UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
COMMISSION FILE NUMBER 1-10651
MAVERICK TUBE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-1455766
(State or other jurisdiction of (I.RS. 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)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value--7,472,071 shares as of February 6, 1997
MAVERICK TUBE CORPORATION AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial statements (Unaudited)
Condensed Consolidated Balance Sheets -- December 31, 1996
and September 30, 1996 3
Condensed Consolidated Statements of Operations -- Three
month period ended December 31, 1996 and 1995 4
Condensed Consolidated Statement of Cash Flows -- Three
months ended December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE PAGE 15
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
DECEMBER 31, SEPTEMBER 30,
1996 1996
(Unaudited) (Note)
------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................................$695....................$613
Accounts receivable, less allowances of $644 and
$629 on December 31 and September 30, 1996,
respectively.............................................................................20,943..................18,400
Inventories (See Note 3)...................................................................56,486..................50,624
Deferred income taxes.......................................................................2,679...................2,679
Prepaid expenses and other current assets...................................................1,098.....................875
------------------- --------------------
Total current assets...................................................................81,901..................73,191
PROPERTY, PLANT AND EQUIPMENT
Less accumulated depreciation (December 31, 1996 -
$23,113; September 30, 1996 - $21,776)...................................................53,267..................51,695
OTHER ASSETS.......................................................................................711.....................670
------------------- --------------------
TOTAL ASSETS..................................................................................$135,879................$125,556
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..........................................................................$19,773.................$23,042
Accrued expenses and other liabilities....................................................10,889...................7,478
Deferred revenue ..........................................................................10,520...................8,176
Current maturities of long-term debt........................................................1,884...................1,843
------------------- --------------------
Total current liabilities..............................................................43,066..................40,539
LONG TERM DEBT, less current maturities.........................................................11,390..................11,901
REVOLVING CREDIT FACILITY ......................................................................18,950..................13,250
DEFERRED INCOME TAXES ...........................................................................2,619...................2,619
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
20,000,000 authorized shares,
7,472,071 issued shares....................................................................75......................75
Additional paid-in capital.................................................................37,674..................37,674
Retained earnings..........................................................................22,105..................19,498
------------------- --------------------
Total stockholders' equity.............................................................59,854..................57,247
------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................................$135,879................$125,556
=================== ====================
<FN>
...............................................................................................................................
Note: The condensed consolidated balance sheet at September 30, 1996, has been
derived from the audited consolidated financial statements at that date.
...............................................................................................................................
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
Three months ended
December 31
---------------------------------------
1996 1995
<S> <C> <C>
NET SALES..............................................................................$64,190............$44,878
COSTS and EXPENSES
Cost of goods sold.................................................................57,527.............40,653
Selling, general and administrative.................................................2,698..............2,090
---------------------------------------
Income from operations (See Note 3) ................................................3,965..............2,135
OTHER INCOME (EXPENSE)
Interest expense.....................................................................(518)..............(733)
Other income (expense).................................................................30................(26)
---------------------------------------
Income before income taxes..........................................................3,477..............1,376
PROVISION FOR INCOME TAXES................................................................869 275
---------------------------------------
NET INCOME..............................................................................$2,608.............$1,101
=======================================
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE.............................................................$0.35..............$0.15
=======================================
..................................................................................................................
Earnings per common and common equivalent share calculation:
Net income..............................................................................$2,608.............$1,101
Average shares outstanding...........................................................7,472,071..........7,462,817
Net income/average
shares outstanding..................................................................$0.35..............$0.15
=======================================
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
December 31,
1996 1995
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income..............................................................................................$2,608..........$1,101
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization..........................................................................1,356...........1,270
Provision for accounts receivable allowances..............................................................16..............34
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable...........................................................(2,843)..........1,993
(Increase) decrease in inventories...................................................................(5,861)............940
Decrease in prepaid expenses and other assets.............................................................2..............58
(Decrease) in accounts payable.......................................................................(3,270).........(1,641)
Increase in deferred revenue .........................................................................2,345..............--
Increase in accrued liabilities and other expenses....................................................3,409.............478
-------------- --------------
Cash (used) provided by operating activities.......................................................(2,238)..........4,233
INVESTING ACTIVITIES
Purchases of property, plant and equipment..............................................................(2,909)...........(742)
Other.......................................................................................................--.............(25)
-------------- --------------
Cash used by investing activities..................................................................(2,909)...........(767)
FINANCING ACTIVITIES
Proceeds from borrowings................................................................................29,550..........19,400
Principal payments on borrowings.......................................................................(24,320)........(22,975)
-------------- --------------
5,230 (3,575)
Net proceeds from sale of common stock .....................................................................--.............206
-------------- --------------
Cash (used) provided by financing activities........................................................5,230..........(3,369)
Increase (decrease) in cash and cash equivalents............................................................83..............97
Cash and cash equivalents at beginning of period.............................................................612.............491
-------------- --------------
Cash and cash equivalents at end of period..................................................................$695............$588
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.............................................................................................$569............$490
Income taxes..........................................................................................$97..............--
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Maverick Tube Corporation (the "Company") and its wholly-owned
subsidiary, Maverick Tube International, Inc. All significant
intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring items) considered necessary for a fair presentation have been
included. Operating results for the three month period ended December
31, 1996, are not necessarily indicative of the results that may be
expected for the year ended September 30, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended September 30, 1996.
(2) ALLOCATION OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES TO BUSINESS
SEGMENTS
The Company reports as separate segments energy and industrial products
in its annual report on Form 10-K. Commission expenses are charged to
the associated business segments. Remaining selling, general and
administrative expenses are allocated based upon the net sales dollars
generated by each segment.
(3) INVENTORIES
The components of inventories consisted of the following:
December 31, September 30,
1996 1996
(In thousands)
Finished goods $28,545 $28,323
Work-in-process 2,164 2,671
Raw Materials 11,480 10,081
In-transit materials 11,055 6,274
Storeroom parts 3,242 3,275
-------------------------------------
$56,486 $50,624
=====================================
Inventories are principally valued at the lower of average cost or
market.
MAVERICK TUBE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company's products consist of electrical resistance welded ("ERW") tubular
products sold primarily into energy and industrial applications in North
America. The Company's energy segment includes Oil Country Tubular Goods (OCTG)
and line pipe which are sold primarily to distributors who supply end users in
the energy industry. The Company's industrial products segment consists of
structural tubing and standard pipe which are sold primarily to distributors who
supply end users in construction, transportation, agriculture and other
industries. 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
products. Given the numerous applications for the Company's industrial products,
sources of demand for such products are diversified. Such demand generally
depends on the general level of economic activity in the construction,
transportation, agricultural, material handling and recreational segments, the
use of structural tubing as a substitute for other structural steel forms, such
as I-beams and H-beams, and draw downs of existing inventories.
According to published industry reports, domestic drilling activity and the
demand for the Company's OCTG products rose by 11% for the quarter ended
December 31, 1996, as compared to the same quarter of the previous year. The
Company also believes that the domestic consumption of tubulars per well drilled
has increased. This increase in consumption per rig was due to a higher portion
of gas wells being drilled and increased rig efficiencies. Overall natural gas
drilling in the United States increased by 16% during the quarter as compared to
a year earlier, and oil related drilling increased by 8%. The Company believes
that the increase in gas drilling was due to 57% higher gas prices when compared
to the same period of the prior fiscal year while oil drilling responded to
higher oil prices which had increased by approximately 36% from the quarter
ended December 31,1995. The trend in overall drilling during the quarter
continued upward, as drilling at the end of the quarter was 12% higher than the
year before.
Consumption of domestic OCTG had increased by 17% during the quarter from the
prior year as import penetration rose to an estimated 13% during the first
quarter of fiscal 1997 from 9% during the same quarter last year. The domestic
OCTG business was impacted by an estimated 33% decrease in exports during the
quarter, with exports accounting for an estimated 13% of domestic production
during the quarter. Maverick's exports increased three-fold during the quarter
as the Company's shipments to Canada grew significantly. Industry inventory
build created a 4.8% additional demand as opposed to 3.5% during the same
quarter last year.
According to published reports, total domestic production of OCTG increased by
5% during the quarter, reflecting a 15% increase of shipments into the domestic
market which was offset by the decrease in exports. The Company believes that
the strengthened demand for its OCTG was the result of increased drilling
activity in the Company's traditional markets, principally on shores in the
continental United States and western Canada. Maverick's energy related
shipments during the quarter increased by 67% from the same quarter last year.
Management estimates the demand for the Company's structural tube (hollow
structural sections or HSS) products increased by 8% in the quarter. In
addition, management estimates that imports of HSS product remained relatively
stable as compared to the same quarter of last year. Further, inventories of HSS
held by distributors were stable during the quarter, as opposed to the same
quarter last year when inventories were being reduced. As a result of the market
conditions, domestic shipments of HSS rose by 10%. The Company's shipments of
industrial products rose by 13%, due to a 30% increase in HSS shipments offset
by a 22% decrease in standard pipe shipments.
Pricing of the Company's products was up during the quarter when compared to
last year. Pricing for the Company's energy products was up by 1.1%, due to an
improved mix of value added products and improved sales prices. Pricing for the
Company's industrial products was also up slightly by approximately $3 per ton,
or 0.7% as compared to the quarter ended December 31, 1995, due primarily to an
improved mix of higher priced products. The Company has announced pricing
increases on all of its products as has its principal competitors. In the
Company's energy business, substantial backlogs of price protected products
exist, delaying the impact of price increase efforts. While the Company is
receiving orders at higher prices, there is no assurance as to how much and when
the overall pricing of the Company's products will increase.
Steel costs included in cost of goods sold increased during the quarter by $9
per ton, or 3% due to recent increases in steel costs. Steel costs during the
quarter were generally below replacement costs. Based on December 31, 1996
inventory values and previously announced price increases for steel, the Company
estimates steel costs to rise by another estimated 1.2 - 1.5% during the second
quarter of fiscal 1997, at which time costs will still be below replacement
costs by approximately $5 per ton. The Company believes that the reason for
increasing steel costs is supply related rather than demand related as
substantial production outages at several steel manufacturers occurred during
the last several months, significantly reducing the availability of hot rolled
steel. These outages were temporary and full production has been reestablished.
In addition, the supply of steel is continuing to increase significantly as four
new steel mills are scheduled to begin or have begun the production and sale of
6.5 million tons of additional hot rolled steel.
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, 1996.
RESULTS OF OPERATIONS
In the first quarter of fiscal 1997, total net sales increased $19.3 million, or
43.0% over the comparable period of the preceding fiscal year. Energy products
sales increased $17.6 million or 54.2% for the first quarter ended December 31,
1996, while industrial products sales increased $1.7 million or 13.9% for the
first quarter. These results were attributable primarily to an increase of 39.4%
in total product shipments, from 75,939 tons in the first fiscal quarter of 1996
to 105,835 tons in the first fiscal quarter of 1997. Energy tons increased
26,572 tons, or 52.5% in the first quarter of 1996 as compared to the third
quarter of 1995. Shipments of industrial product increased 3,324 tons, or 13.1%
in the first quarter of 1996. The sales and shipments of energy products during
the first fiscal quarter of 1997 was increased substantially due primarily to
increased activity in gas drilling by 16%, increased activity in oil drilling by
8% and a three-fold increase in Maverick's sales of product exported to Canada
and other countries. The increase in sales and shipments of industrial products
was due to Company's continued penetration into the HSS market. Average net
selling prices for energy products during the first quarter of fiscal 1997 as
compared to the first quarter of fiscal 1996 remained relatively stable
(increasing by 0.9%) from an average of $641 per ton to $648 per ton. Average
net selling price for industrial products during the first quarter of fiscal
1997 as compared to the first quarter of fiscal 1996 remained relatively stable
(increasing only 0.6%) from an average of $492 per ton to $495 per ton. These
increases were due primarily to an improved mix of products.
Cost of goods sold increased $16.9 million or 41.5% in the first quarter of
fiscal 1996 over the first quarter of fiscal 1996. Energy products cost of goods
sold increased $15.4 million, or 52.9% in the first quarter. Industrial products
cost of goods sold increased $1.5 million or 12.6% in the first quarter. The
overall increase was due primarily to increased product shipments. However, the
overall unit cost per ton of product sold increased 1.5% (from an average of
$535 to $543) in the first quarter of fiscal 1997 as compared to the first
quarter of fiscal 1996. This increase was due to an increase in delivered steel
costs during the fourth quarter of 1996 and first fiscal quarter of 1997. Steel
purchases during the fourth fiscal quarter of 1996 and first quarter of 1997 at
these increased purchase prices resulted in an increase of the average prime
steel cost of goods sold by $9 per ton over the first fiscal quarter of 1996.
See "Overview." The impact of such increase in steel costs was offset somewhat
by the operating efficiencies achieved by Maverick and improved fixed costs
absorption.
Gross profit increased $2.4 million or 57.7% for the first quarter of fiscal
1997 over the comparable period of fiscal 1996. Gross profit for energy
increased $2.1 million, or 66.0%, while industrial products gross profit
increased approximately $300,000 or 29.8%. Consolidated gross profit percentage
for the first quarter of fiscal 1997 was 10.4% compared to 9.4% for the first
fiscal quarter of 1996. Energy gross profit percentage improved to 10.8% from
10.1%, while industrial products improved to 8.8% from 7.7%. Energy and
industrial products gross profit as a percentage of net sales in the first
quarter of fiscal 1997 was positively impacted by improved selling prices,
operating efficiencies and improved fixed costs absorption partially offset by
increasing steel costs. During the second quarter of 1997, the replacement costs
of steel is expected to rise by $10 per ton due to previously announced steel
price increases. It is expected that the impact of these higher replacement
costs on costs of goods sold if successfully implemented will partially effect
the second fiscal quarter and fully affect the third quarter of fiscal 1997.
Selling, general and administrative expenses increased by $608,000, or 29.1% in
the first quarter of fiscal 1997 over the first quarter of fiscal 1996. Direct
structural selling costs increased approximately $91,000 for the quarter from
the first quarter of fiscal 1996 due to the increase in sales and shipments of
industrial products. The remaining increase is due primarily to general wage
increases granted as of the beginning of the fiscal year, small increases in
staffing and incentive compensation accrued for sales and administrative
employees. Selling, general and administrative expenses as a percentage of net
sales in the first fiscal quarter of 1997 was 4.2% as compared to the first
quarter of fiscal 1996 of 4.7%.
Interest expense decreased $215,000 or 29.3% in the first quarter of fiscal 1997
compared to the first quarter of the fiscal 1996. The decreased interest expense
is primarily due to a lower effective interest rate as fixed rate debt was paid
off in the fourth fiscal quarter of 1996 and replaced with the lower
interest-bearing revolving credit facility, as well as lower overall average
borrowings.
The provision for income taxes increased $594,000 or 216.0% in the first quarter
of fiscal 1997 as compared to the first quarter of fiscal 1996. This increase is
attributable to the higher level of pretax earnings generated by the Company in
the first quarter of 1997 and also a higher effective tax rate as the Company
expects to fully utilize existing net operating loss carryforwards during 1997.
As a result of the increased gross profit and the other factors discussed above,
net income increased $1.5 million in the first quarter of fiscal 1997 from the
comparable period of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1996, was $38.8 million, and the ratio of
current assets to current liabilities was 1.9 to 1.0 as compared to September
30, 1996 when working capital was $32.7 million and the ratio of current assets
to current liabilities was 1.8 to 1.0. The increase in working capital was
principally due to a $2.5 million increase in accounts receivable, a $5.9
million increase in inventory (which includes approximately $9.4 million in
customer-obligated inventory) and a $3.3 million decrease in accounts payable,
partially offset by a $2.4 million increase in deferred revenue and a $3.4
million increase in accrued liabilities. The increase in accounts receivable is
due to the high volume of energy-related business in December. The increase in
inventories and accrued liabilities is due to increased inventory requirements
to support the Company's substantially increased level of shipments. The
increase in deferred revenue is due to the build in customer inventory prior to
the end of the year. Cash used by operating activities was $2.2 million for the
first quarter of fiscal 1997. The primary sources of cash were net income,
exclusive of the impact of non-cash items (primarily depreciation and
amortization), of $4.0 million. The primary use of cash was the build in
inventory of $5.9 million.
During the first fiscal quarter of 1997, cash used in investing activities was
$2.9 million, This was all of which is attributable to purchases of property,
plant and equipment.
Cash provided by financing activities was $5.2 million. The Company's Revolving
Credit Facility increased $5.7 million primarily as a result of increased
inventories and accounts receivable. The Company's long-term indebtedness was
reduced by approximately $500,000.
The Company's capital budget for fiscal 1997 is approximately $6.3 million of
which $2.9 million was expended during the three months ended December 31, 1996.
The budgeted funds are being utilized principally to acquire new equipment for
existing manufacturing facilities. As of December 31, 1996, the Company had an
additional $2.9 million committed for the purchase of equipment.
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 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 expire on May 31, 1998. As of December 31, 1996, the
applicable interest rate was 6.89 percent per annum and the Company had $8.1
million in unused availability under the Revolving Credit Facility. As of
December 31, 1996, the Company had $695,000 in cash and cash equivalents.
MAVERICK TUBE CORPORATION AND SUBSIDIARY
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K. No reports on Form 8-K were
filed for the quarterly period for which this report
is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Maverick Tube Corporation
(Registrant)
Date: February 10, 1997 /s/ Gregg Eisenberg
-------------------
Gregg Eisenberg
President and Chief Executive Officer
Date: February 10, 1997 /s/ Charles Struckhoff
----------------------
Charles Struckhoff
Vice President -- Finance and Administration
(Chief Financial Officer)
