<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For The Fiscal Year Ended September 30, 1999.
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 0-30146
MAVERICK TUBE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 43-1455766
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16401 Swingley Ridge Road
Seventh Floor
Chesterfield, Missouri 63017
(Address of principal executive offices) (Zip Code)
(636) 733-1600
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Share Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of the 17,603,072 shares of Common Stock held by
non-affiliates of the Registrant as of December 9, 1999 was $374,065,280 based
upon the closing price as reported on the NASDAQ National Market on that date.
As of December 9, 1999, the Registrant had 17,768,474 outstanding shares of
Common Stock.
_________________________________
DOCUMENTS INCORPORATED BY REFERENCE
As provided herein, portions of the documents listed below are incorporated
herein by reference:
Document Part - Form 10-K
Annual Report to Stockholders for the Fiscal
Year Ended September 30, 1999 Parts I, II and IV
Proxy Statement for the 2000 Annual Meeting of Stockholders Part III
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I.
Item 1. BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
SIGNATURES
EXHIBIT INDEX
We make forward-looking statements in this Form 10-K and in our public documents
that are incorporated by reference, which represent our expectations or beliefs
about future events and financial performance. You can identify these statements
by forward-looking words such as "expect," "believe," "anticipate," "goal,"
"plan," "intend," "estimate," "may," "will" or similar words. Forward-looking
statements are subject to known and unknown risks, uncertainties and
assumptions, including:
* oil and gas price volatility;
* steel price volatility;
* domestic and foreign competitive pressures;
* fluctuations in industry-wide inventory levels;
* the presence or absence of governmentally imposed trade restrictions;
* asserted and unasserted claims;
* our ability and the ability of entities with which we do business to modify or
redesign our and their computer systems to work properly in the year 2000;
and
* those other risks and uncertainties discussed in Exhibit 99.1 of this Form
10-K and elsewhere in this and our other filings with the Securities and
and Exchange Commission.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed may not occur. In addition, actual results could differ
materially from those suggested by the forward-looking statements. Accordingly,
you should not place undue reliance on the forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
PART I
ITEM 1
BUSINESS
General
As used herein, unless the context otherwise requires, the terms "we," "us,"
"our" or "Maverick" refer to Maverick Tube Corporation and its subsidiaries.
Maverick Tube Corporation, together with its three subsidiaries Maverick
Investment Corporation, Maverick Tube, L.P. and Maverick Tube International,
Inc. comprise the entire corporate entity. Maverick Tube Corporation was
incorporated in Missouri in 1977 and reincorporated in Delaware in 1987.
Maverick Investment Corporation and Maverick Tube, L.P. are both Delaware
entities while Maverick Tube International, Inc. is incorporated in Barbados.
In October 1997, we contributed the operating assets and related liabilities of
our two operating divisions (i.e. our Texas Division and our Arkansas Division),
which constituted substantially all of our assets and liabilities, to Maverick
Tube, L.P., a limited partnership (the "Operating Company"). Maverick Tube
Corporation holds a 5% equity interest in the Operating Company as its sole
general partner. Maverick Investment Corporation, a wholly-owned subsidiary of
Maverick Tube Corporation, holds a 95% equity interest in the Operating Company
as its sole limited partner. This restructure was effected to more accurately
reflect the manner in which we conduct our business. As a result of this re-
structure, Maverick now conducts substantially all of its operations through the
Operating Company.
Our Company
We are a leading domestic producer of tubular steel products used in energy and
industrial applications. We manufacture "oil country tubular goods," which are
steel tubular products used in the completion and production of oil and natural
gas wells. We also serve the energy industry by manufacturing line pipe, which
is used primarily in the transportation of oil and natural gas. For industrial
applications, we manufacture structural tubing and standard pipe. We also
recently began producing "cold drawn tubing" in our industrial products segment,
which is used as a component of high quality products that require close
tolerances. During fiscal 1999, energy products accounted for approximately 59%
of our total revenues.
To further our growth and enhance our ability to compete in our energy and
industrial businesses, we plan to expand our current product lines to include
larger diameter pipe and tubing products. As the focal point to this expansion,
we intend to construct and equip a new large-diameter facility immediately
adjacent to our current facilities in Hickman, Arkansas, at an estimated cost of
$40.0 million. We have chosen this strategic location for the new facility to
achieve significant cost-saving advantages. These advantages include:
* utilization of lower-cost, non-union labor;
* access to rail, truck and barge transportation;
* proximity to the Nucor Corporation steel mill, Maverick's
primary steel supplier; and
* shared overhead.
Based principally on historical product relationships and our assumptions about
markets, we estimate that our current product size range allows us to compete
for approximately 49% of the total tons consumed in all of the markets we serve.
Similarly, we estimate that our expansion into the production of larger diameter
pipe and tubing products should allow us to compete for approximately 67% of the
total tons consumed in these markets. This represents an estimated increase of
approximately 37% of the total tons consumed for which we can compete in the
markets we serve. We believe we will begin limited production of select
industrial and energy products at the new facility by July 2000 with full
production capability of all products by October 2000.
The following table summarizes our current manufacturing facilities and the
products they produce:
Facility Products Sizes (1)
Hickman, Arkansas Oil country tubular goods 1 1/2" - 5 1/2"
Line pipe 1 1/2" - 5 9/16"
Standard pipe 2" - 5"
Hickman, Arkansas Structural tubing 1 1/2" - 8"
Conroe, Texas Oil country tubular goods 4 1/2" - 9 5/8"
Line pipe 4 1/2" - 8"
Structural tubing 4 1/2" - 8"
Standard pipe 6" - 8"
Beaver Falls, Pennsylvania Cold drawn tubular products 1 7/8" - 12"
(1) Represents outside diameter measurement. Structural tubing can have a
square, rectangular or round cross-section.
For information with regard to total revenue, operating profit or loss and
identifiable assets attributable to each of the energy and industrial product
segments, see Note 11 to the Consolidated Financial Statements on page 24 of our
Annual Report to Stockholders for the Fiscal Year Ended September 30, 1999
("1999 Annual Report"), portions of which are filed as Exhibit 13, hereto.
Our Business Strategy
Increase Market Share By Expanding Our Existing Product Lines. We believe that
the expansion of our product lines in both the energy and industrial segments of
our business will allow us to increase our market share by capitalizing on our
existing customer relationships to market additional products. Our planned
construction and equipping of the new large-diameter facility is an important
part of this strategy.
Identify And Enter New Markets. We continually seek and make acquisitions and
capital expenditures to enter new markets as evidenced by our entry into the
structural tube market in 1994, our recent entry into the cold drawn tubular
market and our planned expansion of our product lines. We intend to seek
additional opportunities to expand our business to new markets where we believe
we can compete effectively and profitably.
Continually Improve The Efficiency Of Our Manufacturing Process. We intend to
continue to pursue our objective of being a low-cost, high-volume producer of
quality steel tubular products by seeking to:
* maintain product manufacturing cost controls;
* maximize production yields from raw materials;
* make capital expenditures designed to lower costs and improve quality;
* minimize unit production costs through effective utilization of plant
capacity; and
* minimize freight costs.
Deliver Quality Products And Service To Our Customers. We believe that we have
achieved an excellent reputation with our existing customers. We intend to
continue to build long-term customer relationships with new and existing
customers by seeking to:
* offer broad-based product lines;
* focus on product availability;
* deliver competitively priced quality products; and
* provide a high level of customer support before and after the sale.
The Energy Pipe Industry
General. Oil country tubular goods consist of drill pipe, production casing,
surface casing and production tubing. Drill pipe is used and may be reused to
drill wells. Production casing forms the structural wall in oil and gas wells to
provide support and prevent caving during drilling operations and is generally
not removed after its has been installed in a well. Surface casing is used to
protect water-bearing formations during the drilling of a well. Production
tubing is placed within the casing and is used to convey oil and natural gas to
the surface and may be replaced during the life of a producing well.
The domestic oil country tubular goods market is affected by several factors,
the most significant being the number of oil and natural gas wells being
drilled. The level of drilling activity is largely a function of current prices
for oil and natural gas and the industry's future price expectations. The prices
are determined by various supply and demand factors, such as consumption levels,
current inventory levels, weather, import levels, production economics and
future expectations. The following chart shows the price of oil and natural gas
since October 1996:
WTI Oil Price Avg. U.S. Natural Gas Price
10/96 $24.90 $2.12
11/96 $23.79 $2.76
12/96 $25.27 $3.77
1/97 $25.23 $3.56
2/97 $22.61 $2.44
3/97 $22.54 $1.77
4/97 $19.60 $1.88
5/97 $20.87 $2.09
6/97 $19.30 $2.13
7/97 $19.46 $2.09
8/97 $19.97 $2.29
9/97 $19.77 $2.72
10/97 $21.56 $2.94
11/97 $20.57 $3.17
12/97 $18.54 $2.29
1/98 $16.58 $2.08
2/98 $16.54 $2.08
3/98 $15.11 $2.17
4/98 $15.47 $2.37
5/98 $15.09 $2.13
6/98 $13.76 $2.05
7/98 $14.04 $2.19
8/98 $13.65 $1.84
9/98 $14.69 $1.83
10/98 $14.55 $1.91
11/98 $13.51 $2.01
12/98 $11.21 $1.69
1/99 $12.53 $1.80
2/99 $11.94 $1.71
3/99 $14.80 $1.69
4/99 $17.27 $1.99
5/99 $18.04 $2.21
6/99 $17.73 $2.22
7/99 $20.18 $2.18
8/99 $21.20 $2.70
9/99 $23.39 $2.58
The most commonly cited indicator of the level of domestic drilling activity is
the Baker Hughes rig count which represents the number of active oil and natural
gas rigs currently being operated in the U.S. Since July 1987, the Baker Hughes
rig count hit a high in December 1990 of 1,179 rigs and a low in April 1999 of
488. However, by September 30, 1999, the active rig count increased 49.6% from
this low to 730 rigs. The following chart shows the U.S. rig count at each month
end since October 1996 and our shipments of oil country tubular goods for the
same period:
Baker Hughes Maverick Oil Country
Rig Count Tubular Goods Shipments
10/96 837 25,658
11/96 850 19,655
12/96 852 26,873
1/97 822 21,492
2/97 849 23,957
3/97 897 22,799
4/97 897 23,182
5/97 935 24,924
6/97 976 28,125
7/97 974 30,156
8/97 993 28,255
9/97 1,009 32,355
10/97 996 28,117
11/97 983 26,797
12/97 1,011 32,398
1/98 991 23,177
2/98 974 19,514
3/98 932 20,599
4/98 884 16,133
5/98 850 16,480
6/98 854 14,807
7/98 816 13,814
8/98 792 15,591
9/98 774 14,719
10/98 734 13,058
11/98 688 8,294
12/98 653 15,619
1/99 594 8,959
2/99 542 7,784
3/99 526 9,227
4/99 495 11,159
5/99 516 14,213
6/99 562 16,575
7/99 590 16,728
8/99 645 18,796
9/99 711 24,822
The domestic oil country tubular goods market is also affected by the level of
industry inventories maintained by manufacturers, distributors and end users.
When customers draw-down on inventory rather than purchase new products, this
has an adverse effect on the demand for new production. Conversely, when
distributors and end users increase inventory levels, this has a positive effect
on the demand for new production. For calendar years 1996 and 1997, increasing
industry inventory levels added an estimated 4.3% and 14.6%, respectively, to
oil country tubular goods demand for new production. However, for calendar year
1998, declining industry inventory levels satisfied 8.5% of oil country tubular
goods consumption. Management believes that at September 30, 1999 industry
inventories are at or below normal levels in relation to demand, as months of
supply of inventory has decreased from 8.3 months at fiscal year end 1998 to 5.4
months at fiscal year end 1999, a decrease of 34.9%.
Import levels of foreign oil country tubular goods also significantly affect
the domestic oil country tubular goods market. High levels of imports reduce the
volume sold by domestic producers and tend to suppress selling prices. We
believe that domestic import levels are affected by, among other things, overall
world demand for oil country tubular goods, the trade practices of and
government subsidies to foreign producers and the presence or absence of
governmentally imposed trade restrictions in the U.S. Since 1986, the level of
imports of oil country tubular goods from Canada and Taiwan has been reduced by
the existence of duties imposed by the United States government. The U.S.
International Trade Commission is in the process of reviewing these duties in
1999. In addition, since 1995, the level of imports of oil country tubular goods
from Argentina, Italy, Japan, Korea and Mexico has also been reduced by the
existence of anti-dumping duties. The U.S. International Trade Commission is
scheduled to review these duties in 2000. If these duties expire or are renewed
on a less stringent basis, we could be exposed to increased competition from
imports.
The following table illustrates certain factors related to industry-wide
domestic drilling activity, domestic oil country tubular goods consumption,
shipments, imports and inventories during the calendar years presented:
Year Ended December 31,
----------------------
1998 1997 1996
----------------------
U.S. drilling activity
Average rig count 831 943 779
===== ===== ======
U.S. oil country tubular goods consumption
(in thousands of tons):
U.S. producer shipments 1,217 2,097 1,742
Imports 343 412 231
Inventory (increase)/decrease 156 (349) (84)
Used pipe 111 223 78
-----------------------
Total U.S. consumption 1,827 2,383 1,967
=======================
The rig count in the table is based on weekly rig count reporting from Baker
Hughes, Inc. U.S. consumption of oil country tubular goods is based on our
estimate of per rig consumption of oil country tubular goods multiplied by the
Baker Hughes rig count. Total U.S. consumption (in thousands of tons) as
reported by Pipe Logix, Inc., an independent domestic oil country tubular goods
industry reporting service for calendar 1996, 1997 and 1998 was 1,775, 2,025 and
1,668, respectively. Imports are as reported by Duane Murphy and Associates in
"The OCTG Situation Report." Inventory (increase)/decrease are management
estimates based upon independent research by Duane Murphy and Associates.
Inventory (increase)/decrease (in thousands of tons) as reported by Pipe Logix,
Inc. for calendar years 1998, 1997 and 1996 was 136, (671) and (366),
respectively. Used pipe quantities are calculated by multiplying 8.3 recoverable
tubing and casing tons (as determined by independent research performed by Duane
Murphy and Associates) by the number of abandoned oil and gas wells as
determined by the completed wells per year as reported by the American Petroleum
Institute adjusted for the net change in active wells as reported by World Oil.
U.S. producer shipments are calculated using the above components.
Manufacturers produce oil country tubular goods in numerous sizes, weights,
grades and end finishes. We believe that most oil country tubular goods are
produced to American Petroleum Institute specifications. The grade of pipe used
in a particular application depends on technical requirements for strength,
corrosion resistance and other performance qualities. Oil country tubular goods
are generally classified into groupings of "carbon" and "alloy" grades. Carbon
grades of oil country tubular goods have yield strength levels of 75,000 pounds
per square inch or less and are generally used in oil and natural gas wells
drilled to depths less than 8,000 feet. Alloy grades of oil country tubular
goods have yield strength levels of 75,000 pounds per square inch or more and
are generally used in oil and natural gas wells drilled to depths in excess of
8,000 feet, or for high temperature wells, highly corrosive wells or critical
applications.
Carbon and alloy grades of oil country tubular goods are available from both
electric resistance welded and seamless pipe producers. Electric resistance
welded pipe is produced by processing flat rolled steel into strips which are
cold-formed, welded, heat-treated or seam-annealed and end-finished with threads
and couplings. Seamless products are produced by individually heating and
piercing solid steel billets into pipe and then end finishing such pipe into oil
country tubular goods in a manner similar to electric resistance welded pipe. We
believe that the seamless manufacturing process involves higher costs than the
welded process and that, as a result, seamless products are generally priced
higher than comparable welded products.
Based on published industry statistics, electric resistance welded products,
which did not have significant market penetration prior to the mid-1970's, now
account for approximately half of the tonnage of domestic oil country tubular
goods consumed annually. We believe electric resistance welded products have
captured a significant majority of the carbon grade oil country tubular goods
market, while seamless products retain a significant majority of the alloy grade
oil country tubular goods market. We also believe that further significant
market penetration of welded products will depend upon increased market
acceptance of welded products and technological advances in the types of raw
materials and equipment utilized in the electric resistance welding process.
Line pipe products are used for surface production flow lines, gathering systems
and pipeline transportation and distribution systems for oil, natural gas and
other fluids. Line pipe is produced in both welded and seamless form. Line pipe
markets are dependent not only on the factors which influence the oil country
tubular goods market, but also on the level of pipe line construction activity,
line pipe replacement requirements, new residential construction and utility
purchasing programs.
Our Products. We manufacture oil country tubular goods used for production
tubing, production casing and surface casing, and we also manufacture line pipe.
We do not make drill pipe. We produce all of our oil country tubular goods and
line pipe using only the electric resistance welding process.
The following table shows our oil country tubular goods and line pipe shipments
in tons, net sales and as a percentage of overall net sales measured in dollars:
<TABLE>
<CAPTION>
Oil Country Tubular Goods Line Pipe
------------------------------- ------------------------------
Net Sales % of Net Sales % of
Period Tons (000's) Net Sales Tons (000's) Net Sales
- ----------- ------- --------- --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1999 165,200 $ 93,331 54.1% 19,758 $ 8,533 4.9%
Fiscal 1998 242,146 173,329 65.3 21,097 11,496 4.3
Fiscal 1997 308,427 208,932 71.8 26,501 14,947 5.1
</TABLE>
Our decreased sales of oil country tubular goods in fiscal 1998 were due to
declining demand and a smaller industry inventory increase. Our decreased sales
of oil country tubular goods in fiscal 1999 were due to declining demand and
draw-downs of industry inventories. Our decreased sales of line pipe in fiscal
1998 and 1999 were due in large part to competition from imported pipe.
Our energy products meet or exceed applicable American Petroleum Institute
standards. In addition, similar to other producers, we manufacture oil country
tubular goods in custom or proprietary grades. We design and engineer our custom
and proprietary oil country tubular goods to be used in similar applications as
products meeting American Petroleum Institute standards and to provide
performance features comparable to products meeting those standards. We warrant
our American Petroleum Institute casing and tubing to be free of defects in
material or workmanship in accordance with the Institute's applicable
specifications. In addition, we warrant our proprietary grade products to be
free of defects in accordance with our published standards. We have not incurred
significant costs in connection with these warranties. We maintain insurance
coverage against potential claims in an amount which we believe to be adequate.
We manufacture finished goods in both carbon and alloy steel grades. Virtually
all of our products are fully completed or "end-finished" at our facilities. In
contrast, some of our competitors outsource the end-finishing of their products
or do not end-finish their products at all, thus adding to their freight and
handling costs. The end-finish process includes, as appropriate, upsetting,
beveling, threading, pressure testing and the application of couplings. Our
fully finished oil country tubular goods are ready to be installed in oil or
natural gas wells. By end-finishing our products, we are better able to control
quality, cost and service to customers. Both of our energy facilities provide
heat-treatment capabilities necessary for the production of alloy grade pipe.
Our alloy grade tubing and casing products accounted for 24%, 24% and 21% of the
tons of energy products sold in fiscal 1999, 1998 and 1997. Carbon grade tubing
and casing accounted for the balance of these tons.
We manufacture oil country tubular goods and line pipe ranging in size from 1
1/2" to 9 5/8" in outside diameter. Excluding drill pipe, which we do not
manufacture, approximately 61% of the total oil country tubular goods and line
pipe tonnage produced in the western hemisphere in calendar 1997 fell into this
size range. Approximately 19% of the total tonnage produced was greater than 9
5/8" through 16" in outside diameter, and the remaining 20% was outside this
size range.
Our planned construction and enhancement of the large-diameter facility will
enable us to manufacture oil country tubular goods and line pipe in sizes
ranging from 1 1/2" to 16" in diameter. This capability will broaden our pro-
duct line of oil country tubular goods and line pipe. We expect the product
line expansion to allow us to increase market share by selling to our existing
customers with minimal increases in cost, improve our bargaining position with
existing distributors and increase complementary product sales of existing pro-
ducts by offering larger sizes.
Marketing. We sell oil country tubular goods and line pipe primarily throughout
the United States and Canada to numerous distributors, which then resell the
pipe to major and independent oil and natural gas production, gathering and
pipeline companies. Sales to Canadian customers in fiscal 1999, 1998 and 1997
were $11.3 million, $17.9 million and $26.3 million, respectively. Sales to
other foreign customers in fiscal 1999, 1998 and 1997 made up an additional
$200,000, $900,000 and $400,000, respectively. Our marketing philosophy
emphasizes delivering competitively priced quality products and providing a high
level of service to our customers. With the completion of our new large diameter
facility, we plan to also market ourselves as a broad line supplier of oil
country tubular goods and line pipe products. We maintain inventories of
finished goods that are housed at both of our production facilities and at field
locations close to the areas of drilling activity which allows us to provide
timely delivery of our products.
As of September 30, 1999 and 1998, our backlog orders (including bill and hold
orders not yet shipped) for oil country tubular goods and line pipe products
were approximately $47.6 million and $19.5 million, respectively. All of the
backlog orders as of September 30, 1999 are expected to be filled by the end of
fiscal 2000. We consider only $3.7 million and $3.6 million of our backlog
orders, respectively, to be firm as remaining orders may generally be cancelled
without penalty. Our backlog orders, as of any particular date, may not be in-
dicative of our actual operating results for any fiscal period. We cannot
give any assurance that the amount of backlog at any particular date will
ultimately be realized.
At June 1, 1999 the average price we charged for our oil country tubular goods
had decreased to $559 per ton from $665 per ton in November 1998 and $760 per
ton in late 1997. At September 30, 1999 the average price charged increased to
$579 per ton due to a price increase of $20 per ton effective June 30, 1999. On
September 1, 1999, we increased the price of our oil country tubular goods
another $80 per ton. These increases have allowed us to increase our price per
ton to levels close to the November 1998 level or just over one-half of the
total decrease since late 1997. We cannot assure you that any of our price
increases will hold.
In fiscal 1999, four distributors, including National-Oilwell, Inc. combined to
become Sooner Pipe & Supply Corp. ("Sooner"), one of the largest distribu-
tors of oil country tubular goods. Sooner accounted for 13% of our net
sales for fiscal 1999. Also, in fiscal 1999, another distributor, McJunkin
Appalachian Oilfield accounted for an additional 13%of our net sales. In fiscal
1998 and 1997, one distributor, National-Oilwell, Inc., accounted for 14% of our
net sales in each year. In fiscal 1997, another distributor, Master Tubulars,
Inc., accounted for 11% of our net sales. We currently use several distribu-
tors and believe that additional qualified distributors are available to assist
us in meeting the end-users' needs. While we believe that we could replace any
one distributor, including Sooner or Master Tubulars, with other qualified
distributors, the loss of Sooner or Master Tubulars could have a material ad-
verse effect on our net sales or results of operations.
Manufacturing. We manufacture oil country tubular goods and line pipe products
at our facilities in Hickman, Arkansas and Conroe, Texas. We believe we will
begin limited production of select industrial and energy products at our new
large diameter facility adjacent to our Hickman, Arkansas facilities, by July
2000 with full production capability of all products by October 2000. The
facilities are strategically located to serve the energy markets in the United
States. We can currently produce at a consolidated maximum rate of approximately
669,000 tons of finished products per year with approximately 477,000 tons
currently dedicated to energy related products. After completion of our new
large-diameter facility, we expect these amounts to increase to 919,000 tons and
627,000 tons per year, respectively. We operated our energy facilities at a
capacity utilization of approximately 40% during fiscal 1999 and approximately
55% during fiscal 1998.
In order to control our manufacturing costs, we attempt to maximize production
yields from purchased steel and reduce unit labor costs. In fiscal 1999 and
fiscal 1998, purchased steel represented approximately 61% and 67%,
respectively, of our cost of goods sold. For fiscal 1999 and fiscal 1998, direct
and indirect labor costs accounted for approximately 12% and 10%, respectively,
of our cost of goods sold. We control labor costs by automating some of our
activities and by seeking to optimize product throughput and scheduling. We
maintain an innovative compensation plan at our Hickman, Arkansas and Conroe,
Texas facilities, whereby employees receive quarterly bonuses for superior
productivity and cost savings. In addition, some employees are eligible to
receive annual profitability bonuses based on our consolidated earnings. The
maximum achievable incentives and bonuses range from 15% to 75% of an employee's
salary and wages.
During fiscal 1999 and fiscal 1998, we spent $3.0 million and $7.5 million,
respectively, on new capital equipment for our energy facilities. Our capital
budget for fiscal 2000 is $4.0 million. We expect these capital expenditures to
result in manufacturing cost savings, quality improvements and/or expanding or
maintaining production capabilities and product lines. In addition, we expect to
spend approximately $40.0 million to construct and equip the new large-diameter
facility that will produce, in part, oil country tubular goods and line pipe in
larger sizes than we currently produce.
Competition. The suppliers of oil country tubular goods and line pipe products
face a highly competitive market. We believe that the principal competitive
factors affecting our business are price, quality, delivery, availability and
service. We believe we enjoy an excellent reputation for quality products and
outstanding customer service. We compete with several domestic and numerous
foreign producers of oil country tubular goods, some of which have greater
financial resources than we do. In the oil country tubular goods market, our
more significant competitors are Lone Star Steel Company and Newport Steel
Company, which produce electric resistance welded pipe, and United States Steel
Corporation and North Star Steel Company, which primarily produce seamless pipe.
We also compete in the line pipe market with these same competitors, and with
foreign producers of oil country tubular goods, most of which are units of large
foreign steel makers. During calendar years 1997 and 1998 and the first nine
months of 1999, we estimate that domestic oil country tubular goods market pene-
tration of tons consumed by imports was 17.3%, 18.8% and 9.0%, respectively.
The Structural Tube and Standard Pipe Industry
General. Our structural tubing products are used in the following applications:
* construction, including handrails, building columns and bridge frames;
* transportation, including boat trailers;
* agricultural, including farm implement components and tillage equipment;
* material handling, including storage rack systems and conveying systems
support; and
* recreational, including exercise equipment.
In addition, structural tubing is an attractive alternative to other structural
steel forms, such as I-beams and H-beams. Structural tubing products offer
strength and other product characteristics similar to beams, but with less steel
content, resulting in lower costs to the end user in many applications.
Structural tubing and standard pipe are produced by processing flat rolled steel
into strips which are cold-formed, welded and heat-treated or seam-annealed. The
machinery and equipment used for the manufacture of structural tubing products
are similar to that used for the manufacture of oil country tubular goods.
Structural tubing and standard pipe are not, however, subject to the same degree
of tolerances as are oil country tubular goods, which results in lower
production costs related to testing and inspection than for oil country tubular
goods. Moreover, structural tubing does not require end finishing, flash
elimination for the welding process or seam-annealing. Because less finishing is
required of structural tubing products as compared to oil country tubular goods,
the average cost per ton to convert steel into structural tubing is
significantly less than oil country tubular goods.
We believe that demand for structural tubing is influenced primarily by the
level of general economic activity in the United States. We estimate that
domestic consumption of structural tubing during calendar years 1998, 1997 and
1996 was 2.0 million, 1.9 million and 1.7 million tons, respectively.
Standard pipe products are used in industrial applications such as steam, water,
air and gas lines, and plumbing and heating. As with structural tubing, we
believe that demand for standard pipe is influenced primarily by the level of
general economic activity in the United States. We estimate that domestic
consumption of standard pipe during calendar years 1998, 1997 and 1996 was 2.6
million, 2.7 million and 2.6 million tons, respectively. In recent years,
standard pipe has faced limited new competition from plastic pipe in certain
applications.
Our Products. We produce square, rectangular and round structural tubing at our
facilities in sizes ranging from 1 1/2 to 8" square and the equivalent sizes
in rectangular and round tubing. Our products range from .120 to .0500 inches in
thickness. Because of the large number of applications for structural tubing
and standard pipe, the number of different products produced for the industrial
market is considerably larger than that produced for the oil country tubular
goods market. The annual capacity at our Hickman structural facility is
approximately 192,000 tons. We were operating at approximately 86% of our
structural capacity during fiscal 1998 and 67% of capacity during fiscal 1999.
The following table shows our structural tubing and standard pipe shipments in
tons, net sales and as a percentage of overall net sales measured in dollars:
<TABLE>
<CAPTION>
Structural Tubing Standard Pipe
------------------------------ ------------------------------
Net Sales % of Net Sales % of
Period Tons (000's) Net Sales Tons (000's) Net Sales
- ----------- ------- --------- --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1999 129,829 $56,369 32.7% 18,447 $ 8,414 4.9%
Fiscal 1998 142,779 68,892 26.0 22,196 11,632 4.4
Fiscal 1997 111,735 54,639 18.8 23,294 12,542 4.3
</TABLE>
Completion of the new large-diameter facility will increase the size range of
our structural tube and standard pipe offerings, thus allowing us to market a
broader line of products for industrial applications. As a result of this new
facility, we expect to gain additional complementary sales by offering larger
sizes, while limiting the amount of additional expenses. We also believe this
new facility will allow us to market ourselves as a broad line producer of
structural tubing and standard pipe.
Marketing. The structural tubing and standard pipe markets are somewhat regional
in nature, primarily because order sizes are smaller and lead-time requirements
are shorter than for oil country tubular goods. We currently sell principally to
distributors, but since fiscal 1997, we significantly increased our sales to
large end-user customers. As in the case of oil country tubular goods, our
marketing strategy emphasizes delivering competitively priced quality products
and providing a high level of service to our customers. In addition, we expect
our marketing ability will be enhanced by the addition of larger diameter pipe
and tubing that we will produce upon completion of our large-diameter facility.
Because the application of structural tubing and standard pipe products is
diverse, and a short lead time is required for customer satisfaction, we
maintain inventory levels, in terms of months of supply, comparable to those for
oil country tubular goods. This finished goods inventory will consist of a
larger number of items than in the case of oil country tubular goods. We use
experienced manufacturing representatives in our sales efforts.
As of September 30, 1999 and 1998, our backlog of orders for structural tubing
and standard pipe was $6.1 million and $5.5 million, respectively. All of the
backlog orders as of September 30, 1999 are expected to be filled by the end of
fiscal 2000. We do not consider any of our backlog orders to be firm as they may
generally be cancelled without penalty. Our backlog orders as of any particular
date may not be indicative of our actual operating results for any fiscal
period. We cannot give any assurance that the amount of backlog at any given
time ultimately will be realized.
Manufacturing. We are currently producing structural square and rectangular
shaped tubing products in our structural tube facility located in Hickman,
Arkansas. We are also currently producing structural round tubing products and
standard pipe at our two energy facilities in Hickman, Arkansas and Conroe,
Texas and expect to begin production of larger sized structural tubing and
standard pipe upon completion of our large diameter facility to be located
adjacent to our Hickman, Arkansas location by July 2000.
Based upon historical product relationships and our assumptions about the
market, we estimate that the sizes of structural tubing products we currently
are capable of manufacturing account for 85% of the domestic tonnage of all
sizes of domestic structural tubing products consumed. Similarly, after
completing the new large diameter facility, we estimate that we should be
capable of manufacturing sizes that account for more than 97% of domestic
tonnage consumed.
Based on an industry source, we believe that the types of standard pipe products
we are capable of manufacturing account for approximately 25% of the domestic
tonnage of all types of standard pipe products consumed. After completing the
new large diameter facility, we expect to be capable of manufacturing more than
41% of the domestic tonnage of all sizes of products consumed.
Consistent with our manufacturing strategy for oil country goods production, we
believe we are a low-cost, high-volume producer of quality structural tubing and
standard pipe products. We believe that the application of our efficient
manufacturing process originally developed for the production of oil country
tubular goods, the labor costs at our Arkansas facility and the strategic
location of the facility provide a conversion cost advantage relative to the
majority of existing domestic structural tubing and standard pipe manufacturers.
During fiscal 1999 and fiscal 1998, we spent $1.5 million and $722,000,
respectively, on additional equipment needed for manufacturing of structural
tubing and standard pipe products. Our capital budget for fiscal 2000 is $3.0
million. We expect these capital expenditures to result in manufacturing cost
savings and quality improvements.
Competition. Although a significant market for structural tubing is located
within a 400 mile radius of our Hickman structural facility, no other major
structural tubing facility is currently located within this area. Foreign
competition, primarily from Canada, represented 23%, 22% and 23% of total
domestic sales of structural tubing in calendar years 1998, 1997 and 1996,
respectively. We compete primarily against several domestic and numerous foreign
producers of structural tubing. Our more significant structural tube competitors
are Leavitt Tube Company, Inc., Welded Tube Corporation of America, Copperweld,
Bull Moose Tube Corporation and Ex-L-Tube, Inc.
A significant market for standard pipe also exists. Foreign competition has had
a large presence in the standard pipe market. Foreign competition represented
approximately 31%, 24% and 25% of total domestic sales of standard pipe in
calendar years 1998, 1997 and 1996, respectively. Our more significant standard
pipe competitors are Wheatland Tube Company, Armco, Inc., Sawhill Tubular
Division, Laclede Steel Company and IPSCO Tubulars, Inc.
We believe that the principal competitive factors affecting our structural
tubing and standard pipe businesses are price, product availability, delivery
and service.
The Cold Drawn Tubing Market
General. The cold drawn tubing market is made up of mechanical or pressure
tubing used for applications that require closer tolerances and/or a better
surface finish than ordinary electrical resistance welded or seamless tubing.
The following table describes some of these applications:
Industrial Uses Oilfield Uses Consumer Uses
- ------------------------- ---------------------- --------------------
Hydraulic, pneumatic Mud pumps Motorcycle forks
and gas cylinder stock
Precision pumps Exercise equipment
Power takeoff and auger
shafts Perforating tubes Office furniture
Electric motor housings Subsurface pump shells Playground equipment
Conveyor rollers Coupling stock Bicycles
Axles Boat trailers
Cold drawn tubing starts with either a plain-end electric resistance welded or
seamless tube. The source tube is then pulled through a die and over a mandrel
to create precise outside and inside diameters or wall tolerances and to create
a smoother finish.
The cold drawn tubing market is driven primarily by the general economy. Other
factors include agricultural prices and infrastructure construction due to the
large quantity of cold drawn tubing consumed in cylinder manufacturing for
agriculture and construction machinery. We believe the market size is currently
about 516,000 tons per year. Imports have typically satisfied 5% of consumption.
The market is made up of three segments based upon outside diameter and wall
thickness of the tube, as follows:
Outside Diameter Wall Thickness
----------------- --------------
Group 1 through 4" through .134"
Group 2 4" through 7 1/2" through .320"
Group 3 above 7 1/2" all
Our Products. We primarily manufacture and sell cold drawn tubing products in
the Group 2 and Group 3 market segments as shown above. As of September 30,
1999, the sales of our cold drawn tubing products had not reached material
levels.
Marketing. Our current customer base for cold drawn tubing is primarily made up
of service centers. Generally, because cold drawn tubing products are components
of larger products, order sizes range from 5,000 to 10,000 pounds, which is
smaller than our typical order sizes for structural tubing or oil country
tubular goods. We almost always manufacture cold drawn tubing products to order
resulting in a finished goods inventory that is smaller than our finished goods
inventory of structural or energy products. Currently, the industry lead time
for cold drawn tubing is approximately six to seven weeks.
As of September 30, 1999, our backlog of cold drawn tubing orders was
approximately $900,000. We do not consider any of our backlog firm. Our backlog
orders as of any particular date may not be indicative of our actual operating
results for any fiscal period. We cannot give any assurance that the amount of
backlog at any given time ultimately will be realized.
Manufacturing. In fiscal 1998, we acquired the assets used in the production of
cold drawn tubular products at our production facility in Beaver Falls,
Pennsylvania. This facility began production during the first quarter of fiscal
1999. We expect to supply approximately 75% of this facility's raw material
requirements from our other production facilities. We purchase the remainder
from outside sources, which include both smaller diameter pipe that is less than
1 9/10" and larger diameter pipe that is greater than 10", and seamless pipe.
During fiscal 1999, we spent approximately $2.7 million on additional equipment
for the Beaver Falls facility. Our capital budget for fiscal 2000 is $2.0
million. We expect these capital expenditures to result in manufacturing cost
savings and quality improvements. We currently have approximately 75,000 tons of
drawing capacity annually.
Competition. A significant market for drawn tubing is located within a 500 mile
radius of the Pennsylvania facility. Our primary competitors in this market are
Alliance Midwest, Copperweld, Lone Star Steel, LTV, Metal Matic, Pacific Tube,
Plymouth Tube, Pittsburgh Tube, Vision Metals and Webco. We believe that the
principal competitive factors affecting our drawn tubular products are price,
quality, product availability, delivery and service.
Raw Materials
We make all steel purchases at our headquarters in order to optimize pricing,
quality, availability and delivery of our raw materials. During 1998, we
consumed approximately 2.0% of the total amount of hot rolled steel produced in
the United States. Accordingly, we believe that we are generally considered to
be a significant purchaser by our steel suppliers. We maintain favorable working
relationships with our steel suppliers and believe that we are treated favorably
with respect to volume allocations and deliveries. We presently purchase the
majority of our steel from several domestic suppliers, with approximately 75% of
consolidated purchases made from Nucor Corporation. Nucor's mill in Hickman,
Arkansas is directly connected by rail to our Hickman facilities, thus
eliminating our raw material freight costs for raw materials purchased from
Nucor. To date, we have not experienced any significant disruption in our supply
of raw materials.
Employees
As of September 30, 1999, we employed approximately 1,035 persons, of whom
approximately 20% were salaried and approximately 80% were employed on an hourly
basis. None of our employees are represented by a union. We consider our
employee relations to be excellent.
ITEM 2
PROPERTIES
We lease approximately 40,000 square feet of office space in Chesterfield,
Missouri for our executive offices under a lease which expires in 2008. We use
110 acres of our 160 acre site in Hickman, Arkansas for two facilities with
approximately 315,000 square feet of oil country tubular goods manufacturing
and storage space which utilizes 55 acres. A 275,000 square foot structural tube
manufacturing plant is located adjacent to the existing oil country tubular
goods facility. Approximately 120,000 square feet of this facility is utilized
for manufacturing with the remainder used for inventory and material storage and
shipping. We occupy both facilities under separate leases, each providing us an
option to purchase which is exercisable on the expiration dates of the leases.
The expiration dates are August 1, 2007 for the oil country tubular goods
facility and February 1, 2004 for the structural tube facility. Approximately 50
acres remain in Hickman, Arkansas for future expansion, including the 40 acres
required for the new large-diameter facility. We also own 117 acres and a
244,000 square foot manufacturing facility located in Conroe, Texas. Of the 117
acres, approximately 30 acres is used for manufacturing and storage and 60
acres is available for future expansion. We lease a 21 acre site and a 370,000
square foot manufacturing facility in Beaver Falls, Pennsylvania for the
production of cold drawn tubing, with an option to purchase which is exercisable
on September 17, 2001 which is the expiration date of the lease. Each manu-
facturing facility operated by Maverick is served by truck, has its own rail
spur, other than the Beaver Falls facility, and is within close proximity of
barge facilities.
We believe each of our facilities is in good condition, is adequately insured
and is adequate and suitable for our planned level of operations.
ITEM 3
LEGAL PROCEEDINGS
General. From time to time, we are involved in litigation relating to claims
arising out of our operations in the normal course of our business. We maintain
insurance coverage against potential claims in an amount which we believe to be
adequate. We believe that we are not presently a party to any litigation in
which the outcome would have a material adverse effect on our business or
operations.
Environmental Matters. We are subject to federal, state and local environmental
laws and regulations concerning, among other things, waste water disposal and
air emissions. We believe we are currently in compliance with all applicable
environmental regulations.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted, during the fourth quarter of fiscal 1999
covered by this report, to a vote of our security holders through the solicita-
tion of proxies or otherwise.
ITEM 4A
OUR EXECUTIVE OFFICERS
Name Age Title
- -------------------------------------------------------------------------------
Gregg M. Eisenberg 49 Chairman of the Board, President and
Chief Executive Officer
Barry R. Pearl 50 Vice President - Finance and Administration,
Treasurer, Secretary and Chief Financial Officer
Sudhakar Kanthamneni 52 Vice President - Manufacturing and Technology
T. Scott Evans 52 Vice President - Commercial Operations
Set forth below are descriptions of the backgrounds of our executive officers
and their principal occupations for at least the last five years:
Gregg M. Eisenberg has served as Chairman of the Board since February 1996. He
has served as President, Chief Executive Officer and a director of Maverick
since 1988. Prior to joining Maverick in 1983, he was employed with Central
Steel Tube Company for six years. He is a former director and past chairman of
the Committee on Pipe and Tube Imports.
Barry R. Pearl has served as Vice President - Finance and Administration,
Treasurer, Secretary and Chief Financial Officer since June 1998. He was
formerly employed by Santa Fe Pacific Pipeline Partners, L.P. in Orange,
California where he was the Senior Vice President and Chief Financial Officer
from January 1995 until March 1998 and Senior Vice President, Business
Development from 1992 to January 1995.
Sudhakar Kanthamneni has served as Vice President - Manufacturing and Technology
of Maverick since August 1992. From May 1991 to August 1992, Mr. Kanthamneni
served as Maverick's Vice President - Manufacturing. Prior to joining Maverick
in 1987, he was employed with Central Steel Tube Company for ten years.
T. Scott Evans has served as Vice President - Commercial Operations of Maverick
since September 1992. Prior to joining Maverick in 1988 as General Sales
Manager, he was employed with Wolverine Tube Corporation. From January 1981 to
June 1986, Mr. Evans was employed with Republic Steel Corporation.
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding Maverick's Common Stock included on page 28 of the 1999
Annual Report under the caption "MARKET FOR OUR COMMON EQUITY AND RELATED STOCK-
HOLDER MATTERS" is incorporated herein by this reference.
ITEM 6
SELECTED FINANCIAL DATA
Selected Financial Data included on page 27 under the caption "Historical
Financial Information" of the 1999 Annual Report is incorporated herein by this
reference.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations included on pages 12 through 17 of the 1999 Annual Report is
incorporated herein by this reference.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, the notes thereto and the Report of Ernst
& Young LLP included on pages 17 through 26 of the 1999 Annual Report are
incorporated herein by this reference.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference from our
definitive proxy statement which is being filed with the Securities and Exchange
Commission within 120 days of the end of our most recent fiscal year. See also
Part I, Item 4A hereof.
ITEM 11
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from our
definitive proxy statement which is being filed with the Securities and Exchange
Commission within 120 days of the end of our most recent fiscal year.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference from our
definitive proxy statement which is being filed with the Securities and Exchange
Commission within 120 days of the end of our most recent fiscal year.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference from our
definitive proxy statement which is being filed with the Securities and Exchange
Commission within 120 days of the end of our most recent fiscal year.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. 1. Financial Statements
The following consolidated financial statements of Maverick Tube
Corporation and Subsidiaries, included in the 1999 Annual Report,
are incorporated herein by reference in Item 8:
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 1999 and
1998.
Consolidated Statements of Operations for the years ended
September 30, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements as of September
30, 1999.
2. Financial Statement Schedule
The following consolidated financial statement schedule of
Maverick Tube Corporation and Subsidiaries is included with this
Annual Report on Form 10-K:
Schedule II Valuation and Qualifying Accounts for the years
ended September 30, 1999, 1998 and 1997.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
3. Exhibits:
See Exhibit Index.
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this Annual Report on Form 10-K pursuant to Item
14(c) of this report:
Maverick Tube Corporation Amended and Restated 1990 Stock
Option Plan
Maverick Tube Corporation Savings for Retirement Plan as
revised on January 1, 1993
Amended Maverick Tube Corporation 1994 Stock Option Plan
Amended Maverick Tube Corporation Director Stock Option Plan
Form of Deferred Compensation Agreement with Certain
Executive Officers
Employment Agreement with Barry R. Pearl
Form of Severance Agreement with Executive Officers
b. Reports on Form 8-K:
No Reports of Form 8-K were filed during the fourth quarter
of the Registrant's fiscal year ended September 30, 1999.
<TABLE>
Maverick Tube Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(In thousands)
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged
beginning cost and to other Deductions Balance at
Classification of year expenses accounts (describe) end of year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1997:
Deducted from asset accounts:
Accounts receivable allowances $ 629 $ 44 $ -- $ 285 (1) $ 388
Valuation allowance for deferred taxes $1,147 $ -- $ -- $(1,147) (2) $ --
Year ended September 30, 1998:
Deducted from asset account:
Accounts receivable allowances $ 388 $ 3 $ -- $ -- $ 391
Year ended September 30, 1999:
Deducted from asset account:
Accounts receivable allowances $ 391 $151 $ -- $ -- $ 542
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) Resulted from the utilization of net operating and alternative minimum loss
carryforwards and reevaluation of remaining deferred tax assets.
</FN>
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
December 15, 1999 /s/ Gregg M. Eisenberg
---------------------------------------------
Gregg M. Eisenberg, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
December 15, 1999 /s/ Gregg M. Eisenberg
----------------------------------------------
Gregg M. Eisenberg, Chairman, President and
Chief Executive Officer and Director
(Principal Executive Officer)
December 15, 1999 /s/ Barry R. Pearl
----------------------------------------------
Barry R. Pearl, Vice President - Finance and
Administration
(Principal Financial and Accounting Officer)
December 15, 1999 /s/ William E. Macaulay
----------------------------------------------
William E. Macaulay, Director
December 15, 1999 /s/ John M. Fox
----------------------------------------------
John M. Fox, Director
December 15, 1999 /s/ C. Robert Bunch
----------------------------------------------
C. Robert Bunch, Director
December 15, 1999 /s/ C. Adams Moore
----------------------------------------------
C. Adams Moore, Director
December 15, 1999 /s/ David H. Kennedy
----------------------------------------------
David H. Kennedy, Director
December 15, 1999 /s/ Wayne P. Mang
----------------------------------------------
Wayne P. Mang, Director
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Registrant
dated March 18, 1991, as amended by a Certificate of Amendment of
Certificate of Incorporation dated September 1, 1998, filed herewith.
3.2 Certificate of Designations of Rights, Preferences and Privileges of
Series I Junior Participating Preferred Stock, incorporated herein by
reference to Exhibit 3.2 to the Registrant's Registration Statement
on Form S-3, File No. 333-87045.
3.3 Amended and Restated Bylaws of the Registrant, as amended,
incorporated herein by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1998 (the "1998 Form 10-K").
4.1 Shareholder Rights Agreement dated as of July 24, 1998 between the
Registrant and Harris Trust and Savings Bank as Rights Agent
incorporated herein by reference to Exhibit 1 of the Registrant's
Form 8-A filed on August 5, 1998, as amended by the Registrant's
Form 8-A/A (Amendment No. 1), filed on July 7, 1999.
4.2 Form of Stock Certificate for Common Stock, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration Statement
on Form S-1, File No. 33-37363.
10.1 Lease and Agreement dated July 24, 1992, by and between the
Registrant and the Arkansas Development Finance Authority (the
"Authority"), incorporated herein by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992.
10.2 Maverick Tube Corporation Amended and Restated 1990 Stock Option
Plan, incorporated herein by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1991.
10.3 Maverick Tube Corporation Savings for Retirement Plan effective on
February 15, 1988, as amended, incorporated herein by reference to
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
10.4 Lease Agreement dated as of March 1, 1994, between the Authority,
as lessor, and the Registrant as lessee, related to the Registrant's
Arkansas Structural Facility, incorporated herein by reference to
Exhibit 10.14 to the Registrant's Registration Statement on Form S-2,
File number 33-80096.
10.5 First Supplemental Trust Indenture to Lease Agreement between the
Authority, as lessor and the Registrant, as lessee relating to the
Registrant's Arkansas Structural Facility, dated July 1, 1994,
incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1994.
10.6 Supplement to the Second Term Loan Agreement dated December 15, 1994,
incorporated herein by reference to Exhibit 10.16 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 (the "1994 Form 10-K").
10.7 The Maverick Tube Corporation 1994 Stock Option Plan, incorporated
herein by reference to Exhibit 10.17 of the 1994 Form 10-K.
10.8 The Maverick Tube Corporation Director Stock Option Plan,
incorporated herein by reference to Exhibit 10.18 of the 1994
Form 10-K.
10.9 Form of Deferred Compensation Agreement between the Registrant and
Messrs. Gregg M. Eisenberg, T. Scott Evans and Sudhakar Kanthamneni
dated October 1, 1995, incorporated herein by reference to Exhibit
10.22 of the Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996 (the "1996 Form 10-K").
10.10 Form of Severance Agreement dated December 10, 1998, by and among
the Registrant and Gregg M. Eisenberg, Barry R. Pearl, Sudhakar
Kanthamneni and T. Scott Evans, incorporated herein by reference to
Exhibit 10.16 of the 1998 Form 10-K.
10.11 Amendment #1 to the Maverick Tube Corporation Director Stock Option
Plan, incorporated herein by reference to Exhibit 10.24 of the 1996
Form 10-K.
10.12 Amendment #1 to the Maverick Tube Corporation 1994 Stock Option Plan,
incorporated herein by reference to Exhibit 10.21 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30, 1997.
10.13 Employment Agreement of Barry R. Pearl, incorporated herein by
reference to Exhibit 10 of the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1998.
10.14 Agreement of Limited Partnership between the Registrant, Maverick
Investment Corporation and Maverick Tube, L.P., incorporated herein
by reference to Exhibit 10.13 of the 1998 Form 10-K.
10.15 Secured Credit Agreement ("Secured Credit Agreement") dated
September 18, 1998, by and among the Registrant, Harris Trust and
Savings Bank ("Harris Trust") and Mercantile Bank of St. Louis, N.A.
("Mercantile Bank"), incorporated herein by reference to Exhibit
10.14 of the 1998 Form 10-K.
10.16 First Amendment to Secured Credit Agreement dated as of December 10,
1998, incorporated herein by reference to Exhibit 10.17 of the 1998
Form 10-K.
10.17 Second Amendment to Secured Credit Agreement dated as of June 30,
1999, incorporated herein by reference to Exhibit 10 of the
Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 1999.
10.18 Third Amendment to Secured Credit Agreement dated as of December 8,
1999, filed herewith.
13 Portions of Registrant's 1999 Annual Report to Stockholders which
are incorporated by reference herein, filed herewith.
21 Subsidiaries of the Registrant, filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors, filed herewith.
27.1 Financial Data Schedule, filed herewith.
99.1 Risk Factors, filed herewith.
</TABLE>
<PAGE>
Exhibit 3.1
STATE of DELAWARE
CERTIFICATE of AMENDMENT of
CERTIFICATE of INCORPORATION
First: That at a meeting of the Board of Directors of Maverick Tube
Corporation, resolutions were duly adopted setting forth a proposed amendment of
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and recommending that the amendment be proposed to the
stockholders for approval at the Annual Meeting. The resolution setting forth
the proposed amendment is as follows:
RESOLVED, that the Board hereby approves, adopts and declares advisable a
proposal to amend Article Fourth of the Certificate of Incorporation (the
"Amendment Proposal") to increase the authorized number of shares of Common
Stock from twenty million to forty million, such Article Fourth, as amended, to
read in its entirety as follows:
"FOURTH. The total number of shares of stock which the Corporation shall
have the authority to issue is 45,000,000 shares of Capital Stock,
consisting of 5,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"), and 40,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock")."
Second: That thereafter, pursuant to resolution of its Board of Directors,
the amendment was proposed to the stockholders at a meeting of the stockholder
of said corporation duly called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware at which meeting the
necessary number of share as required by statute were voted in favor of the
amendment.
Third: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware and of said corporation's certificate of incorporation and by-laws.
Fourth: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
In Witness Whereof, said Maverick Tube Corporation has caused this
certificate to be signed by Pamela G. Boone, an Authorized Officer, this 1st day
of September, 1998.
By: /s/ Pamela G. Boone
------------------------
Pamela G. Boone
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MAVERICK TUBE CORPORATION
The name under which the Corporation was incorporated originally was MAV
Holding Company. The original Certificate of Incorporation of MAV Holding
Company was filed with the Secretary of State of the State of Delaware on May
26, 1987. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with Section 245 of the General Corporation Law of the
State of Delaware.
FIRST: The name of the Corporation is:
MAVERICK TUBE CORPORATION
SECOND: The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is 25,000,000 shares of capital stock, consisting of
5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"), and 20,000,000 shares of common stock, par value $.01 per share (the
"Common Stock").
The designations, powers, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions of the
Preferred Stock shall be established by resolution of the Board of Directors
pursuant to Section 151 of the General Corporation Law of the State of Delaware.
FIFTH: The Corporation is to have a perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the bylaws of the Corporation.
SEVENTH: Election of directors need not be by written ballot unless the
bylaws of the Corporation shall so provide.
EIGHTH: No action shall be taken by the stockholders except at an annual or
special meeting of stockholders and stockholders may not act by written consent.
NINTH: Special meetings of the stockholder of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors, or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the bylaws of the Corporation, include the power to
call such meetings. Special meetings of stockholder of the Corporation may not
be called by any other person or persons.
TENTH: No director of this Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is hereafter
amended to authorize corporate action further limiting or eliminating the
personal liability of directors, then the liability of the director to the
Corporation shall be limited or eliminated to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time. Any repeal or modification of this Article shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
ELEVENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify all persons whom it may indemnify pursuant thereto.
Expenses (including attorneys' fees) incurred by an officer or director of the
Corporation or any of its direct or indirect wholly-owned subsidiaries in
defending any civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized above. Such expenses (including attorney' fees) incurred by other
employees and agents may be so paid upon such terms and condition, if any, as
the Board of Directors deems appropriate.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any provision of law, the certificate of incorporation or bylaws or other
governing documents of any direct or indirect wholly-owned subsidiary of the
Corporation, or any agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding any of the positions or having any of the
relationships referred to in this Article.
TWELFTH: The number of directors shall be fixed from time to time by the
bylaws of he Corporation or an amendment thereof duly adopted by the Board of
Directors or by the stockholders acting in the manner now or hereafter
prescribed by statute.
Notwithstanding any of the foregoing provisions of this Article, each
director shall serve until his successor is elected and qualified or until his
death, retirement, resignation or removal. No director may be removed during his
term except for cause.
THIRTEENTH: The provisions set forth in this Article THIRTEENTH and in
Articles EIGHTH (dealing with action taken by stockholders), NINTH (dealing with
the calling of special meetings of stockholders), TENTH (dealing with liability
of directors) and ELEVENTH (dealing with indemnification) herein may not be
repealed or amended in any respect, and no Article imposing cumulative voting in
the election of directors may be added to this Amended and Restated Certificate
of Incorporation or to the bylaws of the Corporation or to any amendment hereof
or thereof, unless such action is approved by the affirmative vote of not less
than 75% of the total voting power of all shares of stock in the Corporation
entitled to vote in the election of directors, considered for purposes of this
Article THIRTEENTH as one class. The voting requirements contained in this
Article THIRTEENTH shall be in addition to the voting requirements imposed by
law, other provisions of this Amended and Restated Certificate of Incorporation
or any Certificate of Designation of Preferences in favor of certain classes or
series of classes of shares of the Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statue, and all
rights conferred upon stockholder herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
EIGHTH, NINTH, TENTH, ELEVENTH and THIRTEENTH may not be repealed or amended in
any respect unless such repeal or amendment is approved as specified in Article
THIRTEENTH herein.
IN WITNESS WHEREOF, Maverick Tube Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed by Dan P. Boxdorfer, its
Vice President, and attested by Charles Struckhoff, its Secretary, this 18th day
of March, 1991.
MAVERICK TUBE CORPORATION
By: /s/ Dan P. Boxdorfer
------------------------------------
Dan P. Boxdorfer, Vice President
[Seal]
ATTEST:
By: /s/ Charles Struckoff
--------------------------------
Charles Struckoff, Secretary
)
) SS:
)
I, Ali Radtke, a Notary Public, do hereby certify that on this 18th day of
March, 1991, personally appeared before me Dan P Boxdorfer, who being by me
first duly sworn, declared that he is the Vice President of Maverick Tube
Corporation, that he signed the foregoing document as Vice President of the
Corporation, and that the statements therein contained are true.
/s/ Ali Radtke
-----------------
Notary Public
Exhibit 10.18
THIRD AMENDMENT TO SECURED CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Mercantile Bank National Association
St. Louis, Missouri
Ladies and Gentlemen:
Reference is hereby made to that certain Secured Credit Agreement dated as
of September 18, 1998 (as heretofore amended the "Credit Agreement") among the
undersigned, Maverick Tube Corporation, a Delaware corporation (the "Borrower"),
you (the "Banks") and Harris Trust and Savings Bank, as agent for the Banks (the
"Agent"). All defined terms used herein shall have the same meaning as in the
Credit Agreement unless otherwise defined herein.
The Borrower, the Agent and the Banks wish to amend certain financial
covenants contained in the Credit Agreement and to modify certain other terms
and conditions of the Credit Agreement, all on terms and conditions set forth in
this Amendment.
SECTION 1. AMENDMENT TO CREDIT AGREEMENT
Upon satisfaction of all of the conditions precedent set forth in Section 2
hereof, the Credit Agreement shall be amended as follows:
1.1 Section 7.10 of the Credit Agreement is hereby amended in its
entirety and as so amended shall be restated to read as follows:
Section 7.10. Consolidated Tangible Net Worth. The Borrower will
maintain Consolidated Tangible Net Worth in an amount not less
than (1) $70,000,000 at all times from the date hereof through
September 30, 1998 and (b) at all times during each fiscal
quarter of the Borrower thereafter, in an amount not less than
the Minimum Required Amount. For the purposes hereof, the term
"minimum Required Amount" shall mean an amount equal to the sum
of (i) the Minimum Required Amount required to be maintained by
the Borrower during the immediately preceding fiscal quarter,
plus (ii) 75% of the Borrower's Consolidated Net Income (but not
less than zero) for such fiscal quarter then ended, plus (iii)
for the fiscal quarter of the Borrower ending on December 31,
1999, an amount equal to $26,175,000.
1.2 Section 7.26 of the Credit Agreement is hereby amended in its
entirety and as so amended shall be restated to read as follows:
Section 7.26. Capital Expenditures. The Borrower will not, and
will not permit a 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 events including the liability of the Borrower
and its Subsidiaries in respect of Capitalized Leases) in any
fiscal year in an amount in the aggregate for the Borrower and
all of its Subsidiaries in excess of (i) for the Borrower's
fiscal year ended September 30, 1999, an amount equal to
$13,000,000, (ii) for the Borrower's fiscal year ended September
30, 2000, an amount equal to $50,000,000 and (iii) for each
fiscal year of the Borrower ending thereafter, an amount equal to
$8,000,000.
SECTION 2. CONDITIONS PRECEDENT
The effectiveness of this Amendment is subject to the satisfaction of all
of the followings conditions precedent:
2.1 The Borrower, the Agent and the Banks shall have executed this
Amendment (such execution may be in several counterparts and the
several parties hereto may execute on separate counterparts).
2.2 A guarantor's Consent for the benefit of the Banks shall have
been executed and delivered by each Guarantor to the Agent, a
form of which is attached hereto.
2.3 The Borrower shall be in full compliance with all of the terms
and conditions of the Loan Documents and no Event of Default or
Potential Default shall have occurred and be continuing
thereunder or shall result after giving effect to this Amendment.
2.4 Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to each of the Banks and their
legal counsel.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
The Borrower, by its execution of this Amendment, hereby certifies and
warrants the following:
(a) each of the representations and warranties set forth in Section 5
of the Credit Agreement is true and correct as of the date hereof
as if made on the date hereof, except that the representations
and warranties made under Section 5.2 shall be deemed to refer to
the most recent annual report furnished to the Banks by the
Borrower; and
(b) the Borrower is in full compliance with all of the terms and
conditions of the Credit Agreement and no Event of Default or
Potential Default has occurred and is continuing thereunder.
SECTION 4. MISCELLANEOUS
4.1 The Borrower has heretofore executed and delivered to the Agent
the Security Agreement and the Borrower hereby agrees that
notwithstanding the execution and delivery hereof, such Security
Agreement shall be and remain in full force and effect and that
any rights and remedies of the Agent thereunder, obligations of
the Borrower thereunder and any liens or security interests
created or provided for thereunder shall be and remain in full
force and effect, shall not be affected, impaired or discharged
thereby and shall remain in full force and effect, shall not be
affected, impaired or discharged thereby and shall secure all of
its indebtedness, obligations and liabilities to the Agent and
the Banks under the Credit Agreement as amended hereby. Nothing
herein contained shall in any manner affect or impair the
priority of the liens and security interests created and provided
for by the Security Agreement as to the indebtedness which would
be secured thereby prior to giving effect hereto.
4.2 Reference to this specific Amendment need not be made in any
note, document, letter, certificate, any security agreement, or
any communication issued or made pursuant to or with respect to
the Credit Agreement, any reference to the Credit Agreement being
sufficient to refer to the Credit Agreement as amended hereby.
4.3 This Amendment may be executed in any number of counterparts, and
by the different the different parties on different counterparts,
all of which taken together shall constitute one and the same
agreement. Any of the parties hereby may execute this agreement
by signing any such counterpart and each of such counterparts
shall for all purposes be deemed to be an original. This
agreement shall be governed by the internal laws of the State of
Illinois.
4.4 The Borrower agrees to pay all reasonable costs and expenses,
including without limitations attorneys fees, incurred by the
Agent and each of the Banks in connection with the preparation,
negotiation, execution and delivery of this Amendment and the
other documents contemplated hereby.
Upon acceptance hereof by the Agent and the Banks in the manner hereinafter set
forth, this Amendment shall be a contract between us for the purposes
hereinabove set forth.
Dated as of December 8, 1999
MAVERICK TUBE CORPORATION
By: /s/ Barry R. Pearl
-------------------------
Its: Chief Financial Officer
Accepted and agreed to as of the day and year last above written
HARRIS TRUST AND SAVINGS BANK
Individually and as Agent
By: /s/ Bonnie A. Polic
-------------------------
Its: Vice President
MERCANTILE BANK NATIONAL ASSOCIATION
By: /s/ David Higbee
-------------------------
Its: Vice President
EXHIBIT 13
MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal Market
Our common stock, par value $.01 per share, is traded on the NMS tier of the
Nasdaq Stock Market under the symbol "MAVK."
Stock Price and Dividend Information
The high and low closing sales prices on the NMS tier of the Nasdaq Stock Market
of our common stock during the first, second, third and fourth quarters of
fiscal 1999 and fiscal 1998, respectively, were as follows:
Fiscal 1999 Fiscal 1998
Quarter High Low High Low
First 8 15/16 5 5/32 50 3/4 20 5/16
Second 7 5/16 5 1/2 25 3/4 14 5/8
Third 15 1/4 5 11/16 18 3/8 10 9/16
Fourth 22 11 7/8 11 1/4 5 3/8
We have not declared or paid cash dividends on our common stock since
incorporation. We currently intend to retain earnings to finance the growth and
development of our businesses and do not anticipate paying cash dividends in the
near future. Any payment of cash dividends in the future will depend upon our
financial condition, capital requirements and earnings as well as other factors
the Board of Directors may deem relevant. Our Revolving Credit Facility with
commercial lenders restricts the amount of dividends we can pay to our
stockholders.
Approximate Number of Holders of Common Stock
There were 244 holders of record of our common stock as of September 30, 1999.
STOCKHOLDER INFORMATION
Corporate Headquarters Transfer Agent and Registrar Independent Auditors
16401 Swingley Ridge Road Harris Trust and Savings Bank Ernst & Young LLP
Seventh Floor P.O. Box 755 Gateway One Suite 1400
Chesterfield, MO 63017 111 West Monroe 701 Market Street
(636) 733-1600 Chicago, IL 60690 St. Louis, MO 63101
(312) 461-6942 (314) 259-1000
10-K Report Available
Stockholders may obtain a copy of our Annual Report on Form 10-K filed with the
Securities and Exchange Commission by writing to Maverick Tube Corporation,
16401 Swingley Ridge Road, Seventh Floor, Chesterfield, Missouri 63017;
Attention: Secretary.
DIRECTORS
William E. Macaulay Gregg M. Eisenberg
Chairman and Chief Executive Officer, Chairman of the Board,
First Reserve Corp., Director of President and Chief Executive Officer
Weatherford, Inc., National-Oilwell,
Inc., Pride International, Inc.,
Superior Energy Services, Inc. and
Trans Montaigne Inc.
John M. Fox C. Robert Bunch
Director, President and Chief Vice President and Chief Administrative
Executive Officer Markwest Officer of Input/Output, Inc.
Hydrocarbon, Inc.
Wayne P. Mang C. Adams Moore
Non-Executive Chairman and Independent consultant in steel
Director of Laclede Steel Co. distribution and fabrication, Director
of Fisher Tank Company and Warren
Fabricating Corporation
David H. Kennedy
Independent energy consultant and
Director of Berkley Petroleum
Corporation and Pursuit Resources Corporation
OFFICERS
Gregg M. Eisenberg Sudhakar Kanthamneni
Chairman of the Board, President Vice President -- Manufacturing
and Chief Executive Officer & Technology
Barry R. Pearl T. Scott Evans
Vice President -- Finance and Vice President -- Commercial
Administration, Treasurer, Secretary Operations
and Chief Financial Officer
<PAGE>
Maverick Tube Corporation and Subsidiaries
Historical Financial Information
The following selected financial data are derived from our consolidated
financial statements, which have been audited by Ernst & Young LLP, independent
auditors. The selected data should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein.
<TABLE>
Year Ended September 30
<CAPTION>
1999 1998 1997 1996(2) 1995(3)
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $172,417 $265,389 $291,060 $204,182 $167,896
Cost of goods sold 169,562 232,038 252,803 182,042 159,865
Gross profit 2,855 33,351 38,257 22,140 8,031
Selling, general and administrative 13,703 14,815 (4) 13,966 10,198 7,728
Start-up costs 3,462 (1) -- -- -- 245
Income (loss) from operations (14,310) 18,536 24,291 11,942 58
Interest expense 1,861 1,731 2,067 2,522 3,164
Other income -- -- -- -- 772
Income (loss) before income taxes (16,171) 16,805 22,224 9,420 (2,334)
Provision (benefit) for income taxes (5,722) 5,420 7,339 1,882 --
Net income (loss) $(10,449) $11,385 $14,885 $7,538 $(2,334)
Diluted earnings (loss) per share $(.68) $0.73 $0.97 $0.50 $(0.16)
Weighted average shares
deemed outstanding 15,438 15,564 15,282 15,001 14,920
Other Data:
Depreciation and amortization 7,355 6,172 5,697 5,201 4,691
Capital expenditures 11,869 22,181 9,537 5,497 5,592
EBITDA (5) (6,955) 24,708 29,988 17,143 4,749
Average selling price per ton (6):
Energy products $543 $683 $655 $620 $609
Industrial products $452 $477 $483 $484 $527
Balance Sheet Data:
(End of period)
Working capital 44,316 60,362 44,992 32,652 30,272
Total assets 160,148 156,885 162,064 125,556 106,494
Current maturities of long-term debt 708 653 604 1,843 2,795
Long-term debt (less
current maturities) 7,518 8,226 8,879 11,901 18,045
Revolving credit facility 31,000 27,400 10,000 13,250 15,000
Stockholders' equity 79,646 90,063 77,868 57,247 49,503
<FN>
(1) Represents the operating loss of our cold drawn mechanical tubing facility
which began operations in October 1998.
(2) Includes the one-time effect of the change in accounting practice which
resulted in a reduction in net sales, gross profit, net income and basic
and diluted net income per share of $8,700,000, $1,000000, $839,000 and
$0.06, respectively.
(3) Includes the first period of results of operation of our structural tube
facility which began operations in October 1994.
(4) Includes a write-down of software costs of $1,605,000.
(5) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization. We believe EBITDA is a widely accepted,
supplemental financial measurement used by many investors and analysts to
analyze and compare companies' performances. However, EBITDA should not be
considered as an alternative to income from operations or to cash flows
from operating, investing or financing activities, as determined in
accordance with generally accepted accounting principles. Because EBITDA
excludes some, but not all, items that affect net income and because these
measures may vary among companies, the EBITDA data presented above may not
be comparable to similarly titled measures of other companies.
(6) Includes only "prime" products which exclude scrap and secondary sales,
product returns and selling allowances.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As used herein, unless the context otherwise requires, the terms "we," "us,"
"our" or "Maverick" refers to Maverick Tube Corporation and its subsidiaries.
Certain statements contained in "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
Maverick) 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 our energy
related products, the future impact of industry-wide draw-downs of inventories
and future import levels. Uncertainty also exists as to the trend and direction
of both product pricing and purchased steel costs. Reference is made to the
"Risk Factors" discussed in Exhibit 99.1 of Maverick's Form 10-K for its fiscal
year ended September 30, 1999.
OVERVIEW
Our products include Electric Resistance Welded (ERW) Oil Country Tubular Goods
(OCTG) and line pipe, which are sold primarily to distributors who supply end
users in the energy industry, and structural tubing and standard pipe, which are
sold primarily to service centers who supply end users in construction,
transportation, agriculture and other industrial enterprises. During the first
quarter of fiscal 1999, we began the production of cold drawn tubing products
for industrial applications. During the year ended September 30, 1999, sales of
cold drawn mechanical tubing had not reached material levels.
Demand for our energy related products depends primarily upon the number of oil
and natural gas wells being drilled, completed and worked over in the United
States and Canada and the depth and drilling conditions of these wells. The
levels of these activities are primarily dependent on oil and natural gas
prices. Domestic end-users obtain OCTG from domestic and foreign pipe producers
and from draw-downs of their or distributors' inventories. According to
published industry reports, average U.S. drilling declined by 33.3% from fiscal
1998 to fiscal 1999, averaging approximately 602 rigs, with gas-related drilling
declining by 22.3% and oil-related drilling declining by 55.6%. Average energy
prices decreased during fiscal 1999, with natural gas decreasing 8.8% and oil
decreasing by 3.4%. The decreases in energy prices seen throughout the year had
a negative effect on drilling levels in fiscal 1999. At the end of fiscal 1998,
drilling was at 754 rigs, down 24.4% from its fiscal 1997 year-end level of 998
rigs, and continued to decline to 488 rigs by April 1999. Drilling activity
during the last half of 1999 increased substantially from its April low to close
the fiscal year at 730 rigs, down by only 3.2% from fiscal 1998 year-end levels.
The following table illustrates certain factors related to industry-wide
domestic drilling activity, domestic energy prices, domestic oil country tubular
goods consumption, shipments, imports and inventories for the periods presented:
Fiscal Year Ended September 30
-------------------------------------
1999 1998 1997
------ ------- -------
U.S. drilling activity:
Average rig count 602 903 905
Average U.S. energy prices:
Oil per barrel (West Texas Intermediate) $16.36 $16.94 $21.94
Natural gas per MCF (Average U.S.) $ 2.06 $ 2.26 $ 2.47
U.S. oil country tubular goods consumption
(in thousands of tons):
U.S. producer shipments 661 1,548 2,021
Imports 134 402 360
Inventory (increase)/decrease 370 (66) (299)
Used pipe 158 139 187
------- ------- -------
Total U.S. consumption 1,323 2,023 2,269
======= ======= =======
The rig count in the table is based on weekly rig count reporting from Baker
Hughes, Inc. Energy prices in the table are monthly average period prices as
reported by Spears and Associates for West Texas Intermediate grade crude oil
and the average U.S. monthly natural gas cash price as reported by Natural Gas
Week. Imports are as reported by Duane Murphy and Associates in "The OCTG
Situation Report." Inventory (increase)/decrease are our estimates based upon
independent research by Duane Murphy and Associates. Inventory
(increase)/decrease (in thousands of tons) as reported by Pipe Logix, Inc., an
independent domestic OCTG industry reporting service, for fiscal 1998 and 1997
was (116) and (717) (fiscal year ended September 30, 1999 not available). Used
pipe quantities are calculated by multiplying 8.3 recoverable tubing and casing
tons by the number of abandoned oil and gas wells. U.S. consumption of OCTG are
management estimates based on estimated per rig consumption of OCTG multiplied
by the Baker Hughes rig count. Total U.S. consumption (in thousands of tons) as
reported by Pipe Logix, Inc., for fiscal 1998 and 1997 was 1,939 and 1,943
(fiscal year ended September 30, 1999 not available). U.S. producer shipments
are our estimates calculated based on the components listed above.
Imports decreased during fiscal 1999 from a 19.9% market share in 1998 to 10.1%
market share in fiscal 1999. During fiscal 1998, industry inventory increases
resulted in an estimated additional demand of 3.3% of total U.S. OCTG
consumption. During fiscal 1999, industry inventory decreases adversely affected
U.S. producer shipments by satisfying an estimated 28.0% of consumption.
Management believes that at September 30, 1999, industry inventories were at or
below normal levels in relation to demand, as inventory months of supply
decreased 34.9%, from 8.3 months at fiscal year-end 1998 to 5.4 months at fiscal
year-end 1999.
As a result of declining drilling activity and a substantial decline in industry
inventories, partially offset by decreased imports, we estimate that total U.S.
producer shipments declined by 57.3% as compared to the fiscal year ended
September 30, 1998. During that same period, our shipments of U.S. OCTG were
down 32.8% and our export sales, primarily to Canada, declined by 22.9%.
However, we estimate that our domestic OCTG market share increased to 22% during
fiscal 1999 from 14% during fiscal 1998.
Published information suggests that demand for line pipe was also down during
fiscal 1999 by an estimated 3.7%. However, domestic shipments rose by 7.4% as
the import market share fell from 41.6% to 34.8%.
Given the numerous applications for our industrial products, sources of demand
for these products are diversified. Demand depends on the general level of
economic activity in the construction, transportation, agricultural, material
handling and recreational market 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.
We estimate that the demand for structural tube products (commonly referred to
as hollow structural sections or HSS) of the type we produce declined by 2.1% in
fiscal 1999 as compared to fiscal 1998 and total U.S. producer shipments
declined by 3.0% as import market share increased slightly. According to
published reports, the standard pipe market demand decreased 10.3%, while total
domestic producer shipments declined by 15.7% as the import market share
increased from 28.4% to 32.6%.
Pricing of our products was down during fiscal 1999 compared to fiscal 1998.
Average pricing of our OCTG, line, structural and standard product pricing
decreased by 19.9%, 19.7%, 10.2% and 12.2%, respectively. Energy product pricing
was down due to the decrease in drilling activity. Structural and standard
pricing was down primarily due to declining steel prices during most of the
year.
Steel costs included in cost of goods sold decreased during fiscal 1999 by $42
per ton, or 13.0%, from $321 per ton to $279 per ton. Our major supplier of
steel announced three price decreases from mid-September 1998 to November 1998,
reducing our replacement cost of steel by $50 per ton. These price reductions
were reflected in our cost of goods sold in the second, third and fourth
quarters of fiscal 1999. However, this same supplier has announced five price
increases since December 1998, which will increase our replacement cost of steel
by approximately $45 per ton. We estimate that these increases will not be fully
reflected in cost of goods sold until the second quarter of fiscal 2000.
The supply of steel in the United States increased significantly during calendar
1998, primarily due to previous capacity additions and increased import levels.
These market conditions kept steel costs relatively low during 1999. However,
steel trade cases filed with the International Trade Commission by U.S. steel
producers against foreign steel producers in September 1998 have been a
contributing factor to the recent steel cost increases and could have an
additional adverse impact on our future replacement costs of steel. As a result
of these factors, anticipated future steel price increases may impact our
product margins.
The OCTG market conditions described above impacted our operations and our
competitors significantly during 1999, as sales were substantially reduced
throughout the year due to the rapid fall in oil prices and the resulting
significant decrease in drilling activity. Consequently, industry-wide inventory
levels were excessive and the impact of these industry draw-downs sharply
reduced domestic shipments. As our recent experience indicates, oil and gas
prices are volatile and can have a substantial effect on drilling levels and
resulting demand for our energy related products. Uncertainty also exists as to
the future demand and pricing for HSS and other industrial related products.
Although drilling activity has been recovering from the recently depressed
levels, no assurance can be given regarding the timing and extent of such
recovery.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain information
relating to our operations expressed as a percentage of net sales:
Year Ended September 30,
1999 1998 1997
------------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 98.3 87.4 86.9
------------------------
Gross profit 1.7 12.6 13.1
Selling, general and administrative 8.0 5.6 4.8
Start-up costs 2.0 -- --
------------------------
Income (loss) from operations (8.3) 7.0 8.3
Interest expense, net 1.1 .7 .7
------------------------
Income (loss) before income taxes (9.4) 6.3 7.6
Provision (benefit) for income taxes (3.3) 2.0 2.5
------------------------
Net income (loss) (6.1) 4.3 5.1
========================
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September 30,
1998
Overall Company
In fiscal 1999, net sales decreased $93.0 million, or 35.0%, from $265.4 million
in fiscal 1998 to $172.4 million in fiscal 1999. These results were attributable
primarily to a decrease of 21.1% in total product shipments, from 428,216 tons
in fiscal 1998 to 337,959 tons in fiscal 1999. Overall average net selling
prices decreased during fiscal 1999 by 17.7%, from an average of $620 per ton to
$510 per ton.
Cost of goods sold decreased $62.5 million, or 26.9%, from $232.0 million in
fiscal 1998 to $169.5 million in fiscal 1999. The overall decrease was due
primarily to decreased product shipments. However, the overall unit cost per ton
of products sold decreased 7.4% (from an average of $542 per ton to $502 per
ton) in fiscal 1999. The decrease was due primarily to a decrease in steel
costs. Steel cost of goods sold decreased 13.0%, or $42 per ton during fiscal
1999. See "Overview." Overall conversion costs remained relatively stable during
fiscal 1999.
Gross profit decreased $30.5 million, or 91.4%, from $33.4 million in fiscal
1998 to $2.9 million in fiscal 1999. Gross profit as a percentage of net sales
was 1.7% for fiscal 1999, as compared to 12.6% for fiscal 1998. The change in
the gross profit is due to the factors discussed above.
Selling, general and administrative expenses decreased $1.1 million or 7.5%,
from $14.8 million in fiscal 1998 to $13.7 million in fiscal 1999. These
expenses decreased principally as a result of the write-down of software
development costs of $1.6 million in fiscal 1998. These costs were also reduced
by lower sales commissions on industrial products sales, partially offset by an
increase in bad debt expense (which reflects the deterioration of a specific
accounts receivable balance) and normal wage increases. Selling, general and
administrative expenses as a percentage of net sales increased from 5.6% in
fiscal 1998 to 8.0% in fiscal 1999 due primarily to the decreased sales level.
During September 1998, we acquired assets that are being utilized in the
production of cold drawn tubular products at a facility in Beaver Falls,
Pennsylvania. We incurred operating losses of $3.5 million in fiscal 1999
related to the operations at this facility which had not reached normal
production capacity. These costs are comprised primarily of salary and related
costs for the production, sales and administrative personnel prior to the fully
integrated operation of the facility. These start-up costs increased our net
loss by $0.14 per diluted share for fiscal 1999.
Interest expense increased $130,000, or 7.5%, from $1.7 million in fiscal 1998
to $1.9 million in fiscal 1999 as a result of increased interest rates. The
increased interest rates were primarily due to revisions to our Revolving Credit
Facility to reflect our operating results, largely attributable to the effects
of the unfavorable energy market, and to provide additional availability in the
borrowing base.
The benefit from income taxes was $5.7 million for fiscal 1999, compared to the
prior year when we recorded a provision of $5.4 million. This change is
attributable to the generation of pre-tax losses of $16.2 million in fiscal
1999, compared to pre-tax income in fiscal 1998 of $16.8 million.
At September 30, 1999, we had available net operating loss carryforwards of
$2,320,000 which were acquired in prior years and expire in 2000. In addition,
we had $8,611,000 of net operating loss carryforwards which were generated
during fiscal 1999 and expire in 2019. All of these net operating loss
carryforwards can be utilized in fiscal 2000 to offset financial statement
earnings after temporary differences. At September 30, 1999, we had alternative
minimum tax credit carryforwards of $2,541,000 available for income tax
purposes. See Note 9 of the Notes to the Consolidated Financial Statements.
Realization of our net operating loss carryforwards which expire in 2000 is
dependent on generating approximately $3.0 million of taxable income from normal
operations during fiscal 2000, or the adoption of certain available tax planning
strategies. Although realization is not assured, we believe it is more likely
than not that the net deferred tax assets will be realized.
As a result of the decreased gross profit and the other factors discussed above,
we generated a net loss of $10.4 million, or $0.68 diluted loss per share, a
decrease of $21.8 million from the $11.4 million, or $0.73 diluted earnings per
share reported for fiscal 1998.
Energy Products Segment
Energy product sales decreased $82.9 million, or 44.9%, from $184.8 million in
fiscal 1998 to $101.9 million in fiscal 1999. OCTG product shipments decreased
76,946 tons, or 31.8%, from 242,146 tons to 165,200 tons. Our domestic shipments
of OCTG fell by 32.8% due to a declining rig count throughout the fiscal year
and inventory draw-downs by our customers. Our export sales, primarily to
Canada, decreased by 22.9%, from 25,866 tons in fiscal 1998 to 19,931 tons in
fiscal 1999, as the average Canadian rig count fell 34.4% from 323 rigs to 212
rigs. Line pipe shipments decreased by 6.3%. The average selling price for
energy products was $551 per ton, a decrease of $151 per ton. The decrease was
principally due to the deterioration in the energy market throughout fiscal
1999.
Energy products costs of goods sold decreased $57.2 million, or 35.3%, from
$162.1 million in fiscal 1998 to $104.9 million in fiscal 1999. Gross profit for
energy products decreased approximately $25.8 million, from $22.8 million of
gross profit in fiscal 1998 to $3.0 million of gross loss in fiscal 1999. Energy
products gross loss percentage was 3.0% compared to a gross profit percentage of
12.3% in fiscal 1998.
Industrial Products Segment
Industrial products sales decreased $10.0 million, or 12.4%, from $80.6 million
in fiscal 1998 to $70.6 million in fiscal 1999. Industrial products shipments
decreased 7.3% from 164,973 tons in fiscal 1998 to 153,001 in fiscal 1999. The
average selling price of industrial products was $461 per ton, a decrease of $27
per ton. This decrease was principally due to decreasing steel prices in the
first six months of fiscal 1999.
Industrial products costs of goods sold decreased $5.3 million, or 7.6%, from
$70.0 million in fiscal 1998 to $64.6 million in fiscal 1999. Industrial
products gross profit decreased $4.7 million, or 44.1%, from $10.6 million in
fiscal 1998 to $5.9 million in fiscal 1999. Gross profit as a percentage of net
sales was 8.4% for fiscal 1999, as compared to 13.1% for fiscal 1998. The
decreased gross profit was primarily attributable to the reduction in selling
prices.
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September 30,
1997
Overall Company
In fiscal 1998, net sales decreased $25.7 million, or 8.8%, from $291.1 million
in fiscal 1997 to $265.4 million in fiscal 1998. These results were attributable
primarily to a decrease of 8.9% in total product shipments, from 469,958 tons in
fiscal 1997 to 428,216 tons in fiscal 1998. Overall average net selling prices
remained relatively constant during fiscal 1998.
Cost of goods sold decreased $20.8 million, or 8.2%, from $252.8 million in
fiscal 1997 to $232.0 million in fiscal 1998. The overall decrease was due
primarily to decreased product shipments. However, the overall unit cost per ton
of products sold increased 0.7% (from an average of $538 per ton to $542 per
ton) in fiscal 1998. This increase was due primarily to an increase in
conversion costs from a higher cost product mix and less favorable fixed cost
absorption due to lower production. The increase in conversion costs was mostly
offset by a decrease in steel costs by $18 per ton, or 5.3% in fiscal 1998.
Gross profit decreased $4.9 million, or 12.8%, from $38.3 million in fiscal 1997
to $33.4 million in fiscal 1998. Gross profit as a percentage of net sales was
12.6% for fiscal 1998, as compared to 13.1% for fiscal 1997.
Selling, general and administrative expenses increased $849,000, or 6.1%, from
$14.0 million in fiscal 1997 to $14.8 million in fiscal 1998. These expenses
increased principally as a result of the write-down of software development
costs of $1.6 million in fiscal 1998. These costs were also increased by higher
sales commissions on industrial products sales and partially offset by decreased
employee incentive compensation and decreased selling expenses related to lower
energy sales volumes. Selling, general and administrative expenses as a
percentage of net sales increased from 4.8% in fiscal 1997 to 5.6% in fiscal
1998.
Interest expense decreased $336,000, or 16.3%, from $2.1 million in fiscal 1997
to $1.7 million in fiscal 1998 as a result of decreased average borrowings,
decreased interest rates and additional amounts of interest expense capitalized
on additions to property, plant and equipment. The decreased borrowings were
primarily the result of principal repayments from funds generated from
operations.
The provision for income taxes decreased $1.9 million from $7.3 million in
fiscal 1997 to $5.4 million in fiscal 1998 as a result of the reduced level of
income before income taxes recorded in fiscal 1998.
As a result of the foregoing factors, net income decreased $3.5 million from net
income of $14.9 million, or $0.97 diluted earnings per share, in fiscal 1997 to
net income of $11.4 million, or $0.73 diluted earnings per share, in fiscal
1998.
Energy Products Segment
Energy product sales decreased $39.0 million, or 17.4%, from $223.9 million in
fiscal 1997 to $184.8 million in fiscal 1998. OCTG product shipments decreased
66,282 tons, or 21.5%, from 308,428 tons to 242,146 tons. Our domestic shipments
of OCTG fell 14.7% due to excessive levels of industry inventory and a declining
rig count throughout the fiscal year. Our export sales, primarily to Canada,
decreased by 37.1%, from 41,092 tons in fiscal 1997 to 25,866 tons in fiscal
1998, as Canadian drilling activity fell from 392 rigs at the end of fiscal 1997
to 161 at the end of fiscal 1998. Line pipe shipments decreased by 20.4%
principally due to increased import penetration. The average net selling price
for energy products was $702 per ton, an increase of $34 per ton. The increase
was principally due to higher product pricing early in the year and an improved
mix of higher value products.
Energy products cost of goods sold decreased $30.6 million, or 15.9%, from
$192.7 million in fiscal 1997 to $162.1 million in fiscal 1998. Gross profit for
energy products decreased approximately $8.4 million or 27.0%, from $31.2
million in fiscal 1997 to $22.8 million in fiscal 1998. Energy products gross
profit percentage was 12.3%, compared to 13.9% in fiscal 1997.
Industrial Products Segment
Industrial products sales increased $13.4 million, or 19.9%, from $67.2 million
in fiscal 1997 to $80.6 million in fiscal 1998. Industrial products shipments
increased 22.2%, from 135,029 tons in fiscal 1997 to 164,973 tons in fiscal
1998. The average net selling price of industrial products was $488 per ton, a
decrease of $10 per ton from the prior year. This decrease was principally due
to the decline in standard pipe pricing caused by an increase in imports.
Industrial products costs of goods sold increased $9.8 million, or 16.3%, from
$60.1 million in fiscal 1997 to $69.9 million in fiscal 1998. Industrial
products gross profit increased $3.5 million, or 49.9% from $7.1 million in
fiscal 1997 to $10.6 million in fiscal 1998. The improved gross profit was
primarily attributable to declining steel costs and improved operating
efficiencies during fiscal 1998, partially offset by slightly lower selling
prices. Industrial products gross profit percentage was 13.1%, compared to 10.5%
in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1999 was $44.3 million and the ratio of current
assets to current liabilities was 2.1 to 1, compared to working capital of $60.4
million and a current ratio of 3.3 to 1 at September 30, 1998. The decrease in
working capital was principally due to a $12.5 million increase in accounts
payable, a $7.2 million decrease in inventories, a $1.0 million increase in
prepaid expenses, partially offset by a $4.3 million increase in accounts
receivable. The decrease in inventories was due to decreased volume of energy
business, particularly in the first half of fiscal 1999. The increases in
accounts receivable and accounts payable were due to the increase in energy
production and sales experienced in the last two months of fiscal 1999. Cash
provided by operating activities for fiscal 1999 was $11.9 million. The primary
source of cash was the above described changes in operating assets and
liabilities, which offset the net cash loss of $3.0 million (excluding
depreciation and amortization of $7.4 million).
During fiscal 1998 and 1997, net cash provided by operating activities was $3.1
million and $16.7 million, respectively. In these years, the net cash provided
by operating activities was primarily used to fund capital expenditures and the
pay-down of net long-term borrowings.
Cash used in investing activities in fiscal 1999, 1998 and 1997 was $14.0
million, $22.2 million and $9.4 million, respectively. In fiscal 1999, this use
was primarily for purchases of equipment of $7.3 million and our new enterprise
resource planning system of $4.6 million and for the deposit on equipment of
$2.1 million discussed below. We funded the remaining $9.65 million of the
purchase price for the equipment on November 10, 1999. See Note 2 of the Notes
to the Consolidated Financial Statements. In 1998 and 1997, we purchased
property, plant and equipment of $22.0 (of which $11.5 million was spent on the
purchase of the production facility for cold drawn mechanical tubing) and $9.5
million, respectively.
During fiscal 1999, 1998 and 1997, cash provided by (used in) financing
activities was $3.0, $17.0, and ($5.0) million. Cash provided by financing
activities in fiscal 1999 was primarily attributable to a $3.6 million net
increase in our Revolving Credit Facility. The increase in our Revolving Credit
Facility was offset by other regularly scheduled term debt payments. Cash
provided by financing activities in fiscal 1998 was primarily attributable to a
$17.4 million net increase in our Revolving Credit Facility used to fund the
purchase of the production facility for cold drawn mechanical tubing and other
working capital needs. Cash used by financing activities in fiscal 1997 was
primarily attributable to the pay-off of a $3.7 million term note used to
finance the relocation of the energy facility to Arkansas, and a $3.3 million
net decrease in our Revolving Credit Facility, partially offset by $2.5 million
of proceeds from the exercise of stock options.
Our capital expenditure budget for fiscal 2000 is $49.0 million, of which $40.0
million will be used for the construction and equipping of a new large diameter
pipe and tubing facility which will be built adjacent to our existing facilities
in Hickman Arkansas. We funded this project principally through the issuance of
2,300,000 shares of common stock. Total proceeds from the sale, net of the
underwriting discount and other expenses are expected to be $34.9 million. The
remaining $9.0 million of our capital expenditure budget will be used to acquire
new equipment for our existing manufacturing facilities and to enhance our new
enterprise resource planning system. We expect to meet ongoing working capital
and the remaining capital expenditure requirements from a combination of cash
flow from operating activities, including a $3.7 million income tax refund and
available borrowings under our Revolving Credit Facility, all of which
constitutes our primary source of liquidity.
Our Revolving Credit Facility provides for maximum borrowings up to the lesser
of the eligible borrowing base or $50.0 million, and bears interest at either
the prevailing prime rate or the Eurodollar rate, adjusted by an interest
margin, depending upon certain financial measurements. The Revolving Credit
Facility was amended as of March 31, 1999 to revise financial covenants in order
to reflect our operating results, largely attributable to the effects of the
unfavorable energy market, and to provide additional availability in our
borrowing base. The Revolving Credit Facility is secured by accounts receivable,
inventories and certain equipment and will mature on September 30, 2003. As of
September 30, 1999, the applicable interest rate on this Credit Facility was
7.36 percent per annum, and we had $15.8 million in additional available
borrowings. As of September 30, 1999, we had $1.6 million in cash and cash
equivalents.
Year 2000 Readiness Disclosure
We have developed a Year 2000 Action Plan to deal with the potential impact of
the year 2000 on our information systems. The plan specifies a range of tasks
and goals, which we expect to achieve by various dates before 2000. The
principal goals of our plan include assessment of our computer systems,
remediation of any identified problems and testing of the systems. To date, we
are on target with the plan and are meeting our major deadlines.
We rely extensively on computer technology for our information systems. As a
result of our assessment, we have identified several older information
technology systems that presented certain risks of failure or malfunction in
connection with the Year 2000 issue. Accordingly, we are in the process of
implementing a new enterprise resource planning system, which will replace and
upgrade the older systems, some of which were not Year 2000 compliant. We
believe the new system will function through the transition from 1999 to 2000.
The integrated information provided by this new system will enhance our ability
to make more informed decisions regarding sales and inventory, optimize
inventory levels and minimize costs. We anticipate completing the implementation
before December 31, 1999. The total costs of the system implementation,
including the cost of software and related internal costs, is expected to be
$5.8 million, of which approximately $5.2 million has been expended through
September 30, 1999.
We completed our assessment, remediation and testing phases of our plan with
respect to internal non-information technology systems, including our
manufacturing machinery and equipment. During our assessment of these
non-information technology systems, we did not identify any significant issues
related to the Year 2000 problem. As a result, we do not anticipate any further
remediation of this equipment in connection with the Year 2000 problem.
We have monitored the Year 2000 preparedness of our third party providers and
service providers, utilizing various methods for testing and verification.
However, our ability to evaluate has been limited to some extent by the
willingness of vendors to supply information and the ability of vendors to
verify the Year 2000 preparedness of their own systems or their sub-providers.
We have requested certifications of Year 2000 preparedness from principal
software and equipment providers. In those cases where a vendor has not been
able to certify its product's preparedness with respect to the Year 2000
problem, we have taken steps to bring the system into compliance or to replace
the system.
Our failure to successfully implement our plan could result in an interruption
in or failure of certain normal business activities or operations. Even if we
successfully complete our plan, we may also be exposed to the failure of some of
our customers, suppliers or vendors to prepare adequately for the Year 2000
problem. These failures could materially adversely affect our results of
operations, liquidity and financial condition. Currently, we are on schedule and
believe that our successful completion of the assessment, remediation and
testing phases should significantly reduce the risks we face with respect to the
Year 2000 problem.
We believe that is difficult to fully assess the risks of the Year 2000 issue
due to numerous uncertainties surrounding the issue. We believe the primary
risks are external to us and relate to the Year 2000 readiness of customers,
suppliers and transportation providers. In the most reasonably-likely worst case
scenario, our customers may not purchase our products if their drilling or
fabricating equipment fail to operate, we may not be able to access our bank
accounts or make or receive payments and our transportation providers may not be
able to make timely shipments to our customers.
We have developed certain contingency plans in order to reduce these risks. As
part of our contingency plans, we would use various manual procedures that
bypass computer applications. However, implementing these contingency plans
could have an adverse effect on our liquidity, financial condition and results
of operation due to reduced productivity and efficiency associated with the
manual procedures. Some catastrophic events, such as the loss of utilities or
the failure of certain government bodies to function, are outside of the scope
of our contingency plans, although we anticipate that we would respond to any
catastrophe in a manner designed to minimize disruptions in customer service,
and in full cooperation with our peer providers, community leaders and service
organizations.
<TABLE>
<CAPTION>
Maverick Tube Corporation
and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
September 30
--------------------------
1999 1998
----------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,625 $ 748
Accounts receivable, less allowances of $542
and $391 in 1999 and 1998, respectively 19,661 15,515
Inventories 54,486 61,685
Deferred income taxes 1,933 1,827
Income taxes refundable 3,739 5,078
Prepaid expenses and other current assets 1,469 1,200
Total current assets 82,913 86,053
Property, plant and equipment, net 74,518 69,879
Other assets 2,717 953
$ 160,148 $ 156,885
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 28,244 $ 15,721
Accrued expenses and other liabilties 5,929 5,733
Deferred revenue 3,716 3,584
Current maturities of long-term dbt 708 653
Total current liabilities 38,597 25,691
Long-term debt, less current maturities 7,518 8,226
Revolving credit facility 31,000 27,400
Deferred income taxes 3,387 5,505
Commitments and contingencies (Notes 6, 12 and 13) -- --
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000
authorized shares -- --
Common stock, $.01 par value; 40,000,000
authorized shares; 15,440,474 and 15,437,474
shares issued and outstanding in 1999 and 1998,
respectively 154 154
Additional paid-in capital 44,248 44,216
Retained earnings 35,244 45,693
79,646 90,063
$ 160,148 $ 156,885
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
<CAPTION>
Year ended September 30
-----------------------------------------
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Net sales $ 172,417 $ 265,389 $ 291,060
Cost of goods sold 169,562 232,038 252,803
Gross profit 2,855 33,351 38,257
Selling, general and administrative 13,703 14,815 13,966
Start-up costs 3,462 -- --
Income (loss) from operations (14,310) 18,536 24,291
Interest expense 1,861 1,731 2,067
Income (loss) before income taxes (16,171) 16,805 22,224
Provision (benefit) for income taxes (5,722) 5,420 7,339
Net income (loss) $ (10,449) 11,385 $ 14,885
Basic earnings (loss) per share $ (.68) $ .74 $ .99
Diluted earnings (loss) per share $ (.68) $ .73 $ .97
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
<CAPTION>
Common Stock
-------------------------------------------
Additional
Paid-In Retained
Shares Amount Capital Earnings
----------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 $14,944,142 $150 $37,674 $19,423
Net income -- -- -- 14,885
Exercise of stock options 466,832 4 2,482 --
Tax benefit associated with the exercise
of non-qualified stock options -- -- 3,250 --
Balance at September 30, 1997 15,410,974 154 43,406 34,308
Net income -- -- -- 11,385
Exercise of stock options 26,500 -- 162 --
Tax benefit associated with the exercise
of non-qualified stock options -- -- 648 --
Balance at September 30, 1998 15,437,474 154 44,216 45,693
Net loss -- -- -- (10,449)
Exercise of stock options 3,000 -- 19 --
Tax benefit associated with the exercise
of non-qualified stock options -- -- 13 --
Balance at September 30, 1999 $15,440,474 $154 $44,248 $35,244
<FN>
See accompanying notes.
</FN>
</TABLE>
<TABLE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Year ended September 30
-----------------------------------------
1999 1998 1997
------------ ---------- ---------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (10,449) $ 11,385 $ 14,885
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 7,355 6,172 5,697
Deferred income taxes (2,211) 1,161 2,577
Provision for losses on accounts receivable 151 3 44
Loss on sale of equipment -- 49 50
Loss on write-down of software development costs -- 1,605 --
Changes in operating assets and liabilities:
Accounts receivable (4,297) 12,196 (9,358)
Inventories 7,199 7,751 (18,812)
Prepaid expenses and other current assets 1,070 (1,582) 59
Other assets 236 (381) (67)
Accounts payable 12,523 (15,756) 8,435
Accrued expenses and other liabilities 196 (6,881) 5,136
Deferred revenue 132 (12,667) 8,075
Cash provided by operating activities 11,905 3,055 16,721
Investing activities
Expenditures for property, plant and equipment (11,869) (10,717) (9,537)
Expenditures for purchase of production facility -- (11,464) --
Deposit on equipment (2,125) -- --
Proceeds from disposals of equipment -- 30 96
Collection of notes receivable -- -- 18
Cash used by investing activities (13,994) (22,151) (9,423)
Financing activities
Proceeds from long-term borrowings and notes 57,600 121,000 92,400
Principal payments on long-term borrowings and notes (54,653) (104,204) (99,911)
2,947 16,796 (7,511)
Proceeds from exercise of stock options 19 162 2,486
Cash provided (used) by financing activities 2,966 16,958 (5,025)
Increase (decrease) in cash and cash equivalents 877 (2,138) 2,273
Cash and cash equivalents at beginning of year 748 2,886 613
Cash and cash equivalents at end of year $ 1,625 $ 748 $ 2,886
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest (net of amounts capitalized
of $543, $355 and $268) $ 1,855 $ 1,733 $ 2,138
Income taxes $ ( 5,003) $ 6,242 $ 4,020
<FN>
See accompanying notes.
</FN>
</TABLE>
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Maverick Tube
Corporation and its wholly owned subsidiaries (collectively referred to as the
Company). All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
The Company records revenue from product sales when the product is shipped from
its facilities.
Inventories
Inventories are principally valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost. Depreciation is
computed under the straight-line method over the respective assets' useful
lives. Useful lives of the Company's assets are as follows:
Land and leasehold improvements 10 to 20 years
Buildings 20 to 40 years
Transportation equipment 4 to 5 years
Machinery and equipment 5 to 12 years
Furniture and fixtures 3 to 7 years
Computer software 7 years
Income Taxes
Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and other tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Company follows Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its director and employee stock options.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to periodically make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Earnings (Loss) per Common Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and dilutive earnings per share. Basic earnings
per share exclude any dilutive effects of options. Diluted earnings per share
are very similar to the previously reported fully diluted earnings per share.
All earnings per share amounts have been presented and, where appropriate,
restated to conform to the SFAS No. 128 requirements.
The reconciliation for diluted earnings (loss) per share for years ended
September 30, 1999, 1998 and 1997 is as follows (in thousands):
1999 1998 1997
--------- ------- -------
Average shares outstanding 15,438 15,437 15,018
Dilutive effect of outstanding stock options -- 127 264
Average shares deemed oustanding 15,438 15,564 15,282
Net income (loss) used in basic and diluted
earnings (loss) per share $(10,449) $11,385 $14,885
Business Segments
The Company's two identifiable segments are energy products, consisting of Oil
Country Tubular Goods (OCTG) and line pipe products sold primarily to customers
in the energy industry, and industrial products, consisting primarily of
structural tubing, standard pipe and cold drawn tubing products. Energy products
are used in the completion of new wells and the handling and transporting of the
oil and natural gas produced from these wells. Industrial products are sold to
customers in various industries including construction, agriculture and
transportation. The Company's products are sold primarily to a network of
distributors and are sold throughout the United States and Canada.
Sales commission expenses are charged directly to the associated business
segments. Remaining selling, general and administrative expenses are allocated
based upon the net sales dollars generated by each segment.
Cash Equivalents
The Company's policy is to consider demand deposits and short-term investments
with a maturity of three months or less when purchased as cash equivalents.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable and long-term debt obligations. The carrying value of amounts
reported in the consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate a fair value. Management's
estimate of the fair value of long-term debt obligations is discussed in Note 6
to the consolidated financial statements.
Reclassifications
Certain amounts in the 1998 financial statements have been reclassified to
conform with the classifications in the 1999 financial statements with no effect
on previously reported net income or stockholders' equity.
2. Purchase of Equipment and Sale of Stock
On September 3, 1999, the Company entered into an Asset Purchase Agreement to
purchase mill equipment for $11.75 million. This equipment will be used by the
Company in connection with the construction and equipping of a new large
diameter pipe and tubing facility adjacent to its existing facilities in
Hickman, Arkansas. The Company estimates that the total cost for this project
will be $40 million. In September 1999, the Company made a deposit of $2.1
million on the equipment and will be required to fund the remaining $9.65
million of the purchase price on November 10, 1999. The deposit is nonrefundable
if the seller fulfills its obligations under the agreement.
The Company funded this project principally through the issuance of 2,300,000
shares of its common stock. The original 2,000,000 shares offered to the public
closed on October 6, 1999. The underwriters' overallotment of 300,000 shares
closed on October 21, 1999. Total proceeds to the Company from the sale, net of
the underwriting discount and other expenses, are expected to be $34.9 million.
3. Start-Up Costs
On September 18, 1998, the Company acquired assets to be used in the production
of cold drawn tubular products at a production facility in Beaver Falls,
Pennsylvania from PMAC, Ltd. for $11,464,000. The Company incurred operating
losses of $3,462,000 in the fiscal year ended September 30, 1999 related to the
operations at this facility which had not reached normal production capacity.
These costs are comprised primarily of salary and related costs for the
production, sales and administrative personnel prior to the fully integrated
operation of the facility. These start-up costs increased the net loss of the
Company for fiscal 1999 by $0.14 per share.
4. Write-Down of Software Developments Costs
During the year ended September 30, 1998, the Company recorded a charge of
$1,605,000 in selling, general and administrative expense for the write-down of
certain software development costs relating to information systems being
replaced by a new enterprise resource planning system.
5. Stock Split
On August 1, 1997, the Company declared a two-for-one stock split effected in
the form of a 100 percent stock dividend to all stockholders of record as of
August 12, 1997. The dividend was paid on August 21, 1997 and increased the
number of shares outstanding from 7,544,071 to 15,088,142. Approximately $75,000
was transferred from retained earnings to common stock to record this dividend.
All share and per share amounts, including stock option information, in the
accompanying consolidated financial statements have been restated to reflect
this stock dividend.
6. Long-Term Debt and Revolving Credit Facility
Long-term debt and revolving credit facility at September 30, 1999 and 1998
consists of the following (in thousands):
1999 1998
------- -------
Capital lease obligation, secured by property, plant and
equipment (net book value $9,390,000 at September 30, 1999);
payable in monthly installments (including interest at 8.0%)
of $59,479; final payment due on August 1, 2007 $ 4,176 $ 4,540
Capital lease obligation, secured by property and plant (net
book value $6,444,000 at September 30, 1999); interest of
7.5% payable monthly; payable in monthly principal
installments of approximately $20,000 (plus interest)
commencing on March 1, 1996; gradually increasing to $31,250
by year seven and increasing to $240,417 in year eight;
final payment due on February 1, 2004 4,050 4,339
Revolving credit notes, secured by all accounts receivable,
inventories and certain equipment; due on September 30,
2003; interest payable monthly at either prime or the
Eurodollar rate, adjusted by an interest margin, depending
upon certain financial measurements (7.36% at September 30,
1999) 31,000 27,400
-------- --------
39,226 36,279
Less current maturities (708) (653)
-------- --------
$38,518 $35,626
======== ========
The Company's revolving credit agreement provides for advances up to the lesser
of $50,000,000 or the eligible borrowing base as defined in the facility
agreement. In addition, the Company had an outstanding letter of credit under
this revolving credit agreement of $350,000 at September 30, 1999 (which expires
in September 2000). Additional available borrowings under the credit agreement
at that date were $15,842,000. The agreement includes restrictive covenants
relating to levels of funded debt and other financial measurements and restricts
the amount of dividends that can be paid on common stock. The revolving credit
agreement requires an annual commitment fee based upon certain financial
measurements.
The present value of future minimum lease payments under the capital lease
obligations as of September 30, 1999 is as follows (in thousands):
Present Value of
Total Minimum Minimum Lease
Lease Payments Interest Payments
2000 $1,320 $612 $708
2001 1,315 555 760
2002 1,315 493 822
2003 2,711 371 2,340
2004 1,959 215 1,744
Thereafter 2,113 261 1,852
------- ------ ------
$10,733 $2,507 $8,226
======= ====== ======
Property, plant and equipment at September 30, 1999 and 1998 include $18,654,000
and $18,295,000, respectively, under leases that have been capitalized.
Accumulated depreciation for these assets was $2,820,000 and $2,307,000 at
September 30, 1999 and 1998, respectively.
The fair value of the Company's long-term debt is based on estimates using
discounted cash flow analyses, based on quoted market prices for similar issues.
The estimated fair value of debt at September 30, 1999 was $39,383,000.
7. Inventories
Inventories at September 30, 1999 and 1998 consist of the following (in
thousands):
1999 1998
Finished goods $ 29,309 $ 34,674
Work-in-process 3,011 2,868
Raw materials 10,358 12,042
In-transit materials 6,867 7,003
Storeroom parts 4,941 5,098
-------- --------
$ 54,486 $ 61,685
======== ========
Finished goods at September 30, 1999 and 1998 include $3,560,000 and $3,538,000,
respectively, of customer-obligated inventory.
8. Property, Plant and Equipment
Property, plant and equipment at September 30, 1999 and 1998 consist of the
following (in thousands):
1999 1998
--------- ---------
Land $ 1,520 $ 1,520
Land and leasehold improvements 2,015 1,132
Buildings 24,256 23,392
Transportation equipment 1,376 1,356
Machinery and equipment 76,188 70,859
Computer software 5,252 675
Furniture and fixtures 3,033 2,838
-------- --------
$113,640 $101,772
Less accumulated depreciation (39,122) (31,893)
-------- --------
$ 74,518 $ 69,879
======== ========
9. Income Taxes
The components of the provision (benefit) for income taxes for the years ended
September 30, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
-------- ------ ------
Current:
Federal $(3,399) $4,120 $3,804
State (112) 139 958
Deferred (2,211) 1,161 2,577
-------- ------ ------
$(5,722) $5,420 $7,339
======== ====== ======
The difference between the effective income tax rate and the U.S. federal income
tax rate for the years ended September 30, 1999, 1998 and 1997 is explained as
follows (in thousands):
1999 1998 1997
-------- ------- -------
Provision (benefit) at statutory tax rate $(5,660) $5,714 $7,845
State and local taxes, net of federal tax benefit (112) 139 958
Alternative minimum tax -- -- (510)
Decrease in valuation allowance -- -- (1,147)
Benefit of foreign sales corporation -- (354) --
Other items 50 (79) 193
-------- ------- -------
$(5,722) $5,420 $7,339
======== ======= =======
The 1997 decrease in the valuation allowance relates primarily to the
utilization of alternative minimum tax credit carryforwards.
Temporary differences which give rise to deferred tax assets and liabilities at
September 30, 1999 and 1998 are as follows (in thousands):
1999 1998
-------- --------
Deferred tax assets:
Various accrued liabilities and reserves $ 1,835 $ 1,280
Net operating loss carryforwards 4,132 818
Alternative minimum tax carryforwards 2,541 598
Tax benefit associated with the exercise of
non-qualified stock options 13 --
-------- --------
Total deferred tax assets 8,521 2,696
Deferred tax liabilities:
Accelerated depreciation 6,777 5,712
Asset valuations 3,198 662
-------- --------
Total deferred tax liabilities 9,975 6,374
-------- --------
Net deferred tax liabilities $(1,454) $(3,678)
======== ========
The Company has available net operating loss carryforwards of $2,320,000 at
September 30, 1999 which were acquired in prior years and expire in 2000. In
addition, the Company has $8,611,000 of net operating loss carryforwards which
were generated during fiscal 1999 and expire in 2019. In 2000, all of these net
operating loss carryforwards can be utilized to offset financial statement
earnings after temporary differences. At September 30, 1999, the Company had
alternative minimum tax credit carryforwards of $2,541,000 available for income
tax purposes. These credit carryforwards do not expire.
Realization of the Company's net operating loss carryforwards which expire in
2000 is dependent on generating approximately $3.0 million of taxable income
during fiscal 2000 as a result of normal operations or the adoption of certain
available tax planning strategies. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized.
10. Defined Contribution Plans
The Company sponsors a defined contribution 401(k) plan that is available to
substantially all employees. The plan may be amended or terminated at any time
by the Board of Directors. The Company, although not required to, has provided
matching contributions to the plan for the years ended September 30, 1999, 1998
and 1997 of $691,000, $704,000 and $590,000, respectively.
The Company also began sponsoring two deferred compensation plans covering
officers and key employees in 1996. One plan provides for discretionary
contributions based solely upon the Company's profitability and the individuals'
gross wages. The other plan provides for fixed contributions to certain officers
of the Company. The Company contribution to these plans for the years ended
September 30, 1999, 1998 and 1997 was $60,000, $310,000 and $200,000,
respectively.
11. Segment Information
The following table sets forth data for the years ended September 30, 1999, 1998
and 1997 for the reportable industry segments of energy products and industrial
products. Intersegment sales are not material. Identifiable assets are those
used in the Company's operations in each segment.
Energy Industrial
Products Products Corporate Total
1999:
Net sales $101,864 $70,553 $ -- $172,417
Operating loss (10,628) (3,682)(1) -- (14,310)
Identifiable assets 93,238 49,392 17,518 160,148
Depreciation and amortization 4,812 2,019 524 7,355
Capital expenditures 2,963 4,233 4,673 11,869
1998:
Net sales $184,824 $80,565 $ -- $265,389
Operating income (loss) 14,680 5,461 (1,605)(2) 18,536
Identifiable assets 99,357 46,095 11,433 156,885
Depreciation and amortization 4,255 1,448 469 6,172
Capital expenditures 7,512 12,186 2,483 22,181
1997:
Net sales $223,879 $67,181 $ -- $291,060
Operating income 17,641 6,650 -- 24,291
Identifiable assets 116,433 34,565 11,066 162,064
Depreciation and amortization 3,760 1,455 482 5,697
Capital expenditures 8,385 363 789 9,537
(1) During the year ended September 30, 1999, the Company incurred operating
losses of $3,462,000 related to the operations of its Beaver Falls,
Pennsylvania facility which has not reached normal production capacity.
(2) During the year ended September 30, 1998, the Company recorded a charge of
$1.6 million in selling, general and administrative expense for the write-
down of certain software develop- ment costs relating to information
systems being replaced by a new enterprise resource planning system.
Transactions with two significant energy customers for the years ended
September 30, 1999 and 1997 represented approximately 26 percent and 25
percent of total sales, respectively. Transactions with one significant
energy customer for the year ended September 30, 1998 represented
approximately 14 percent of total sales.
12. Operating Leases
The Company rents office facilities and equipment under various operating
leases. Future minimum payments under noncancelable operating leases with
initial or remaining terms in excess of one year are as follows at September 30,
1999 (in thousands):
2000 $ 3,350
2001 2,911
2002 2,105
2003 1,976
2004 2,216
-------
$12,558
=======
Rent expense for all operating leases was $2,715,000, $1,937,000 and $1,222,000
for the years ended September 30, 1999, 1998 and 1997, respectively.
13. Contingencies
Various claims, incidental to the ordinary course of business, are pending
against the Company. In the opinion of management, after consultations with
legal counsel, resolution of these matters is not expected to have a material
effect on the accompanying financial statements.
14. Stock Option Plans
The Company sponsors two employee stock option plans (the "1990 Plan" and the
"1994 Plan") allowing for incentive stock options and non-qualified stock
options. The Company also sponsors a stock option plan for eligible directors
(the "Director Plan") allowing for non-qualified stock options. The 1990 Plan,
1994 Plan and Director Plan provide that 340,000, 1,000,000 and 200,000 shares,
respectively, may be issued under the plans at an option price not less than the
fair market value of the stock at the time the option is granted. The 1990 Plan,
1994 Plan and Director Plan expire in December 2000, November 2004 and November
1999, respectively. The options vest pursuant to the schedule set forth for each
option. In general, the options issued under the Director Plan vest six months
from the date of grant and the options issued under the 1990 and 1994 Plans vest
ratably over periods ranging from three to five years. Effective August 29,
1997, the Compensation Committee of the Board of Directors removed the exercise
restriction with respect to certain options granted in 1995, which made them
immediately exercisable. At September 30, 1999 and 1998, 156,500 and 502,500
shares were available for grant under all of the option plans.
The Company grants stock options for a fixed number of shares to directors and
employees with an exercise price equal to the fair value of the shares at the
time of the grant. Accordingly, the Company has not recognized compensation
expense for any of its stock option grants. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
the grant date as prescribed by SFAS No. 123, net income (loss) and earnings
(loss) per share would have been reduced (or increased) to the pro forma amounts
in the table below. The fair value of the options granted in 1999, 1998 and 1997
was determined to be $1,693,000, $1,101,000 and $67,000, respectively. For the
purposes of these pro forma disclosures, the estimated fair value of the options
is recognized as compensation expense over the options' vesting period.
1999 1998 1997
--------- -------- --------
Pro Forma
Net income (loss) (in thousands) $(10,972) $10,948 $14,719
Basic earnings (loss) per share $(.71) $.71 $.98
Diluted earnings (loss) per share $(.71) $.70 $.96
The compensation expense associated with the fair value of the options
calculated in 1999, 1998 and 1997 is not necessarily representative of the
potential effects on reported net income (loss) in future years.
The fair value of the options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for the fiscal years ended September 30, 1999, 1998 and 1997,
respectively: risk-free interest rate of 4.81%, 5.57% and 5.53%; no dividend
payments expected; volatility factors of the expected market price of the
Company's common stock of 0.613, 0.555 and 0.478; and a weighted average
expected life of the options of 8.4 years, 7.2 years and 1.0 year.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
The following table summarizes option activity and related information for years
ended September 30, 1999, 1998 and 1997:
Weighted Weighted
Shares Under Average Average
Option Exercise Price Fair Value
Options outstanding at
October 1, 1996 872,000 $5.39
Options exercised (466,832) 5.33
Options expired (3,000) 5.92
Options granted 37,500 8.50 $1.80
Options outstanding at
September 30, 1997 439,668 5.71
Options exercised (26,500) 6.13
Options expired (60,000) 5.31
Options granted 125,000 15.11 $8.80
Options outstanding at
September 30, 1998 478,168 8.20
Options expired (5,000) 7.13
Options exercised (3,000) 6.46
Options granted 351,500 6.96 $4.82
Options outstanding at
September 30, 1999 821,668 $7.68
The following table summarizes information about fixed stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Weighted Average Weighted Weighted
Exercise Remaining Average Average
Prices Options Contractual Life Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C>
$4.00 to $5.88 167,000 5.1 years $ 4.58 57,000 $ 5.70
$5.92 to $8.50 529,668 6.1 $ 6.90 228,168 $ 6.61
$11.38 to $21.75 125,000 7.2 $15.11 45,000 $21.75
$4.00 to $21.75 821,668 5.9 $ 7.68 330,168 $ 8.51
</TABLE>
15. Shareholder Rights Plan
In July 1998, the Company's Board of Directors adopted a common stock
shareholder rights plan ("Right") which entitles each shareholder of record to
receive a dividend distribution of common stock upon the occurrence of certain
events. The Right becomes exercisable the day that a public announcement is made
that a person or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of common stock, or the tenth day following the commencement
of a tender offer or exchange offer that would result in a person or a group
becoming the beneficial owners of 20% or more of such outstanding share of
common stock. When exercisable, each Right entitles the holder to purchase $100
worth of the Company's common stock for $50. Until a Right is exercised or
exchanged, the holder thereof will have no rights as a shareholder of the
Company, including, without limitation, the right to receive dividends. The
Right is subject to redemption by the Company's Board of Directors for $.01 per
Right at any time prior to the date which a person or group acquires beneficial
ownership of 20% or more of the Company's common stock or subsequent thereto at
the option of the Board of Directors. The Rights expire July 23, 2008.
16. Quarterly Financial Data (Unaudited)
The results of operations by quarter for 1999 and 1998 were as follows (in
thousands):
Quarter Ended
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
Net sales $41,388 $34,126 $42,896 $54,007
Gross profit (loss) 745 (1) (854) 473 2,491
Net loss (2,364)(2) (3,688)(2) (2,637)(2) (1,760)(2)
Basic and diluted loss per share (.15)(2) (.24)(2) (.17)(2) (.11)(2)
Quarter Ended
December 31, March 31, June 30, September 30,
1997 1998 1998 1998
Net sales $86,479 $70,548 $56,590 $51,773
Gross profit 13,774 10,329 5,671 3,578
Net income (loss) 6,570 4,707 1,330 (1,221)(3)
Basic earnings (loss) per share .43 .30 .09 (.08)(3)
Diluted earnings (loss) per share .42 .30 .09 (.08)(3)
(1) Gross profit for the three months ended December 31, 1998 includes a
$707,000 ($451,000 after tax effect or $.03 per share) charge to earnings
for the reduction in carrying value of finished goods inventory, primarily
related to a decline in the selling prices of the Company's energy
products.
(2) Net loss for the quarters ended December 31, 1998, March 31, 1999, June 30,
1999 and September 30, 1999 included charges for the start-up of the cold
drawn tubular production facility of $719,000, $952,000, $825,000 and
$966,000, respectively ($460,000, $609,000, $528,000 and $618,000 after tax
effect or $0.03, $0.04, $0.03 and $0.04 per share, respectively).
(3) During the quarter ended September 30, 1998, the Company recorded a pretax
charge of $1.6 million ($1.1 million after tax effect or $.07 per share) in
selling, general and administrative expense for the write-down of certain
software development costs relating to information systems being replaced
by a new enterprise resource planning system.
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Maverick Tube Corporation
We have audited the accompanying consolidated balance sheets of Maverick Tube
Corporation and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Maverick Tube Corporation and subsidiaries at September 30, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
October 29, 1999
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Maverick Tube International, Inc.
Maverick Tube, L.P.
Maverick Investment Corporation
Exhibit 23.1
Independent Auditors' Consent
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Maverick Tube Corporation of our report dated October 29, 1999, and of the
reference to our firm under the caption "Historical Financial Information," both
included in the 1999 Annual Report to Stockholders of Maverick Tube Corporation.
Our audits also included the financial statement schedule of Maverick Tube
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-56568) of Maverick Tube Corporation and in the related
Prospectus and in the Registration Statements (Form S-8 No. 33-89526 and Form
S-8 No. 333-52621) pertaining to the Maverick Tube Corporation Amended and
Restated 1990 Stock Option Plan, the Maverick Tube Corporation 1994 Stock Option
Plan, and the Maverick Tube Corporation Director Stock Option Plan of
Maverick Tube Corporation of our reports dated October 29, 1999, with respect
to the consolidated financial statements and schedule of Maverick Tube
Corporation included and incorporated by reference in this Annual Report (Form
10-K) for the year ended September 30, 1999.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
December 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 1,625
<SECURITIES> 0
<RECEIVABLES> 20,203
<ALLOWANCES> 542
<INVENTORY> 54,486
<CURRENT-ASSETS> 82,913
<PP&E> 113,640
<DEPRECIATION> 39,122
<TOTAL-ASSETS> 160,148
<CURRENT-LIABILITIES> 38,597
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 160,148
<SALES> 175,486
<TOTAL-REVENUES> 172,417
<CGS> 169,562
<TOTAL-COSTS> 17,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,861
<INCOME-PRETAX> (16,171)
<INCOME-TAX> (5,722)
<INCOME-CONTINUING> (10,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,449)
<EPS-BASIC> (.68)
<EPS-DILUTED> (.68)
</TABLE>
Exhibit 99.1
RISK FACTORS
Fluctuations in oil and natural gas prices could adversely affect us because we
sell a significant portion of our products to the energy industry.
Our principal products consist of oil country tubular goods and line pipe. Sales
of these products to the energy industry constitute the most significant source
of our revenues. In fact, revenues from the sale of oil country tubular goods
and line pipe to the energy industry accounted for approximately 54%, 56% and
70% of our total sales for fiscal 1999, fiscal 1998 and fiscal 1997,
respectively. Demand for these products depends primarily upon the number of oil
and natural gas wells being drilled, completed and worked over in the United
States and Canada and the depth and drilling conditions of these wells. The
level of these activities is primarily dependent on current and anticipated oil
and natural gas prices. Many factors, such as the supply and demand for oil and
natural gas, general economic conditions and global weather patterns, affect
these prices. As a result, the future level and volatility of oil and natural
gas prices are uncertain.
The volatility and cyclical nature of steel prices may adversely affect our
business.
Purchased steel represents slightly more than two-thirds of our costs of goods
sold. As a result, the steel industry, which is highly volatile and cyclical in
nature, affects our business both positively and negatively. Numerous factors,
most of which are beyond our control, drive the cycles of the steel industry and
influence steel prices. Some of these factors are:
* general economic conditions;
* industry capacity utilization;
* import duties and other trade restrictions; and
* currency exchange rates.
Consistent with the cyclical nature of the steel industry, our major supplier of
steel announced three price decreases from mid-September 1998 through November
19998 and has announced five price increases since December 1998. Changes in
steel prices can affect the pricing levels of our products. In response to any
increases in steel costs, we seek to maintain our profit margin by attempting to
increase the price of our products. However, increases in the prices of our
products often do not fully compensate for steel price increases and generally
lag several months behind increases in steel prices. As a result, we typically
have a limited ability to recover increases in steel costs.
We may lose business to competitors who are larger than us or who produce their
own steel.
Some or our competitors are larger and have greater financial and marketing
resources and business diversification than us. These companies may be better
able than us to successfully endure downturns in either the energy or industrial
sectors. Also, many of our larger competitors are integrated steel producers -
producers who make their own raw materials rather than purchase their raw
materials in the open market. During periods of strong steel demand, we may be
at a competitive disadvantage to these integrated competitors. The oil country
tubular goods and structural product markets are largely commodity in nature and
as a result, price competition is of particular importance.
The level of imports of oil country tubular goods into the U.S. market, which
has been reduced by trade relief now in place, impacts demand for our products.
The level of imports of oil country tubular goods, which has varied
significantly overtime, affects the domestic oil country tubular goods market.
High levels of imports reduce the volume sold by domestic producers and tend to
suppress selling prices, both of which have an adverse impact on our business.
We believe that U.S. import levels are affected by, among other things:
* U.S. and overall world demand for oil country tubular goods;
* the trade practices of and government subsidies to foreign producers; and
* the presence or absence of antidumping and countervailing duty orders.
Since 1986, the level of imports of oil country tubular goods from Canada,
Israel and Taiwan has been greatly reduced by the existence of antidumping duty
orders covering imports from these countries and a countervailing duty order
covering imports from Israel. In addition, since 1995, the level of imports of
oil country tubular goods from Argentina, Italy, Japan, Korea and Mexico has
been greatly reduced by the existence of antidumping duty orders covering
imports from these countries and a countervailing duty order covering imports
from Italy. The orders also have had a beneficial impact on prices for oil
country tubular goods in the U.S. market.
Antidumping and countervailing duty orders require special duties to be imposed
in amounts designed to offset unfair pricing and government subsidization,
respectively. Once an order is in place, each year foreign producers, importers,
domestic producers and other parties may request an "administrative review" to
determine the duty rates to be applied to imports during the preceding year, as
well as the duty deposit rates for future imports from the companies covered by
the review. In addition, a company that did not ship to the United States during
the original period examined by the U.S. government may request a "new shipper
review" to obtain its own duty rate on an expedited basis.
Antidumping and countervailing duty orders may be revoked as a result of
periodic "sunset reviews." An individual exporter also may obtain revocation as
to itself under certain circumstances. The U.S. government is now conducting
sunset review of the orders covering Canada and Taiwan, which are expected to be
completed by May 2000. The U. S. government is scheduled to conduct sunset
review of the orders covering Argentina, Italy, Japan, Korea and Mexico
beginning in August 2000. These review are expected to be completed by August
2001. The U.S. government will revoke the antidumping and countervailing duty
orders covering imports from Israel effective January 1, 2000, because the
domestic industry did not request sunset review of these orders based on its
belief that imports from Israel are not significant in the U.S. oil country
tubular goods market. If the orders covering imports from Argentina, Canada,
Italy, Japan, Korea, Mexico and Taiwan are revoked in full or in part or the
duty rates lowered, we could be exposed to increased competition from imports
that could have a material adverse effect on our business.
Industry inventory levels affect our sales and net income.
Industry inventory levels of our products, and in particular oil country tubular
goods, can change significantly from period to period. These changes can have a
direct adverse effect on the demand for new production of energy and industrial
products when customers draw from inventory rather than purchase new products.
Although industry inventory levels of oil country tubular goods have steadily
declined through fiscal 1999, we believe that industry-wide oil country tubular
goods inventory is at or below normal levels in relation to current demand.
Additionally, months of supply of inventory, which defines the level of
inventory in terms of current monthly demand, has fluctuated due to contracting
demand. The above normal industry inventory levels and upward fluctuations in
months of supply have had and may continue to have an adverse impact on us.
Our plans for the new large-diameter facility may not be successful.
An important part of our growth strategy is our ability to successfully expand
our current product lines, offer new products lines and enter new markets. We
are devoting significant resources to this strategy. To this end, we are
currently planning to open a new large-diameter facility that will produce
products with larger diameters than we currently manufacture. Opening the new
facility may expose us to risks including:
* intense competition in the larger diameter product lines;
* the current industry-wide overcapacity in these product lines; and
* potential unforeseen or higher than expected costs.
Any of these risks could adversely affect or prevent the success of the new
facility.
Our cold drawn tubing business may not be successful.
Our recent entry into the cold drawn tubing market has required capital
expenditures of approximately $14.2 million as of September 30, 1999. We have
not generated a profit to date and cannot assure you that we will be successful
in achieving significant sales levels or profitability in the cold drawn tubing
market.
Seasonal fluctuations which affect our customers may affect demand for our
products.
We, as well as the oil country tubular goods industry in general, experience
seasonal fluctuations in demand for our products. For instance, weather
conditions during the first half of the calendar year normally make drilling
operations more difficult. For this reason, domestic drilling activity and the
corresponding demand for our oil country tubular goods generally will be lower
during our second and third fiscal quarters, as compared with the first and
fourth fiscal quarters. We also believe we experience seasonal fluctuations in
demand for our industrial products, particularly those sold to the automotive
industry. However, the timing of such fluctuations may differ from fluctuations
experienced in the oil country tubular goods market.
We depend on a few suppliers for a significant portion of our steel, and a loss
of one or more significant suppliers could affect our ability to produce our
products.
In fiscal 1999, we purchased in excess of 90% of the steel for our Arkansas
facilities from a single supplier, and 80% of the steel for our Texas facility
from three suppliers. The loss of any of these suppliers or interruption of
production at one or more of the suppliers could have a material adverse effect
on our business, financial conditions and results of operations.
We depend on a few distributors for a significant portion of our net sales of
oil country tubular goods, and a loss of one or more significant distributors
could affect our ability to sell our products.
In fiscal 1999, Sooner Pipe & Supply Corp. and McJunkin Appalachian Oilfield
accounted for 26% of our net sales. In fiscal 1998, National Oilwell Supply,
Inc. accounted for 14% of our net sales for each year. In fiscal 1997, two
distributors, National Oilwell and Master Tubulars, Inc., accounted for 25% of
our net sales. Four distributors, including National Oilwell, have recently
combined to become Sooner Pipe & Supply Corp., one of the largest distributors
of oil country tubular goods. We cannot yet determine whether this combination
will have any significant impact on our sales or margins. The loss of any of
these distributors could have a material adverse effect on our business,
financial condition and results of operations.
The operations of our customers expose us to potential products liability
claims.
Drilling for oil and natural gas involves a variety of risks that can result in
significant losses. Actual or claimed defects in our products may give rise to
claims against us for these losses. The use of structural tubing can also
involve risks. Actual or claimed defects in these pipe and tubing products can
also expose us to claims for damages. We maintain insurance coverage against
potential product liability claims in amounts which we believe to be adequate.
We have not historically incurred material product liability costs, nor have we
experienced difficulties in obtaining or maintaining adequate product liability
insurance coverage. However, we may incur product liability in excess of our
insurance coverage or incur other uninsured costs, and we may not be able to
maintain adequate insurance coverage levels in the future.
Compliance with and changes to laws regulating the operation of our business
could adversely affect our performance.
Our business is subject to numerous local, state and federal laws and
regulations concerning environmental and safety matters. We cannot assure you
that future changes and compliance within these laws and regulations will not
have a material effect on our operations.
