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 MARCH 31, 1998
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 organizatio 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 -- 15,437,474 shares as of May 5, 1998
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial statements (Unaudited)
Condensed Consolidated Balance Sheets -- March 31, 1998
and September 30, 1997 3
Condensed Consolidated Statements of Income -- Three and Six
month periods ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -- Six
month period ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of the Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, September 30,
1998 1997
(Unaudited) (Note)
-----------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $793 $2,886
Accounts receivable, less allowances of $148 and
$388 on March 31, 1998 and September 30, 1997, respectively 20,086 27,714
Inventories (see Note 2) 72,273 69,436
Deferred income taxes 5,104 5,104
Prepaid expenses and other current assets 968 798
------------------- -------------------
Total current assets 99,224 105,938
PROPERTY, PLANT, AND EQUIPMENT
Less accumulated depreciation (March 31, 1998 -
$30,119; September 30, 1997 - $27,200) 58,456 55,506
OTHER ASSETS 703 620
------------------- -------------------
TOTAL ASSETS $158,383 $162,064
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $25,274 $31,477
Accrued expenses and other liabilities 5,702 12,614
Deferred revenue 8,355 16,251
Current maturities of long-term debt 627 604
------------------- -------------------
Total current liabilties 39,958 60,946
LONG TERM DEBT, less current maturities 8,533 8,879
REVOLVING CREDIT FACILITY 16,050 10,000
DEFERRED INCOME TAXES 4,536 4,371
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
20,000,000 authorized shares,
15,437,474 and 15,410,974 issued shares, respectively 154 154
Additional paid-in capital 43,568 43,406
Retained earnings 45,584 34,308
------------------- -------------------
Total stockholders' equity 89,306 77,868
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $158,383 $162,064
=================== ===================
<FN>
....................................................................................................................................
Note: The condensed consolidated balance sheet at September 30, 1997, 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 SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
Three months ended Six months ended
March 31 March 31
1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $70,548 $66,920 $157,027 $131,110
COSTS and EXPENSES
Cost of goods sold 60,219 59,228 132,925 116,754
Selling, general and administrative 2,844 3,017 6,040 5,716
------------------------------- --------------- ----------------
Income from operations 7,485 4,675 18,062 8,640
OTHER INCOME (EXPENSE)
Interest expense (398) (476) (840) (994)
Other expense 39 (50) 89 (20)
------------------------------- --------------- ----------------
Income before income taxes 7,126 4,149 17,311 7,626
PROVISION FOR INCOME 2,419 1,171 6,035 2,040
------------------------------- --------------- ----------------
NET INCOME TAXES $4,707 $2,978 $11,276 $5,586
BASIC EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $0.30 $0.20 $0.73 $0.37
=============================== =============== ================
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $0.30 $0.19 $0.72 $0.37
=============================== =============== ================
<FN>
.................................................................... .............................. ................................
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
March 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $11,276 $5,586
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization 2,943 2,569
Deferred income taxes 165 800
Provision for accounts receivable allowances (240) (59)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 7,868 (2,132)
(Increase) decrease in inventories (2,837) (5,671)
(Increase) decrease in prepaid expenses and other assets (277) 145
(Decrease) increase in accounts payable (6,203) 1,182
(Decrease) increase in deferred revenue (7,896) 2,116
(Decrease) increase in accrued expenses and other liabilties (6,912) 1,254
-------------- --------------
Cash (used) provided by operating activities (2,113) 5,790
INVESTING ACTIVITIES
Purchases of property, plant and equipment (5,869) (5,941)
FINANCING ACTIVITIES
Proceeds from borrowings 63,400 48,950
Principal payments on borrowings (57,673) (46,788)
-------------- --------------
5,727 2,162
Net proceeds from sale of common stock 162 32
-------------- --------------
Cash provided by financing activities 5,889 2,194
Increase (decrease) in cash and cash equivalents (2,093) 2,043
Cash and cash equivalents at beginning of period 2,886 613
-------------- --------------
Cash and cash equivalents at end of period $793 $2,656
============== ==============
<FN>
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $940 $1,162
Income taxes $5,809 $1,424
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
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
subsidiaries. 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 and six month periods ended
March 31, 1998, are not necessarily indicative of the results that may
be expected for the year ended September 30, 1998. 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, 1997.
(2) INVENTORIES
The components of inventories consisted of the following:
March 31, September 30,
1998 1997
(In thousands)
Finished goods $41,696 $41,188
Work-in-process 3,508 3,589
Raw materials 12,920 14,065
In-transit materials 9,543 6,911
Storeroom parts 4,606 3,683
---------------------------------
$72,273 $69,436
=================================
Inventories are principally valued at the lower of average cost or
market.
(3) STOCK SPLIT
On August 1, 1997, the Company announced the declaration of a
two-for-one stock split in the form of a 100% stock dividend to all
shareholders of record as of the close of business on August 12, 1997
distributed on August 21, 1997. The outstanding shares, average shares
outstanding and per share data for all periods have been adjusted to
reflect the payment of this dividend.
(4) EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement
128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where necessary, restated to conform
to the Statement 128 requirements.
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
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 attached hereto.
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 customer inventories.
According to published industry reports, domestic drilling activity rose by 13%
for the quarter ended March 31, 1998, as compared to the same quarter of the
previous year. The Company believes that the domestic consumption of tubular
goods per well drilled has increased proportionately. Natural gas drilling in
the United States increased by 21% during the second quarter of fiscal 1998 as
compared to the comparable period of fiscal 1997, and oil related drilling
increased by 1%. The Company believes that gas and oil related drilling
increased in spite of gas and oil price decreases of 19% and 31%, respectively
as compared to the quarter ended March 31, 1997, due principally to lower
finding and producing costs by end users. In conjunction with the declining oil
prices during the second quarter of fiscal 1998, the trend in overall drilling
edged downward, as drilling at the end of the quarter was 8% lower than the
current quarter average but was still 4% higher than the comparable prior
quarter average .
Shipments of domestic OCTG increased by 13% during the second quarter ended
March 31, 1998 from the comparable period of the prior year. Import penetration
of the domestic OCTG market increased to an estimated 19.7% during the quarter
as compared to 19.4% during the same quarter last year. Domestic consumption of
OCTG increased 16% during the same period. The domestic OCTG business was also
impacted by an estimated 13% increase in exports during the quarter ended March
31, 1998, with exports accounting for an estimated 15.3% of domestic production
during the quarter. Maverick's energy related shipments during the second
quarter decreased by 9.0% from the same quarter last year and it's exports
decreased 54.7% from the same quarter of the previous year as the Company's
shipments to Canada fell. Industry inventory build created 11.2% of additional
demand for OCTG as compared to 14.4% during the same quarter last year with a
substantial portion of the inventory build in seamless products. The Company
believes that the reduced demand for its OCTG was the result of decreasing
inventory levels in seam annealed products and Canadian customers' concerns
regarding low oil prices, early spring break-up and Canadian dollar exchange
rates.
Management estimates the demand for the Company's structural tube (hollow
structural sections or HSS) products increased by 8% in the second quarter of
fiscal 1998 compared to the comparable quarter of last year. In addition,
management estimates that the import level of HSS product remained relatively
stable and inventories of HSS held by distributors were stable during the
quarter, both as compared to the same quarter last year. As a result of these
market conditions, domestic shipments of HSS rose by an estimated 9%. The
Company's shipments of industrial products rose by 20.6%, due to a 27.7%
increase in HSS shipments offset by a 9.4% decrease in standard pipe shipments.
Pricing of OCTG was up 9.4% due to improved prime selling prices and a favorable
product mix. Line, structural and standard product pricing remained relatively
flat during the quarter.
Steel costs included in cost of goods sold decreased during the second quarter
of fiscal 1998 by $17 per ton, or 4.9% as compared to the quarter ended March
31, 1997 and decreased by $12 per ton, or 3.6% during the March 31, 1998 quarter
as compared to the quarter ended December 31, 1997. Steel costs during the
quarter were at current replacement costs. The Company's major suppliers of
steel implemented a price increase effective April 1, 1998 which will increase
the Company's current replacement cost by $10 per ton. Based upon current
inventory levels, the Company estimates that a substantial portion of this cost
increase if the price increase holds will not be reflected in cost of goods sold
until the fourth quarter of fiscal 1998. The supply of steel is continuing to
increase, with four new steel mills on line and foreign hot rolled steel
offerings up sharply. The Company believes these supply additions may reduce the
purchase price of hot rolled steel in the future.
RESULTS OF OPERATIONS
In the second quarter of fiscal 1998 and first six months of fiscal 1998, total
net sales increased $3.6 million, or 5.4% and $25.9 million, or 19.8% over
comparable periods of the preceding fiscal year. Energy products sales remained
relatively stable during the second quarter and increased $17.0 million or 17.1%
for the six months ended March 31, 1998, while industrial products sales
increased $3.5 million or 20.0% for the second quarter and increased $8.9
million or 28.1% for the six months ended March 31, 1998 as compared with the
comparable period in the prior year. These results were attributable primarily
to an increase of 0.8% and 13.5% in the Company's total product shipments, from
110,261 tons in the second quarter of 1997 to 111,223 tons in the second fiscal
quarter of 1998 and from 216,096 tons in the first six months of fiscal 1997 to
245,327 tons in the first six months of fiscal 1998. Energy tons decreased 6,244
tons, or 8.3%, in the second quarter of 1998 as compared to the second quarter
of 1997 and increased 11,387 tons or 7.5% in the first six months of 1998 as
compared to the first six months of 1997. Shipments of industrial products
increased 7,205 tons, or 20.6% in the second quarter of 1998 as compared to the
second quarter of 1997 and increased 16,225 tons, or 25.5% in the first six
months of 1998 as compared to the first six months of 1997. The sales and
shipments of energy products during the second fiscal quarter of 1998 remained
relatively stable: (i) although gas drilling increased by 21% and oil drilling
increased by 1%, (ii) land drilling which creates the primary demand for the
Company's products increased less than offshore drilling, (iii) an industry
inventory adjustment in the Company's product areas which are generally faster
moving, and (iv) a 54.7% decrease in Maverick's export sales. However, the
recent volatility and general lower oil prices could have a negative impact on
the OCTG business. The increase in sales and shipments of industrial products
was positively impacted by the Company's strengthened position in the industrial
products market. Average net selling prices for energy products during the
second quarter of fiscal 1998 and six months ended March 31, 1998 as compared to
the comparable periods of fiscal 1997 increased by 9.4% from an average of $658
per ton to $720 per ton and by 9.0% from an average of $653 per ton to $712.
This improvement in selling prices is primarily due to a substantial increase in
demand for OCTG products. See "Overview." Average net selling price for
industrial products during the second quarter of fiscal 1998 and six months
ended March 31, 1998, as compared to comparable periods of fiscal 1997 decreased
0.5% from an average of $497 per ton to $494 per ton and remained stable at an
average of $496.
Cost of goods sold increased $1.0 million or 1.7% and $16.2 million or 13.9% in
the second quarter of fiscal 1998 and first six months of 1998, respectively
over comparable period sof fiscal 1997. Energy products cost of goods sold
decreased $1.3 million, or 2.9% and increased $10.1 million or 11.4% in the
second quarter and first six months of fiscal 1998. Industrial products cost of
goods sold increased $2.3 million or 14.7% and $6.1 million or 21.4% in the
second quarter and first six months of fiscal 1998. The overall increase for the
six months ended March 31 1998 was due primarily to increased product shipments.
The overall unit cost per ton of products sold increased .9% (from an average of
$537 to $542) in the second quarter of fiscal 1998 and .3% (from an average of
$540 to $542) in the first six months of fiscal 1998 as compared to the
comparable period of fiscal 1997. This increase was primarily due to an increase
in conversion cost per ton caused by a more value added mix of energy products.
This increase in conversion costs was offset by a decrease in delivered steel
costs during the fourth quarter of fiscal 1997 and first and second quarters of
fiscal 1998 resulting in a decrease of the average prime steel cost of goods
sold by $17 per ton over the second quarter of fiscal 1997 and $10 per ton over
the six months ended March 31, 1998. See "Overview."
Gross profit increased $2.6 million or 34.3% for the second quarter of fiscal
1998 and $9.7 million or 67.9% for the first six months of fiscal 1998 over
comparable periods of fiscal 1997. Gross profit for energy products increased
$1.4 million, or 25.1% and $6.9 million, or 62.6%, while industrial products
gross profit increased approximately $1.2 million or 60% and $2.8 million or
85.8%. The gross profit as a percentage of net sales ("gross profit percentage")
was 14.64% and 15.35% for the second quarter and first six months of fiscal 1998
compared to 11.49% and 10.95% for comparable periods of fiscal 1997. Energy
gross profit percentage increased from 11.46% to 14.29% for the second quarter
of fiscal 1998 and increased from 11.14% to 15.47% for the first six months of
fiscal 1998. Industrial products profit percentage increased from 11.61% to
15.48% for the second quarter and increased from 10.35% to 15.01% for the first
six months of fiscal 1998. Energy and industrial products gross profit
percentage in the second quarter and first six months of fiscal 1998 benefited
from decreased steel costs. Energy gross profit percentage was also impacted by
improved selling prices; where, industrial products gross profit percentage was
impacted by operating efficiencies. During the third quarter of 1998, the
replacement cost of steel is expected to rise on average by $10 per ton due to a
previously announced steel price increase from the Company's principal supplier.
It is expected that if higher steel prices hold, the impact of these higher
replacement costs on costs of goods sold will partially affect the remainder of
fiscal 1998.
Selling, general and administrative expenses decreased by $173,000, or 5.7% and
increased by $324,000 or 5.7% in the second quarter and first six months of
fiscal 1998 over comparable periods of fiscal 1997. Selling, general and
administrative expenses for the second quarter of fiscal 1998 were impacted by
lower incentive compensation for selling and administrative employees. Selling,
general and administrative expenses for the first six months of fiscal 1998 were
impacted by increased industrial products commissions, general wage increases
granted as of the beginning of the 1998 fiscal year and small increases in
personnel which offset the benefit of lower incentive compensation. However,
selling, general and administrative expenses as a percentage of net sales in the
second quarter and first six months of fiscal 1998 decreased to 4.0% and 3.8%
from 4.5% and 4.4% from comparable periods of fiscal 1997.
Interest expense decreased $78,000 or 16.4% and $154,000 or 15.5% in the second
quarter and first six months of fiscal 1998 compared to the comparable period of
fiscal 1997. The decreased interest expense is primarily due to a lower average
outstanding debt balance during the quarter.
The provision for income taxes increased $1.2 million or 106.6% and $4.0 million
or 195.8% in the second quarter and first six months of fiscal 1998 as compared
to the comparable period of fiscal 1997. This increase is attributable to the
higher level of pretax earnings generated by the Company in the second quarter
and first six months of 1998 and also a higher effective tax rate as the Company
has fully realized the benefit of existing net operating loss carryforwards and
alternative minimum tax credits during 1997.
As a result of the increased gross profit and the other factors discussed above,
net income increased $1.7 million and $5.7 million in the second quarter and
first six months of fiscal 1998 from comparable periods of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1998 was $59.3 million, and the ratio of current
assets to current liabilities was 2.5 to 1.0, as compared to September 30, 1997
when working capital was $45.0 million and the ratio of current assets to
current liabilities was 1.7 to 1.0. The increase in working capital was
principally due to a $2.8 million increase in inventories, a $13.1 million
decrease in accounts payable and accrued liabilities and a $7.9 million decrease
in deferred revenue, partially offset by a $2.1 million decrease in cash and a
$7.7 million decrease in accounts receivable. The decrease in accounts payable
and accrued liabilities resulted from the payment of estimated taxes and a
change in timing steel purchases. The decrease in deferred revenue is due to
customers being cautious in their purchases for inventories during the recent
environment of lower oil prices. The decrease in accounts receivable is due to a
decrease in March 1998 sales as compared to September 1997 sales. Cash used in
operating activities was $2.1 million for the six months ended March 31, 1998.
The primary source of cash was net income, exclusive of the impact of non-cash
items (primarily depreciation and amortization) of $14.2 million.
During the six months ended March 31, 1998, cash used in investing activities
was $5.9 million, all of which was attributable to purchases of property, plant
and equipment.
Cash provided by financing activities was $5.9 million. The Company's Revolving
Credit Facility increased $6.1 million primarily to partially fund the reduction
in accounts payable and accrued expenses. The Company's other long-term
indebtedness including current maturities was reduced by approximately $323,000.
The Company's capital budget for fiscal 1998 is approximately $11.0 million of
which $5.9 million was expended during the six months ended March 31, 1998. The
budgeted funds are being utilized principally to acquire new equipment for
existing manufacturing facilities and to upgrade computer hardware and software.
As of March 31, 1998, the Company had an additional $2.2 million committed for
the purchase of equipment.
The Company expects that it will meet its ongoing working capital and capital
expenditure 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, 1999. As of March 31, 1998, the
applicable interest rate was 6.91 percent per annum and the Company had $11.1
million in unused availability under the Revolving Credit Facility. As of March
31, 1998, the Company had $793,000 in cash and cash equivalents.
IMPACT OF YEAR 2000
The Company continually evaluates its information systems and is in the process
of updating its older systems most of which utilize programs that recognize two
digits for the year field rather than four. During this update process, the
Company anticipates making the requisite Year 2000 changes in these older
programs or replacing them so that the programs recognize the year 2000 and
beyond. These changes are expected to be substantially completed by early in
calendar 1999. The costs of this update are included in the Company's capital
expenditure budget in the years which the applicable hardware and software will
be purchased. Currently, the Company anticipates that there will be only an
immaterial amount of these costs which will be expensed as incurred.
The Company currently believes that, in general, it will not have a material
exposure to the Year 2000 issue, either operationally or financially, and that
its plan to replace its hardware and software will address the Year 2000 issue
on a timely basis.
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of the Stockholders of the Company was held
on February 2, 1998, of the 15,437,474 shares entitled to vote
at such meeting, 13,677,476 shares were present at the meeting
in person or by proxy.
(b) The individuals listed below were elected as directors of the
Company, and with respect to each Director, the number of
shares voted for and withheld were as follows:
No. of Shares
Name of Nominee For Withheld
Gregg M. Eisenberg 13,659,575 17,901
William E. Macaulay 13,659,575 17,901
David H. Kennedy 13,659,575 17,901
C. Robert Bunch 13,659,575 17,901
C. Adams Moore 13,659,575 17,901
John M. Fox 13,659,575 17,901
Wayne P. Mang 13,659,475 18,001
(c) 12,270,045 shares voted in favor of the approval of the
amendment to the Maverick Tube Corporation 1994 Stock Option
Plan. This was more than the requisite number of shares
required for approval.
(d) 13,435,102 shares voted in favor of the approval of the
amendment to the Company's Certificate of Incorporation. This
was more than the requisite number of shares required for
approval.
(e) There were 18,958 brokers' non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
11.1 Computation of Earnings per Share
27 Financial Data Schedule
99.1 Risk Factors
(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: May 5, 1998 /s/ Gregg Eisenberg
-------------------
Gregg Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 5, 1998 /s/ Pamela Boone
----------------
Pamela Boone
Corporate Controller
(Principal Financial Officer)
Exhibit 10.1
Tenth Amendment to Secured Credit Agreement
Harris Trust and Savings Bank
Chicago, Illinois
Mercantile Bank
National Association
St. Louis, Missouri
Gentlemen:
The undersigned, Maverick Tube Corporation, a Delaware corporation (the
"Borrower") refers to the Secured Credit Agreement dated 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) Section 7.12 of the Agreement shall be amended in its entirety and
as so amended shall read as follows:
"Section 7.12. Capital expenditures. The Borrower will not, and will
not permit any Subsidiary to, expend or become obligated for capital
expenditures (as defined and classified in accordance with generally accepted
accounting principles consistently applied but in any event including the
liability of the Borrower and its Subsidiaries in respect of Capitalized Leases
) in excess of $11,000,000 during fiscal year 1998 and in excess of $4,250,000
in each fiscal year thereafter.
2. CONDITIONS PRECEDENT
The effectiveness of this Tenth Amendment is subject to the
satisfaction of all the following conditions precedent:
(a) The Borrower and the Banks shall have executed this Tenth
Amendment.
(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 Tenth
Amendment, the Borrower hereby represents to the Banks that as of the date
hereof and as of the time that this Tenth Amendment becomes effective, each of
the representations and warranties set forth in Section 5 of the Agreement are
and shall be and remain true and correct (except that the representations
contained in Section 5 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 Tenth 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, any reference to the Agreement in any of such to be
deemed to be a reference to the Agreement as amended hereby.
(c) Costs and Expenses. The Borrower agrees to pay on demand all
out-of-pocket costs and expenses incurred by the Banks in connection with the
negotiation, preparation, execution and delivery of this Tenth Amendment and the
documents and transactions contemplated hereby, including the fees and expenses
of counsel to the Banks with respect to the foregoing.
(d) Counterparts; Governing Law. This Tenth Amendment may be executed
in any number of counterparts and by different parties hereto on 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 as of May 4, 1998
MAVERICK TUBE CORPORATION
By: /s/ Gregg M. Eisenberg
Its: President and Chief Executive Officer
Accepted and agreed to at Chicago, Illinois, as of the date and year
last above written.
HARRIS TRUST AND SAVINGS BANK
By: /s/
Its: Vice President
MERCANTILE BANK
NATIONAL ASSOCIATION
By: Dave Higbee
Its: Vice President
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiaries
Exhibit 11.1 Computation of Earnings per Share
For quarter ended March 31 For six month ended March 31
----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Basic:
Average shares outstanding 15,437,474 14,950,254 15,436,370 14,947,164
Net income used in per share calculation $ 4,707,000 $ 2,978,000 $11,276,000 $5,586,000
Net income per common share $0.30 $0.20 $0.73 $0.37
Diluted:
Average shares outstanding 15,437,474 14,950,254 15,436,370 14,947,164
Net effect of stock options 164,199
188,066 188,836 205,851
--------------- --------------- --------------- ---------------
15,625,540 15,139,090 15,642,221 15,111,363
Net income used in per share calculation $ 4,707,000 $ 2,978,000 $11,276,000 $5,586,000
Rounding difference 0.00 (0.01) 0.00 0.00
Net income per common share $ 0.30 $0.19 $0.72 $0.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 793
<SECURITIES> 0
<RECEIVABLES> 20,234
<ALLOWANCES> 148
<INVENTORY> 72,273
<CURRENT-ASSETS> 6,072
<PP&E> 88,575
<DEPRECIATION> 30,119
<TOTAL-ASSETS> 158,383
<CURRENT-LIABILITIES> 39,958
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 158,383
<SALES> 71,260
<TOTAL-REVENUES> 70,548
<CGS> 60,219
<TOTAL-COSTS> 2,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 398
<INCOME-PRETAX> 7,126
<INCOME-TAX> 2,419
<INCOME-CONTINUING> 4,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,707
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</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 a price increase in
late-December effective April 1, 1998 which increased the Company's current
replacement cost of steel by $10 per ton. Although the Company expects that the
price increase if sucessfully implemented will not be reflected in the Company's
cost of goods sold until the fourth quarter of fiscal 1998, no assurance can be
given as to 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
