,301)
Investing activities
Expenditures for property, plant and equipment (9,537) (5,497) (5,592)
Proceeds from disposals of equipment 96 3 20
Collection of notes receivable 18 15 18
------------------------------------------------------
Cash used by investing activities (9,423) (5,479) (5,554)
Financing activities
Proceeds from long-term borrowings and notes 92,400 64,250 62,992
Principal payments on long-term borrowings and notes (99,911) (73,095) (51,530)
------------------------------------------------------
(7,511) (8,845) 11,462
Proceeds from exercise of stock options 2,486 206 --
------------------------------------------------------
Cash provided (used) by financing activities (5,025) (8,639) 11,462
------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,273 122 (393)
Cash and cash equivalents at beginning of year 613 491 884
------------------------------------------------------
Cash and cash equivalents at end of year $ 2,886 $ 613 $ 491
======================================================
Supplemental disclosures of cash flow information: Cash paid (received) during
the year for:
Interest (net of amounts capitalized of $268, $81 and
$142) $ 2,138 $ 2,677 $ 2,949
Income taxes $ 4,020 $ 1,370 $ (148)
<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 and its wholly owned subsidiary (collectively referred to as the
Company). 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 $0.06, 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.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Company follows Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its director and employee stock options. The Company grants stock options for a
fixed number of shares to directors and employees with an exercise price equal
to the fair value of the shares at the time of the grant. Accordingly, the
Company has not recognized compensation expense for any of its stock option
grants. If the Company had elected to recognize compensation cost based on the
fair value of the options granted at the grant date as prescribed by SFAS No.
123, net income and earnings per share would not have been reduced by a material
amount. The compensation cost associated with the fair value of the options
calculated in 1997 and 1996 is not necessarily representative of the potential
effects on reported net income in future years.
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 (15,281,653, 15,000,812
and 14,920,274 for the years ended September 30, 1997, 1996 and 1995,
respectively).
In 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings
Per Share." SFAS No. 128 is effective for both interim and annual reporting
periods ending after December 15, 1997 with earlier application not permitted.
The Company will apply the new rules starting in the first quarter of fiscal
1998. The Company does not believe the adoption of the new rules will have a
material effect on its earnings per share.
Business Segments
The Company's 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.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1997
financial statement presentation.
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 in 1995 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 Split
On August 1, 1997, the Company declared a two-for-one stock split effected in
the form of a 100% stock dividend to all stockholders of record as of August 12,
1997. The dividend was paid on August 21, 1997 and increased the number of
shares outstanding from 7,544,071 to 15,088,142. Approximately $75,000 was
transferred from retained earnings to common stock to record this dividend. All
share and per share amounts, including stock option information, in the
accompanying consolidated financial statements have been restated to reflect
this stock dividend.
4. Long-Term Debt and Revolving Credit Facility
Long-term debt and revolving credit facility at September 30, 1997 and 1996
consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Term loan notes payable, secured by machinery and equipment; payable in monthly
installments (including interest at 9.27%) of $130,920; balance paid
September 3,
1997 $ -- $ 3,699
Capital lease obligation, secured by property, plant and equipment (net book
value $8,854,000 at September 30, 1997); payable in monthly installments
(including interest at 8.0%) of $59,479; final payment due on August 1, 2007 4,875 5,185
Capital lease obligation, secured by property and plant (net book value
$6,814,000 at September 30, 1997); interest of 7.5% payable monthly; payable
in monthly principal installments of approximately $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 4,608 4,860
Revolving credit notes, secured by all accounts receivable and inventories; due
on May 31, 1999; interest payable monthly at either prime or the Eurodollar
rate, plus an interest margin, depending upon
certain financial measurements 10,000 13,250
------------------------------
------------------------------
19,483 26,994
Less current maturities (604) (1,843)
------------------------------
$ 18,879 $ 25,151
==============================
</TABLE>
The revolving credit agreement provides for advances up to the lesser of
$27,500,000 or the eligible borrowing base. At September 30, 1997, there was
$10,000,000 outstanding under this line of credit at an interest rate of 6.78
percent. In addition, the Company had an outstanding letter of credit under this
revolving credit agreement of $350,000 at September 30, 1997 (which expires in
September 1998). Additional available borrowings at that date were $17,150,000.
The agreement includes restrictive covenants relating to levels of working
capital and other financial measurements. It also restricts capital
expenditures, asset disposals, capital restructurings and borrowings and
precludes payment of dividends on common stock. The revolving credit agreement
requires an annual commitment fee based upon certain financial measurements.
The present value of future minimum lease payments under the capital lease
obligations as of September 30, 1997 is as follows (in thousands):
Present Value of
Total Minimum Minimum Lease
Lease Payments Interest Payments
------------------------------------------------------------------
1998 $1,317 $713 $604
1999 1,313 660 653
2000 1,320 612 708
2001 1,315 555 760
2002 1,315 493 822
Thereafter 6,783 847 5,936
------------------------------------------------------------------
$ 13,363 $ 3,880 $9,483
==================================================================
Property, plant and equipment at September 30, 1997 and 1996 include $20,000,000
and $19,864,000, respectively, under leases that have been capitalized.
Accumulated depreciation for these assets was $2,362,000, and $1,666,000 at
September 30, 1997 and 1996, 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 debt at September 30, 1997 and 1996 was $19,991,000
and $28,266,000, respectively.
5. Property, Plant and Equipment
Property, plant and equipment at September 30, 1997 and 1996 consist of the
following (in thousands):
1997 1996
--------------------------------
Land $ 1,519 $ 1,576
Land and leasehold improvements 521 700
Buildings 22,212 22,138
Transportation equipment 1,204 1,209
Machinery and equipment 54,470 45,582
Furniture and fixtures 2,780 2,266
--------------------------------
82,706 73,471
Less accumulated depreciation (27,200) (21,776)
--------------------------------
$ 55,506 $ 51,695
================================
6. Inventories
Inventories at September 30, 1997 and 1996 consist of the following (in
thousands):
1997 1996
--------------------------------
Finished goods $ 41,188 $ 28,323
Work-in-process 3,589 2,671
Raw materials 14,065 10,081
In-transit materials 6,911 6,274
Storeroom parts 3,683 3,275
-------------------------------
$ 69,436 $ 50,624
================================
Finished goods at September 30, 1997 and 1996 includes $13,590,000 and
$7,200,000, respectively of customer-obligated inventory.
7. Income Taxes
The components of the provision for income taxes for the years ended September
30, 1997, 1996 and 1995 are as follows (in thousands):
1997 1996 1995
-------------------------------------------
Current:
Federal $ 3,804 $1,297 $ --
State 958 -- --
Deferred 2,577 585 --
------------------------------------------
$ 7,339 $1,882 $ --
==========================================
The difference between the effective income tax rate and the U.S. federal income
tax rate for the years ended September 30, 1997, 1996 and 1995 is explained as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Provision (credit) at statutory tax rate $ 7,845 $ 3,203 $ (794)
State and local taxes, net of federal tax benefit 958 -- --
Alternative minimum tax (510) 1,282 --
Operating loss carryforwards -- (1,192) --
Increase (decrease) in valuation allowance (1,147) (1,590) 1,094
Other items 193 179 (300)
------------------------------------------
$ 7,339 $ 1,882 $ --
==========================================
</TABLE>
The 1997 decrease in the valuation allowance relates primarily to the
utilization of alternative minimum tax credit carryforwards. Realization of the
Company's deferred tax assets is dependent on 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.
Temporary differences which give rise to deferred tax assets and liabilities at
September 30, 1997, 1996 and 1995 are as follows (in thousands):
1997 1996
------------------------
Deferred tax assets:
Various accrued liabilities and reserves $1,419 $1,586
Net operating loss carryforwards 1,288 2,359
Alternative minimum tax carryforwards 390 2,047
Tax benefit associated with the exercise
of nonqualified stock options 3,250 --
Valuation allowance -- (1,147)
------ ------
Total deferred tax assets $6,347 $4,845
----- -----
Deferred tax liabilities:
Accelerated depreciation $5,101 $ 4,372
Asset valuations 513 413
--- ---
Total deferred tax liabilities 5,614 4,785
----- -----
Net deferred tax assets $ 733 $ 60
====== ======
The Company has available acquired net operating loss carryforwards of
$3,480,000 at September 30, 1997 which it may use to offset future taxable
income. 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, 1997,
the Company had alternative minimum tax credit carryforwards of $390,000
available for income tax purposes, all of which are available for use in 1998.
These credit carryforwards do not expire.
8. Defined Contribution Plans
The Company sponsors a 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, 1997, 1996
and 1995 of $590,000, $343,000 and $245,000, respectively.
The Company also began sponsoring two deferred compensation plans covering
officers and key employees in 1996. One plan provides for discretionary
contributions based solely upon the Company's profitability and the individuals'
gross wages. The other plan provides for fixed contributions to certain officers
of the Company. The Company contribution to these plans for the years ended
September 30, 1997 and 1996 was $200,000 and $192,000, respectively.
9. Segment Information
The following table sets forth data for the years ended September 30, 1997, 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
<S> <C> <C> <C> <C>
1997:
Net sales $223,879 $67,181 $ -- $291,060
Operating income 17,641 6,650 -- 24,291
Identifiable assets 116,433 34,565 11,066 162,064
Depreciation and amortization 3,760 1,455 482 5,697
Capital expenditures 8,385 363 789 9,537
1996:
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
1995:
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 costs of flat
rolled steel.
</FN>
</TABLE>
Transactions with two significant energy customers for the year ended September
30, 1997 represented approximately 25 percent of total sales. 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.
Export sales were $26,665,000, $13,244,000 and $12,963,000 for the years ended
September 30, 1997, 1996 and 1995, 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 noncancellable operating leases with
initial or remaining terms in excess of one year, are as follows at September
30, 1997 (in thousands):
1998 $1,353
1999 1,564
2000 1,303
2001 1,281
2002 1,262
---------
$6,763
=========
Rent expense for all operating leases was $1,222,000, $973,000, and $742,000 for
the years ended September 30, 1997, 1996 and 1995, 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 sponsors two employee stock option plans (the "1990 Plan" and the
"1994 Plan") allowing for incentive stock options and nonqualified stock
options. The Company also sponsors a stock option plan for eligible directors
(the "Director Plan") allowing for nonqualified stock options. The 1990 Plan,
1994 Plan and the Director Plan provide that 340,000, 600,000 and 200,000
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
1990 Plan, 1994 Plan, and the Director Plan expire in December 2000, November
1999 and November 2004, respectively. The options vest pursuant to the schedule
set forth for each option. Effective August 29, 1997, the Compensation Committee
of the Board of Directors removed the exercise restriction with respect to
certain options granted in 1995 which made them immediately exercisable. At
September 30, 1997 and 1996, 167,500 and 52,000 shares were available for grant
under the option plans.
The fair value of the options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal years ending September 30, 1997 and 1996, respectively:
risk-free interest rate of 5.53% and 6.05%; no dividend payments expected;
volatility factors of the expected market price of the Company's common stock of
0.478 and a weighted-average expected life of the options of 1.0 year and 4.7
years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
The following table summarizes option activity and related information for years
ended September 30, 1997, 1996 and 1995:
Weighted Weighted
Shares Under Average Average
Option Exercise Price Fair Value
Options outstanding at
October 1, 1994 260,000 $3.95
Options granted 538,000 5.89
------- ----
Options outstanding at
September 30, 1995 798,000 5.26
Options exercised (63,684) 3.25
Options expired (146,316) 5.37
Options granted 284,000 5.29 $2.42
------- ----
Options outstanding at
September 30, 1996 872,000 5.39
Options exercised (466,832) 5.33
Options expired (3,000) 5.92
Options granted 37,500 8.50 $1.80
------ ----
Options outstanding at
September 30, 1997 439,668 $5.71
The following table summarizes information about fixed stock options outstanding
at September 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Weighted-Average Weighted- Weighted-
Exercise Remaining Average Average
Prices Options Contractual Life Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C>
$4.00 to $5.88 224,478 4.4 years $4.54 84,478 $5.44
$6.13 to $8.50 215,190 4.1 $6.93 95,190 $7.32
- -------------- ------- ---- ---- ------ ----
$4.00 to $8.50 439,668 4.3 $5.71 179,668 $6.44
</TABLE>
13. Quarterly Financial Data (Unaudited)
The results of operations by quarter for 1997 and 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended
December 31, March 31, June 30, September 30,
1996 1997 1997 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $64,190 $ 66,920 $ 74,669 $ 85,281
Gross profit 6,663 7,692 9,794 14,108
Net income 2,608 2,978 3,938 5,361
Net income per common and common
equivalent share .18 .19 .25 .35
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
December 31, March 31, June 30, September 30,
1995 1996 1996 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
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 .08 .07(1) .17 .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 $.06 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, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG, LLP
St. Louis, Missouri
October 29, 1997
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Maverick Tube International, Inc.
Maverick Tube L.P.
Maverick Investment Corporation
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 29, 1997, and of the
reference to our firm under the caption "Historical Financial Information", both
included in the 1997 Annual Report to Shareholders of Maverick Tube Corporation.
Our audits also included the financial statement schedule of Maverick Tube
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents 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
report dated October 29, 1997, 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,
1997.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
December 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 2,886
<SECURITIES> 0
<RECEIVABLES> 28,102
<ALLOWANCES> 388
<INVENTORY> 69,436
<CURRENT-ASSETS> 105,938
<PP&E> 82,706
<DEPRECIATION> 27,200
<TOTAL-ASSETS> 162,064
<CURRENT-LIABILITIES> 60,946
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 162,064
<SALES> 295,619
<TOTAL-REVENUES> 291,060
<CGS> 252,803
<TOTAL-COSTS> 13,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,067
<INCOME-PRETAX> 22,224
<INCOME-TAX> 7,339
<INCOME-CONTINUING> 14,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,885
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
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 77%, 72% and 76% of total sales in fiscal
1997, 1996 and 1995, 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. Uncertainty continually 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. The
Company's major supplier of steel has announced two prices decreases since
mid-September which reduced the Company's current replacement cost of steel by
$35 per ton. Although the Company expects that such price reductions will be
reflected in the Company's cost of goods sold in the second quarter of fiscal
1998, no assurance can be given as to the duration of the price decrease or
anticipated future steel prices.
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. Imports accounted for 17.2%, 11.1% and 15.5% of domestic shipments in
fiscal 1997, 1996 and 1995, respectively. 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 normal levels in relation to
demand, 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
may be 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 1997, two distributors, National Oilwell Supply, Inc. and Master
Tubulars, Inc. accounted for 25% of Maverick's net sales. In fiscal 1996 and
1995, one distributor, National Oilwell Supply, Inc. ("National Oilwell"),
accounted for approximately 16% and 12%, respectively, 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 Master Tubulars,
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.
