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 JUNE 30, 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 organization) Identification No.)
16401 Swingly Ridge Road
Seventh Floor
Chesterfield, Missouri 63017
(Address of principal executive offices) (Zip Code)
(314) 733-1600
(Registrant's telephone number, including area code)
400 Chesterfield Center, Second Floor,
Chesterfield, Missouri 63017
(Former name, former address and 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 August 7, 1998
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial statements (Unaudited)
Condensed Consolidated Balance Sheets -- June 30, 1998
and September 30, 1997 3
Condensed Consolidated Statements of Income -- Three and Nine
month periods ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -- Nine
month period ended June 30, 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 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk -- Not Applicable
PART II. OTHER INFORMATION
Item 2. Changes in the Rights of the Company's Shareholders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, September 30,
1998 1997
(Unaudited) (Note)
------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................................$831...............$2,886
Accounts receivable, less allowances of $256 and
$388 on June 30, 1998 and September 30, 1997,
respectively.................................................................................16,997...............27,714
Inventories (see Note 2).......................................................................66,186...............69,436
Deferred income taxes...........................................................................5,104................5,104
Prepaid expenses and other current assets.........................................................981..................798
------------------- -------------------
Total current assets.......................................................................90,099..............105,938
PROPERTY, PLANT, AND EQUIPMENT
Less accumulated depreciation (June 30, 1998 -
$31,478; September 30, 1997 - $27,200).......................................................59,281...............55,506
OTHER ASSETS...........................................................................................780..................620
------------------- -------------------
TOTAL ASSETS......................................................................................$150,160.............$162,064
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..............................................................................$17,932..............$31,477
Accrued expenses and other liabilities.........................................................6,438...............12,614
Deferred revenue ...............................................................................4,612...............16,251
Current maturities of long-term debt..............................................................640..................604
------------------- -------------------
Total current liabilities..................................................................29,622...............60,946
LONG-TERM DEBT, less current maturities..............................................................8,366................8,879
REVOLVING CREDIT FACILITY ..........................................................................17,000...............10,000
DEFERRED INCOME TAXES ...............................................................................4,536................4,371
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 authorized shares,
15,437,474 and 15,410,974 issued shares, respectively.........................................154..................154
Additional paid-in capital.....................................................................43,568...............43,406
Retained earnings..............................................................................46,914...............34,308
------------------- -------------------
Total stockholders' equity.................................................................90,636...............77,868
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................................$150,160.............$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 Nine months ended
June 30 June 30
1998 1997 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES...................................................................$56,590.........$74,669........$213,617........$205,778
COSTS and EXPENSES
Cost of goods sold.......................................................50,919..........64,875.........183,843....... 181,629
Selling, general and administrative.......................................3,294...........3,530...........9,335 9,245
----------------------------------------------------------------
Income from operations....................................................2,377...........6,264..........20,439..........14,904
OTHER INCOME (EXPENSE)
Interest expense...........................................................(453)...........(497).........(1,274).........(1,491)
Other income (expense).......................................................(9).............(5).............61.............(25)
----------------------------------------------------------------
Income before income taxes................................................1,915...........5,762..........19,226..........13,388
PROVISION FOR INCOME TAXES.....................................................585...........1,824...........6,619...........3,883
----------------------------------------------------------------
NET INCOME ..................................................................$1,330..........$3,938.........$12,607..........$9,505
================================================================
BASIC EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE......................................................$0.09...........$0.26.......... $0.82........$0.63
================================================================
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE......................................................$0.09...........$0.25.......... $0.81........$0.62
================================================================
.....................................................................................................................................
Basic Earnings per common share:
Net income ..................................................................$1,330..........$3,938.........$12,607..........$9,505
Average shares outstanding...............................................15,437,474......15,022,780......15,436,737......14,972,370
Net income/average
shares outstanding .......................................................$0.09...........$0.26...........$0.82...........$0.63
================================================================
<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)
Nine Months Ended
June 30,
1998 1997
------------------------------
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OPERATING ACTIVITIES
Net income................................................................................................$12,607..........$9,505
(used) provided by operating activities:
Depreciation and amortization.............................................................................4,313...........3,983
Deferred income taxes.......................................................................................165.............800
Provision for accounts receivable allowances...............................................................(132)............103
Gain on sale of equipment....................................................................................--.............(51)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable..............................................................10,849.........(11,344)
(Increase) decrease in inventories.......................................................................3,250.........(16,094)
(Increase) decrease in prepaid expenses and other assets..................................................(379)...........(263)
(Decrease) increase in accounts payable................................................................(13,545)..........8,121
(Decrease) increase in deferred revenue ...............................................................(11,639)..........3,296
(Decrease) increase in accrued expenses and other liabilities...........................................(6,176)..........7,335
-------------- --------------
Cash (used) provided by operating activities............................................................(687)..........5,391
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................................................................(8,053).........(7,698)
FINANCING ACTIVITIES
Proceeds from borrowings...................................................................................81,751..........64,050
Principal payments on borrowings..........................................................................(75,228)........(59,943)
-------------- --------------
6,523 4,107
Net proceeds from sale of common stock .......................................................................162.............513
-------------- --------------
Cash provided by financing activities..................................................................6,685...........4,620
Increase (decrease) in cash and cash equivalents...........................................................(2,055)..........2,313
Cash and cash equivalents at beginning of period..............................................................2,886.............613
-------------- --------------
Cash and cash equivalents at end of period.....................................................................$831..........$2,926
============== ==============
<FN>
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest..............................................................................................$1,257..........$1,681
Income taxes..........................................................................................$5,824..........$2,352
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 nine month periods ended
June 30, 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:
June 30, September 30,
1998 1997
(In thousands)
Finished goods $40,297 $41,188
Work-in-process 2,405 3,589
Raw materials 12,685 14,065
In-transit materials 5,792 6,911
Storeroom parts 5,007 3,683
--------------------------------------
$66,186 $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 fell by 8%
for the quarter ended June 30, 1998, as compared to the same quarter of the
previous year. Natural gas drilling in the United States increased by 6% during
the third quarter of fiscal 1998 as compared to the comparable period of fiscal
1997, and oil related drilling decreased by 28%. The Company believes that the
oil drilling decrease was due to the 26% decrease in oil prices as compared to
the quarter ended June 30, 1997. In conjunction with the declining oil prices,
the trend in overall drilling continued downward, as drilling at the end of the
quarter was 5% lower than the current quarter average.
The Company estimates that shipments of domestic OCTG decreased by 19.8% during
the third quarter ended June 30, 1998 from the comparable prior year period.
Import penetration of the domestic OCTG market increased to an estimated 20%
during the quarter as compared to 17% during the same quarter last year.
Domestic consumption of OCTG decreased by an estimated 2% during the same
period. The domestic OCTG business was also impacted by an estimated 41%
increase in exports during the quarter ended June 30, 1998, with exports
accounting for an estimated 13% of domestic production during the quarter.
Maverick's domestic energy related shipments during the third quarter decreased
by 34.3% from the same quarter last year and its exports decreased 75.4% from
the same quarter of the previous year as the Company's shipments to Canada fell
due to a 31.4% reduction in the Canadian rig count. Industry inventory increases
created 15.7% additional demand in the current quarter, which was substantially
less than in the comparable quarter of 1997 when it created 31.9% additional
demand. The Company believes that the reduced demand for its OCTG was primarily
the result of continued lower levels of drilling associated with low oil prices
and the uncertain outlook for near-term drilling activity.
Management estimates that the demand for the Company's structural tube (hollow
structural sections or HSS) products increased by 11.1% in the third quarter of
fiscal 1998, compared to the comparable quarter of last year. In addition,
management estimates that the import level of HSS products rose in conjunction
with demand, capturing a market share of 27.0%, as compared to the comparable
quarter of last year when it's market share was 26.0%. Inventories of HSS held
by distributors were stable during the quarter as compared to the same quarter
last year. As a result of these market conditions, domestic shipments of HSS
rose by an estimated 9.6%. The Company's shipments of industrial products rose
by 19.0%, due to a 19.5% increase in HSS shipments and a 16.2% increase in
standard pipe shipments.
The Company's pricing of OCTG increased 5.7% due to a favorable product mix.
Line, structural and standard product pricing fell during the quarter by 6.0%,
1.2% and 5.8%, respectively due to pricing pressures from imports.
Steel costs, included in cost of goods sold, decreased during the third quarter
of fiscal 1998 by $26 per ton, or 7.6%, as compared to the quarter ended June
30, 1997 and decreased by $6 per ton, or 1.8%, as compared to the quarter ended
March 31, 1998. Effective April 1, 1998, the Company's major supplier of steel
announced a $10 per ton price increase. Effective July 27, 1998, the Company's
major suppliers of steel implemented a price decrease which will decrease the
Company's current replacement cost by $25 per ton. Based upon current inventory
levels, the Company estimates that a substantial portion of this cost decrease
will not be reflected in cost of goods sold until the first quarter of fiscal
1999.
RESULTS OF OPERATIONS
Total net sales decreased $18.1 million, or 24.2%, during the third quarter and
increased by $7.8 million, or 3.8%, for the nine months ended June 30, 1998 over
comparable periods of the preceding fiscal year. Energy products sales fell
sharply during the third quarter by $20.6 million, or 36.0%, and decreased $3.6
million or 2.3%, for the nine months ended June 30, 1998, while industrial
products sales increased $2.5 million or 14.8%, for the third quarter and
increased $11.4 million or 23.4%, for the nine months ended June 30, 1998 as
compared with the comparable periods in the prior year. These results are
primarily attributable to a decrease of 22.6%, from 120,130 tons to 92,983 tons,
during the third quarter and an increase of 0.6%, from 336,226 tons to 338,310
tons for the nine months ended June 30, 1998 in the Company's total product
shipments. Energy tons decreased 33,720 tons, or 39.4%, in the third quarter of
1998 as compared to the third quarter of 1997 and decreased 22,354 tons or 9.4%,
in the first nine months of 1998 as compared to the first nine months of 1997.
Shipments of industrial products increased 6,573 tons, or 19.0%, in the third
quarter of 1998 as compared to the third quarter of 1997 and increased 24,438
tons, or 24.9%, in the first nine months of 1998 as compared to the first nine
months of 1997. The sales and shipments of energy products during the third
fiscal quarter of 1998 fell sharply because of the following factors: (i) oil
drilling decreased by 28%, (ii) land drilling which creates the primary demand
for the Company's products decreased more than offshore drilling and (iii) a
75.4% decrease in Maverick's export sales. 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 third quarter of
fiscal 1998 and nine months ended June 30, 1998, as compared to the comparable
periods of fiscal 1997, increased by 5.7% from an average of $670 per ton to
$708 per ton and by 7.8% from an average of $659 per ton to $711 per ton,
respectively. This improvement in selling prices is primarily due to a favorable
change in the product mix toward more value added products. Average net selling
price for industrial products during the third quarter of fiscal 1998 and nine
months ended June 30, 1998, as compared to comparable periods of fiscal 1997,
decreased 3.5% from an average of $501 per ton to $483 per ton and 1.2% from an
average of $498 per ton to $492 per ton, respectively.
Cost of goods sold decreased $14.0 million or 21.5%, during the third quarter
and increased $2.2 million or 1.2%, for the first nine months of fiscal 1998
over comparable periods of fiscal 1997. Energy products cost of goods sold
decreased $16.6 million, or 33.4%, during the third quarter and $6.5 million or
4.7% for the nine months ended June 30, 1998. Industrial products cost of goods
sold increased $2.6 million or 17.1%, during third quarter and $8.7 million or
19.9%, for the nine months ended June 30, 1998. The overall decrease for the
quarter and the increase for the nine months ended June 30, 1998 was due
primarily to the change in product shipments. The overall unit cost per ton of
products sold increased 1.4% (from an average of $540 to $548) in the third
quarter of fiscal 1998 and 0.6% (from an average of $540 to $543) in the first
nine months of fiscal 1998 as compared to the comparable periods 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 $26 per ton over the third
quarter of fiscal 1997 and $15 per ton over the nine months ended June 30, 1998.
See "Overview."
Gross profit decreased $4.1 million or 42.1%, for the third quarter of fiscal
1998 and increased $5.6 million or 23.3%, for the first nine months of fiscal
1998 over comparable periods of fiscal 1997. Gross profit for energy products
decreased $4.1 million, or 52.3%, for the third quarter of fiscal 1998 and
increased $2.9 million, or 15.2%, for the first nine months of fiscal 1998,
while industrial products gross profit remained relatively stable in the third
quarter of fiscal 1998 and increased $2.7 million or 52.3%, for the first nine
months of fiscal 1998. The gross profit as a percentage of net sales ("gross
profit percentage") was 10.02% for the third quarter and 13.94% for first nine
months of fiscal 1998 compared to 13.12% and 11.74% for comparable periods of
fiscal 1997. Energy gross profit percentage decreased from 13.57% to 10.11% for
the third quarter of fiscal 1998 and increased from 12.03% to 14.18% for the
first nine months of fiscal 1998. Industrial products profit percentage
decreased from 11.60% to 9.86% for the third quarter and increased from 10.79%
to 13.31% for the first nine months of fiscal 1998. Energy and industrial
products gross profit percentage in the third quarter and first nine months of
fiscal 1998 benefited from decreased steel costs. Energy gross profit percentage
was also impacted by improved selling prices offset by higher conversion costs;
where, industrial products gross profit percentage was impacted by weakened
selling prices and higher conversion costs. During the fourth quarter of 1998,
the replacement cost of steel is expected to fall on average by $15 per ton due
to previously announced steel price changes by the Company's principal supplier.
It is expected that if the price decreases hold, the impact of these lower
replacement costs on costs of goods sold will primarily be felt in the first
fiscal quarter of 1999.
Selling, general and administrative expenses decreased by $236,000, or 6.7%, in
the third fiscal quarter and increased by $90,000 or 1.0%, in the first nine
months of fiscal 1998 over comparable periods of fiscal 1997. Selling, general
and administrative expenses for the third quarter of fiscal 1998 were impacted
by lower incentive compensation for selling and administrative employees.
Selling, general and administrative expenses for the first nine 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.
Selling, general and administrative expenses as a percentage of net sales
increased to 5.8% from 4.7% for the third fiscal quarter and decreased to 4.4%
from 4.5% for the nine month period ended June 30, 1998.
Interest expense decreased $44,000 or 8.9%, in the third fiscal quarter and
$217,000 or 14.6%, for the first nine months of fiscal 1998 compared to the
comparable periods 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 decreased $1.2 million or 67.9%, in the third
quarter and increased $2.7 million or 70.5%, in the first nine months of fiscal
1998 as compared to the comparable periods of fiscal 1997. This increase is
attributable to the higher level of pretax earnings generated by the Company in
the first nine 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 change in gross profit and the other factors discussed above,
net income decreased $2.6 million in the third fiscal quarter and increased $3.1
million in the first nine months of fiscal 1998 from comparable periods of
fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1998 was $60.5 million, and the ratio of current
assets to current liabilities was 3.0 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 $19.7 million decrease in accounts payable and accrued
liabilities and a $11.6 million decrease in deferred revenue, partially offset
by a $2.1 million decrease in cash, a $10.8 million decrease in accounts
receivable and a $3.3 million decrease in inventory. The decrease in accounts
payable and accrued liabilities resulted from the payment of estimated taxes and
a change in timing of steel purchases. Management believes that 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 June 1998 sales as compared to
September 1997 sales. Cash used in operating activities was $0.7 million for the
nine months ended June 30, 1998. The primary source of cash was net income,
exclusive of the impact of non-cash items (primarily depreciation and
amortization) of $16.9 million.
During the nine months ended June 30, 1998, cash used in investing activities
was $8.1 million, all of which was attributable to purchases of property, plant
and equipment.
Cash provided by financing activities was $6.7 million. The Company's Revolving
Credit Facility increased $7.0 million primarily to partially fund the increase
in working capital. The Company's other long-term indebtedness including current
maturities was reduced by approximately $513,000.
The Company's capital budget for fiscal 1998 is approximately $11.0 million of
which $8.1 million was expended during the nine months ended June 30, 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 June 30, 1998, the Company had an additional $2.3 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 June 30, 1998, the
applicable interest rate was 6.78 percent per annum and the Company had $10.2
million in unused availability under the Revolving Credit Facility. As of June
30, 1998, the Company had $831,000 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 mid year
1999. The costs of these updates will be 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 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SHAREHOLDERS
On July 24, 1998, the Company's Board of Directors approved a
Shareholder Rights Plan. The Rights Plan is designed to ensure that the
Company's shareholders would be treated fairly in any merger and to guard
against partial tender offers for its stock or other abusive takeover tactics.
The Rights Plan provides for the issuance of one stock purchase right for each
outstanding share of the Company's common stock as of August 3, 1998. The Rights
will become exercisable, only if a person acting without approval of the
Company's Board of Directors should acquire beneficial ownership of 20% or more
of the outstanding shares of the Company's common stock or announce an
unsolicited tender offer for the stock. If exercisable, the rights would give
all shareholders other than the 20% shareholder, the opportunity to buy
substantial amounts of the Company's common stock under terms and conditions
that would significantly dilute the twenty percent shareholder. Unless and until
exercisable, the Rights will trade with and be inseparable from the Company's
common stock and will be evidenced by the Company's existing common stock
certificates.
ITEM 5. OTHER INFORMATION
On June 22, 1998, the Company announced the appointment of Barry R. Pearl
as the Company's Vice President of Finance and Chief Financial Officer. Mr.
Pearl was formerly the Vice President and Chief Financial Officer for Santa Fe
Pacific Pipeline Partners, L.P. in Los Angeles, California, where he served in
various capacities for 14 years. Prior to being named CFO for Santa Fe in
January 1995, Mr. Pearl was Senior Vice President, Business Development and
Planning and also Vice President of Operations.
Unless otherwise required by law, under applicable regulations of the
Securities and Exchange Commission, proxies solicited by the Company in
connection with its 1999 annual meeting of shareholders shall confer upon the
individuals named therein discretionary voting authority to vote on matters the
Company did not receive notice of by October 28, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
10.1 Employment Agreement with Barry R. Pearl
11.1 Computation of Earnings per Share
27 Financial Data Schedule
99.1 Risk Factors
(b) Reports on Form 8-K. In a report dated July 24, 1998, the Company
reported the adoption of the Shareholder Rights Plan discussed in Item
2 above.
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: August 10, 1998 /s/ Gregg Eisenberg
-------------------
Gregg Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 1998 /s/ Barry Pearl
---------------
Barry Pearl
Chief Financial Officer
(Principal Financial Officer)
06/10/98
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of June 12, 1998 by and between Maverick Tube Corporation, a Delaware
corporation (the "Company") and Barry R. Pearl ("Executive").
Recitals. The Company desires to employ Executive as its Chief Financial
Officer and Vice President of Finance. Accordingly, the Company and Executive
desire to enter into this Agreement to set forth the terms and conditions of
Executive's employment with the Company.
Services. The Company agrees to employ Executive and Executive hereby
accepts such employment, in accordance with the terms of this Agreement,
commencing June 15, 1998. So long as this Agreement shall continue in effect,
Executive shall devote Executive's entire working time and attention to the
business, affairs and interests of the Company, shall use Executive's reasonable
best efforts and abilities to promote the Company's interests and shall perform
the services contemplated by this Agreement in accordance with policies
established by and under the direction of the Company's board of directors (the
"Board"). Nothing contained in this Section 2, however, shall prevent Executive
from engaging in additional activities in connection with personal investments
and community affairs provided that such additional activities are not
inconsistent with, and do not interfere with, to any significant extent,
Executive's duties under this Agreement.
Duties and Responsibilities. Executive shall serve as Chief Financial
Officer and Vice President of Finance of the Company for the duration of this
Agreement. In the performance of Executive's duties, Executive shall report
directly to the Company's Chief Executive Officer ("CEO") and shall be subject
solely to the direction of the CEO and to such reasonable limits on Executive's
authority as the Board may from time to time impose.
Executive agrees to observe and comply with the rules and regulations of
the Company respecting the performance of Executive's duties and agrees to carry
out and perform orders, directions and policies of the Company as they may be,
from time to time, stated in writing. The Company agrees that the duties which
may be assigned to Executive shall be reasonable, usual and customary duties of
the office or position to which Executive will from time to time be appointed or
elected and shall not be inconsistent with the provisions of the charter
documents of the Company or applicable law. Executive shall have such corporate
power and authority as shall reasonably be required to enable Executive to
perform the duties required in any office that may be held.
Indemnification. Executive shall be entitled to indemnification with
respect to all costs and expenses incurred by him on account of the fact he
becomes a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was or becomes a director,
officer, employee or agent of the Company, to the same extent as other senior
executive offices of the Company and consistent with the bylaws of the Company.
Compensation.
Base Compensation. During the term of this Agreement, the Company shall pay
Executive a base salary at the rate of $165,000 per year subject to upward
adjustment pursuant to Section 5(b) below (the "Base Salary"). The Base Salary
shall be earned monthly and shall be payable in periodic installments no less
frequently than monthly in accordance with the Company's customary payroll
practices for its senior executive officers.
Periodic Review. The Board shall review Executive's Base Salary and
Additional Benefits (as defined below) then being paid to Executive not less
frequently than every twelve months, beginning October 1, 1998. Following such
review, the Company may in its discretion increase (but shall not be required to
increase) the Base Salary or any other benefits, but may not decrease the Base
Salary during the term of this Agreement. The amount of such increase of Base
Salary combined with the previous year's Base Salary shall then constitute
Executive's Base Salary for purposes of this Agreement.
Bonus. Executive shall be entitled to participate in the Company's bonus,
incentive compensation and similar programs generally available to the executive
officers of the Company, currently consisting of the Company's "Gainsharing
Program" and its "Incentive Bonus Program," under which Executive shall be
entitled to earn an aggregate annual cash bonus of up to a maximum annual amount
equal to 75% of his then current Base Salary; provided that with respect to the
Company's 1998 fiscal year the cash bonus payable to Executive shall be an
amount equal to the same percentage received by the Company's other senior
executives times the aggregate of the monthly installments of the Base Salary
payable to Executive with respect to fiscal year 1998.
Stock Options. The Compensation Committee of the Board has granted to
Executive, under the Company's 1994 Stock Option Plan, options to purchase
80,000 shares of the Company's common stock (the "Options") at a purchase price
equal to the closing price of the Company's common stock on the Nasdaq Stock
Market (or, if not listed on such exchange, on a nationally recognized exchange
or quotation system on which trading volume in the Company's common stock is the
highest) on the business day immediately preceding the date Executive's
employment commences under this Agreement. Executive may exercise the Options,
in whole or in part, at any time during the period beginning on and including
June 15, 2001 and ending on and including June 14, 2008.
Club Membership Dues Allowance. During the term of this Agreement,
Executive shall be entitled to be paid an allowance for actual club membership
dues for health club membership and for golf or country club membership, payable
in accordance with the Company's customary practices.
Automobile Allowance. During the term of this Agreement, the Company shall
provide Executive with a vehicle of Executive's reasonable choice in accordance
with the Company's automobile business standards. The Company shall pay all
acquisition and operating expenses relating to such automobile up to an
aggregate monthly maximum of $600.
Vacation. Executive shall be entitled to paid vacation in accordance with
the plans, policies, programs and practices as in effect generally with respect
to other senior executive officers of the Company; provided, however, that
Executive shall be entitled to no less than 20 days vacation each calendar year
during the term of this Agreement in addition to all holidays of the Company.
Additional Benefits. Executive and/or his family, as the case may be, shall
also be entitled to participate in and shall receive all rights and benefits
under any pension plan, profit-sharing plan, life, medical, dental,
prescription, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans or programs, expense
reimbursement or other plan or benefit that the Company may provide for
Executive or (provided Executive is eligible to participate therein) for
executive officers of the Company, as from time to time in effect, during the
term of this Agreement (collectively, "Additional Benefits").
The Company shall have the right to deduct or withhold, subject to
Executive's employee elected deductions, from all compensation payable to
Executive under this Agreement any and all sums required for federal income and
Social Security taxes and all state and local taxes, if any, now applicable or
that may be enacted and become applicable in the future.
Termination. This Agreement and all obligations hereunder shall terminate
upon the earliest to occur of any of the following:
Voluntary Termination. The voluntary termination by Executive or retirement
by Executive from the Company in accordance with the normal retirement policies
of the Company.
Death or Disability of Executive. The Executive's employment shall
terminate automatically (i) upon his death, or (ii) the determination by the
Company, in good faith, that the disability (as defined below) of Executive has
occurred, provided that the Company shall have given Executive written notice in
accordance with Section 13 of its intention to terminate Executive's employment.
For the purposes of this Agreement, "disability" shall mean the absence of
Executive performing Executive's duties with the Company on a full-time basis
for a period of 180 days during any 12 months' period as a result of incapacity
due to mental or physical illness as determined by a physician selected by the
Company or its insurers and acceptable to Executive or Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably). For the purposes of this Agreement, "incapacity" shall be limited
only to such disability which substantially prevents the Company from availing
itself of the services of Executive hereunder. If Executive's employment is
terminated by reason of Executive's death or disability, this Agreement shall
terminate without further obligations to Executive (or Executive's heirs or
legal representatives) under this Agreement, other than for (1) payment of the
sum of (A) Executive's annual Base Salary through the date of termination to the
extent not theretofore paid, (B) any accrued bonus due to Executive based on a
pro rata allocation of such bonus as of the date of termination, (C) any
compensation previously deferred by Executive (together with any accrued
interest or earnings thereon), and (D) any accrued vacation pay, in each case to
the extent not theretofore paid (the sum of the amounts described in clauses
(A), (B), (C) and (D) shall be hereinafter referred to as the "Accrued
Obligations"), which shall be paid to Executive or Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days after the date
of termination or any earlier time required by applicable law; and (2) payment
to Executive or Executive's estate or beneficiary, as applicable, of any amount
accrued pursuant to the terms of any applicable benefit plan.
Termination for Cause. The Company may terminate Executive's employment for
cause. For purposes of this Agreement, the term "cause" shall mean that the
Company, acting in good faith based upon the information then known to the
Company, after due inquiry, and upon reasonable grounds, determines that
Executive (i) shall have been convicted of a felony or a misdemeanor, which
misdemeanor materially impairs Executive's ability to perform his duties, or
(ii) Executive's material breach of this Agreement. Notwithstanding the
foregoing, Executive shall not be terminated for cause pursuant to clause (ii)
of this Section 6(c) unless and until Executive has received notice of a
proposed termination for cause and Executive has had an opportunity to be heard
before all of the members of the Board. Executive shall be deemed to have had
such an opportunity if given written notice at least ten (10) calendar days in
advance of a meeting.
Without Cause. Notwithstanding any other provision of this Section 6, the
Board shall have the right to terminate Executive's employment with the Company
without cause at any time, but any such termination other than as expressly
provided in Section 6(a), (b) or (c) herein shall be without prejudice to
Executive's rights to receive a pro rata bonus through such termination date. If
Executive is so terminated without cause, Executive shall receive from the
Company within ten (10) days of the date of such termination a lump sum payment
equal to Executive's then current Base Salary. This lump sum payment shall be in
lieu of all rights of Executive other than the Options, including any rights to
any Additional Benefits hereunder, all of which other than the Options shall
terminate upon the payment of such lump sum amount except to the extent
expressly governed by any other written agreement between the Company and
Executive.
Change in Control. Upon 30 days prior written notice to Executive, the
Company may terminate Executive's employment at any time within 24 months
following a "change in control" (as hereinafter defined). In the event
Executive's employment is so terminated, then the Company shall pay in lump sum
cash to Executive, within 15 days of the effective date of termination, an
amount equal to either (i) three times the Base Salary if the change in control
occurs on or before June 14, 1999, or (ii) if the change in control occurs any
time on or after June 15, 1999 and Executive's employment is terminated within
the time period following the change in control set forth below, the applicable
factor times the Base Salary:
Effective Date
of Termination
(from June 15, 1999) Factor
0-6 months 2.0
7-12 months 1.5
13-18 months 1.0
19-24 months .5
For purposes of this Agreement, a "change in control" means, and shall be deemed
to have taken place, if: (i) any person or entity or group of affiliated persons
or entities (other than shareholders as of the date hereof), including a group
which is deemed a "person" by Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, acquires in one or more transactions, ownership of 35% or more
of the outstanding capital stock of the Company; or (ii) the Company is merged
or consolidated into an unrelated company in a transaction in which the
outstanding voting securities of the Company immediately prior to such merger or
consolidation do not constitute or represent more than 80% of the combined
voting power of voting securities of the surviving entity after such merger or
consolidation.
The Company shall pay on behalf of Executive all taxes imposed on Executive
under Section 4999(a) of the Internal Revenue Code of 1986 as amended ("Code"),
resulting from payments or other benefits to Executive under this Section 6(e)
being deemed "excess parachute payments," as such term is defined in Section
280(G)(b) of the Code (the "Subject Taxes"). Additionally, the Company shall pay
to Executive an amount which will as closely as reasonably practicable
approximate any additional income or excise taxes payable by Executive as a
result of the payment of the Subject Taxes on behalf of Executive pursuant to
the preceding sentence.
Resignation for Good Reason. In the event of a change in control, Executive
may terminate his employment and this Agreement for "good reason" (as
hereinafter defined) at any time within 24 months following the change in
control in which event Executive shall be entitled to receive his then current
Base Salary for the remainder of the period beginning with the date on which
Executive terminates his employment and ending on the second anniversary of the
date on which the change in control occurred. For the purposes of this
Agreement, "good reason" means each of the following: (i) any action by the
Company which results in a significant reduction in Executive's position,
authority, duties or responsibilities, including for this purpose any material
change in Executive's employment location; (ii) any reduction in the
compensation payable to Executive not agreed to in writing by Executive, which
reduction shall be deemed to occur if there is (A) a reduction in Executive's
then current Base Salary or (B) a material reduction in Executive's ability to
participate in employee benefit plans, receive expense reimbursements, receive
other fringe benefits, receive office and support staff, or receive paid
vacation; (iii) the material breach of any of the Company's obligations under
this Agreement without Executive's express written consent; or (iv) the good
faith determination by Executive that the business philosophy and policies of
the Company are not compatible with those of Executive.
Executive acknowledges his understanding that it is the intent of the
Company to revise its currently existing severance policy applicable to the
Company's executive officers (the "Revised Severance Policy") and that Executive
will have significant responsibility in the development and implementation of
the Revised Severance Policy. The parties acknowledge that it is their
respective intent that upon the effectiveness of such Revised Severance Policy,
such Revised Severance Policy will supersede those provis1ions of this Agreement
covering the same subject matter (the "Covered Provisions"), such as, for
example Section 6(e) dealing with certain rights of Executive upon a change in
control. Accordingly, and notwithstanding anything to the contrary contained
herein, it is agreed that upon the effectiveness of the Revised Severance
Policy, the terms of such Revised Severance Policy, as same may be modified from
time to time, shall supersede all Covered Provisions contained herein, and to
the extent of any inconsistency between the terms of this Agreement and the
Revised Severance Policy, the terms of the Revised Severance Policy shall
prevail.
Relocation and Temporary Living Expenses. In order to defray moving
expenses and temporary living expenses incurred by Executive in moving from
Irvine, California to St. Louis County, Missouri, Employer shall reimburse
Employee for all reasonable expenses incurred for the following:
(a) Moving the household goods and personal effects of
Executive and his family from Executive's residence in Irvine,
California, to the new place of residence selected by Executive in
Missouri;
(b) Airfare for Executive or his spouse for one round trip per
week between California and St. Louis, Missouri, or vice versa, taken
during the initial 120 days of Executive's employment with the Company;
(c) All the settlement costs incurred by Executive in selling
his residence in Irvine, California, as set forth on a copy of the
seller's closing costs statement provided by Executive to the Company;
(d) All the settlement costs incurred by Executive in
purchasing his residence in Missouri, as set forth on a copy of the
buyer's closing costs statement provided by Executive to the Company,
excluding points, if any, paid by Executive to the lender for the loan
to finance the purchase of such residence;
(e) Airfare for a single one-way flight from California to St.
Louis, Missouri for Executive and his spouse to relocate from Irvine,
California to Missouri; and
(f) Monthly rent for the period June 22, 1998 through October
31, 1998, for a furnished two-bedroom apartment in the vicinity of the
Company's corporate headquarters for Executive and his spouse.
The Company shall also pay to Executive the amount of any federal, state and
local taxes payable by Executive by reason of Executive's receipt of the amounts
described in this Section 7 (including, without limitation, the payment
described in this sentence).
Non-Disclosure Covenant. Executive acknowledges that: (i) during the term
hereof and as a part of his employment, Executive will be afforded access to
Confidential Information (as herein defined); (ii) disclosure of such
Confidential Information could have an adverse effect on the Company and its
business; (iii) the Company has required that Executive make the covenants in
this Section 8 as a condition to his employment with the Company; and (iv) the
provisions of this Section 8 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information. In consideration of the
compensation and benefits to be paid or provided to Executive by the Company
under this Agreement, Executive covenants as follows:
During and following his employment with the Company, Executive will hold
in confidence the Confidential Information and will not disclose it to any
non-Company person except (1) if and to the extent required by court order,
subpoena or other lawful order of a governmental authority, (2) with the
specific prior written consent of the Company or (3) except as otherwise
expressly permitted by the terms of this Agreement.
Any trade secrets of the Company will be entitled to all of the protections
and benefits of all applicable law. If any information that the Company deems to
be a trade secret is found by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this
Agreement. To the extent permitted by law, Executive hereby waives any
requirement that the Company submit proof of the economic value of any trade
secret or post a bond or other security.
None of the foregoing obligations and restrictions applies to any part of
the Confidential Information and Executive demonstrates was or became generally
available to the public other than as a result of a disclosure by Executive in
violation of this Section 8.
Executive will not remove from the Company's premises (except to the extent
such removal is for purposes of the performance of Executive's duties at home or
while traveling, or except as otherwise specifically authorized by the Company)
any document, record, notebook, plan, model, component, device, or computer
software or code, whether embodied in a disk or in any other form (collectively,
the "Proprietary Items"). Executive recognizes that, as between the Company and
Executive, all of the Proprietary Items, whether or not developed by Executive,
are the exclusive property of the Company. Upon termination of this Agreement by
either party, or upon the request of the Company, Executive will return to the
Company all of the Proprietary Items in Executive's possession or subject to
Executive's control, and Executive shall not retain any copies, abstracts,
sketches, or other physical embodiment of any of the Proprietary Items.
As used herein, the term "Confidential Information" means any and all trade
secrets concerning the business and affairs of the Company, product
specifications, data, know how, formula, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions and ideas, past,
current and planned, research and development, current and plan manufacturing or
distribution methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business plans, computer
software and programs (including object code and source code), computer software
and data base technology, systems, structures and architectures, inventions,
discoveries, concepts, ideas, designs, methods and information, however
documented, projected sales, capital spending, budgets and plans, the names and
backgrounds of key personnel, personal training and techniques and material and
all similar information of the type that would generally be deemed proprietary
in nature.
Non-Competition and Non-Interference. Executive acknowledges that: (i) the
services to be performed by him under this Agreement are of a special, unique
and intellectual character; (ii) the Company's business is national in scope and
its products are marketed throughout the United States; (iii) the Company
competes with other businesses that are or could be located in any part of the
United States; (iv) the Company has required that Executive make the covenants
set forth in this Section 9 as a condition to Executive's employment by the
Company; and (v) the provisions of this Section 9 are reasonable and necessary
to protect the Employer's business. In consideration of the acknowledgments by
Executive, and in consideration of the compensation and benefits to be paid or
provided to Executive by the Company, Executive covenants that he will not,
directly or indirectly:
during term of his employment with the Company (the "Employment Period"),
except in the course of his employment hereunder, and during the Post-
Employment Period (defined below), engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with, or
in any manner connected with, lend Executive's name or any similar name to,
lend Executive's credit to or render services or advice to, any
business whose products or activities "compete to any significant
extent" (as hereinafter defined) in whole or in part with the products or
activities of the Employer anywhere within the United States (the phase
"compete to any significant extent" means that the products or activities
constitute or are anticipated to constitute, as of the date of termina-
tion of Executive's employment, 15% of the revenues of the Company);
provided, however, that Executive may purchase or otherwise acquire up
to (but not more than) one percent of any class of securities of any enter-
prise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g)
of the Securities Exchange Act of 1934;
whether for Executive's own account or for the account of any other person,
at any time during the Employment Period and the Post-Employment Period,
solicit business of the same or similar type being carried on by the
Company, from any person known by Executive to be a customer of the
Company, whether or not Executive had personal contact with such person
during and by reason of the Executive's employment with the Company.
whether for Executive's own account or the account of any other person (i)
at any time during the Employment Period and the Post-Employment Period,
solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the
Company at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Company to terminate his employment
with the Company; or (ii) at any time during the Employment Period and the
Post-Employment Period, interfere with the Employer's relationship with any
person, including any person who at any time during the Employment Period
was an employee, contractor, supplier, or customer of the Company; or
at any time during the Employment Period and the Post-Employment Period,
disparage the Company or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 9, the term "Post-Employment Period" means the
one year period beginning on the date of termination of Executive's employment
with the Company.
If any covenant of this Section 9 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of the, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section
9 will be extended by the duration of any violation by Executive of such
covenant.
Executive will, while the covenant under this Section 9 is in
effect, give notice to the Company, within ten days after accepting any other
employment from a person who competes to any significant extent (as defined in
Section 9(d) above), of the identity of such employer. The Company may notify
such employer that the Executive is bound by this Agreement and, at the
Company's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
General Provisions. Executive acknowledges that the injury that would be
suffered by the Company as a result of a breach of the provisions of this
Agreement (including any provision of Section 8 and 9) would be irreparable and
that an award of monetary damages to the Company for such a breach would be an
inadequate remedy. Consequently, the Company will have the right, in addition to
any other rights it may have, to obtain injunctive relief to restrain any breach
or threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Company will not be obligated to post bond or other security
in seeking such relief.
The covenants by Executive in Sections 8 and 9 are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, the Company would not have entered into this Agreement or
employed Executive. The Company and Executive have independently consulted their
respective counsel and have been advised in all respects concerning the
reasonableness and propriety of such covenants, with specific regard to the
nature of the business conducted by the Company.
Executive's covenants in Sections 8 and 9 are independent
covenants and the existence of any claim by Executive against the Company under
this Agreement or otherwise, will not excuse Executive's breach of any covenant
in Section 7 or 8.
If Executive's employment hereunder expires or is terminated,
this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Executive in Sections
8 and 9.
Executive represents and warrants to the Company that the
execution and delivery by Executive of this Agreement do not, and the
performance by Executive of Executive's obligations hereunder will not, with or
without the giving of notice or the passage of time, or both: (a) violate any
judgment, writ, injunction, or order of any court, arbitrator, or governmental
agency applicable to Executive; or (b) conflict with, result in the breach of
any provisions of or the termination of, or constitute a default under, any
agreement to which Executive is a party or by which Executive is or may be
bound.
Severability. If any provision of this Agreement is held to be unenforceable for
any reason, it shall be adjusted rather than voided, if possible, to achieve the
intent of the parties to the extent possible. In any event, all other provisions
of this Agreement shall be deemed valid and enforceable to the extent possible.
Succession. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee shall
be deemed substituted for the Company under the terms of this Agreement for all
purposes. As used herein, "successor" and "assignees" shall include any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or
otherwise. The obligations and duties of Executive under this Agreement are
personal and otherwise not assignable. Executive's obligations and
representations under this Agreement will survive the termination of Executive's
employment, regardless of the manner of such termination.
Notices. Any notice or other communication provided for in this Agreement shall
be in writing and sent if to the Company at the address set forth on the
signature page hereof or at such other address as the Company may from time to
time in writing designate, and if to Executive at the address set forth on the
signature page hereof or at such address as Executive may from time to time in
writing designate. Each such notice or other communication shall be effective
(i) if given by written telecommunication, three (3) days after its transmission
to the applicable number so specified in (or pursuant to) this Section 13 and a
verification of receipt is received, (ii) if given by certified mail, once
verification of receipt is received, or (iii) if given by any other means, when
actually delivered to the addressee at such address and verification of receipt
is received.
Entire Agreement. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof and supersedes any prior
agreements, undertakings, commitments and practices relating to Executive's
employment by the Company.
Amendments. No amendment or modification of the terms of this Agreement
shall be valid unless made in writing and duly executed by both parties.
Waiver. No failure on the part of any party to exercise or delay in
exercising any right hereunder shall be deemed a waiver thereof or of any other
right, nor shall any single or partial exercise preclude any further or other
exercise of such right or any other right.
Governing Law. This Agreement, and the legal relations between the parties,
shall be governed by and construed in accordance with the laws of the State of
Missouri without regard to conflicts of law doctrines and any court action
arising out of this Agreement shall be brought in any court of competent
jurisdiction within the State of Missouri, County of St. Louis.
Counterparts. This Agreement and any amendment hereto may be executed in
one or more counterparts. All of such counterparts shall constitute one and the
same agreement and shall become effective when a copy signed by each party has
been delivered to the other party.
Headings. Section and other headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
[Signatures on next page]
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
"THE COMPANY"
Maverick Tube Corporation
a Delaware corporation
___/s/ Gregg M. Eisenberg__________
Gregg M. Eisenberg,
President and Chief Executive Officer
Maverick Tube Corporation
16401 Swingley Ridge Road, Suite 700
Chesterfield, MO 63017
Attention: Board of DirectorS
"EXECUTIVE"
___/s/ Barry R. Pearl_______________
Barry R. Pearl
13 Trovita
Irvine, California 92620
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiaries
Exhibit 11.1 Computation of Earnings per Share
For quarter ended June 30 For nine months ended June 30
---------------------------------- --------------------------------
1998 1997 1998 1997
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Basic:
Average shares outstanding 15,437,474 15,022,780 15,436,737 14,972,370
Net income used in per share calculation $ 1,330,000 $ 3,938,000 $12,607,000 $9,505,000
Net income per common share $ 0.09 $ 0.26 $ 0.82 $ 0.63
Diluted:
Average shares outstanding 15,437,474 15,022,780 15,436,737 14,972,370
Net effect of stock options 168,946 290,580 198,642 206,333
---------------- --------------- --------------- --------------
15,606,420 15,313,360 15,635,379 15,178,703
Net income used in per share calculation $ 1,330,000 $ 3,938,000 $12,607,000 $9,505,000
Rounding difference 0.00 0.00 0.00 0.00
Net income per common share $ 0.09 $ 0.26 $ 0.81 $ 0.63
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
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<RECEIVABLES> 17,253
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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. Effective July 27, 1998, the Company's
major suppliers of steel implemented a price decrease which will decrease the
Company's current replacement cost by $25 per ton. Based upon current inventory
levels, the Company estimates that a substantial portion of this cost decrease
will not be reflected in cost of goods sold until the first quarter of fiscal
1999.
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.
