UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 1-10651
MAVERICK TUBE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-1455766
(State or other jurisdiction of (I.RS. Employer
incorporation or organization) Identification No.)
16401 Swingley Ridge Road
Seventh Floor
Chesterfield, Missouri 63017
(Address of principal executive offices) (Zip Code)
(314) 733-1600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value -- 15,437,474 shares as of May 14, 1999
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- March 31, 1999
and September 30, 1998 3
Condensed Consolidated Statements of Operations -- Three
and Six month periods ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -- Six
month periods ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of the Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, September 30,
1999 1998
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................... $1,493 $748
Accounts receivable, less allowances of $620 and
$391 on March 31, 1999 and September 30, 1998,
respectively............................................... 11,087 15,515
Inventories (see Note 2)..................................... 43,223 61,685
Deferred income taxes........................................ 1,725 1,827
Income taxes refundable...................................... 2,354 5,078
Prepaid expenses and other current assets.................... 1,351 1,200
Total current assets......................................... 61,233 86,053
PROPERTY, PLANT, AND EQUIPMENT
Less accumulated depreciation (March 31, 1999 - $35,360;
September 30, 1998 - $31,893).......................... 74,319 69,879
OTHER ASSETS................................................. 1,185 953
TOTAL ASSETS.................................................$136,737 $156,885
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................. $10,121 $12,301
Accrued expenses and other liabilities....................... 6,430 9,153
Deferred revenue ............................................ 1,359 3,584
Current maturities of long-term debt......................... 681 653
Total current liabilities................................. 18,591 25,691
LONG-TERM DEBT, less current maturities...................... 7,850 8,226
REVOLVING CREDIT FACILITY ................................... 22,000 27,400
DEFERRED INCOME TAXES ....................................... 4,285 5,505
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
5,000,000 shares authorized............................... -- --
Common stock, $.01 par value;
20,000,000 authorized shares,
15,437,474 shares issued and outstanding.................. 154 154
Additional paid-in capital................................... 44,216 44,216
Retained earnings............................................ 39,641 45,693
Total stockholders' equity................................ 84,011 90,063
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................$136,737 $156,885
<FN>
Note: The condensed consolidated balance sheet at September 30, 1998, has been
derived from the audited consolidated financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three months ended Six months ended
March 31 March 31
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES................................. $34,126 $70,548 $75,515 $157,027
COSTS and EXPENSES
Cost of goods sold..................... 34,980 60,219 75,624 132,925
Selling, general and administrative.... 3,552 2,844 6,973 6,040
Start-up costs......................... 952 -- 1,671 --
Income (loss) from operations ............ (5,358) 7,485 (8,753) 18,062
OTHER INCOME (EXPENSE)
Interest expense....................... (458) (398) (793) (840)
Other income .......................... 66 39 103 89
Income (loss) before income taxes......... (5,750) 7,126 (9,443) 17,311
(BENEFIT FROM) PROVISION FOR INCOME TAXES. (2,062) 2,419 (3,391) 6,035
NET INCOME (LOSS)......................... ($3,688) $4,707 ($6,052) $11,276
AVERAGE SHARES 15,437,474 15,435,302 15,437,474 15,437,474
BASIC EARNINGS (LOSS) PER SHARE ($0.24) $0.30 ($0.39) $0.73
DILUTED EARNINGS (LOSS) PER SHARE ($0.24) $0.30 ($0.39) $0.72
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
March 31,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................................. ($6,052) $11,276
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization................................... 3,527 2,943
Deferred income taxes............................................. 102 165
Provision for accounts receivable allowances...................... 229 (240)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable..................... 4,199 7,868
(Increase) decrease in inventories............................. 18,462 (2,837)
(Increase) decrease in prepaid expenses and other assets....... (442) (277)
(Decrease) increase in accounts payable........................ (2,180) (6,203)
(Decrease) increase in deferred revenue ....................... (2,225) (7,896)
(Decrease) increase in accrued expenses and other liabilities.. (1,219) (6,912)
Cash provided (used) by operating activities................... 14,401 (2,113)
INVESTING ACTIVITIES
Purchases of property, plant and equipment......................... (7,908) (5,869)
FINANCING ACTIVITIES
Proceeds from borrowings........................................... 20,350 63,400
Principal payments on borrowings................................... (26,098) (57,673)
(5,748) 5,727
Net proceeds from sale of common stock ............................ -- 162
Cash provided (used) by financing activities...................... (5,748) 5,889
Increase (decrease) in cash and cash equivalents................... 745 (2,093)
Cash and cash equivalents at beginning of period...................... 748 2,886
Cash and cash equivalents at end of period............................ $1,493 $793
<FN>
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest........................................................ $793 $940
Income taxes.................................................... ($5,398) $5,809
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Maverick Tube Corporation (the "Company") and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring items) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended March 31, 1999, are not necessarily indicative of the results that
may be expected for the year ended September 30, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended September 30, 1998.
(2) INVENTORIES
The components of inventories consisted of the following:
March 31, September 30,
1999 1998
(In thousands)
Finished goods $25,156 $34,674
Work-in-process 1,356 2,868
Raw materials 10,198 12,042
In-transit materials 1,562 7,003
Storeroom parts 4,951 5,098
$43,223 $61,685
Inventories are principally valued at the lower of average cost or
market.
Gross profit for the six months ended March 31, 1999 includes a $707,000
charge to earnings for the reduction in carrying value of finished goods inven-
tory, primarily related to a decline in the selling prices of the Company's
energy products.
(3) START-UP COSTS
During September 1998, the Company acquired assets to be used in the
production of cold drawn tubular products at a production facility in Beaver
Falls, Pennsylvania. The Company incurred costs of $952,000 in the second
quarter of fiscal 1999 and $1,671,000 in the first six months of fiscal 1999
related to the commencement of operations at this facility. 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.
(4) EARNINGS (LOSS) PER SHARE
Dilutive earnings per share was computed based upon the net income
(loss) of the Company and the weighted average number of shares of common stock
including the net effect of stock options. Total shares utilized in the
calculation were 15,437,474 for the quarter ended and for the six months ended
March 31, 1999 and 15,625,540 and 15,642,221 for the quarter ended and for the
six months ended March 31, 1998, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding matters that are not
historical facts (including statements as to the beliefs or expectations of the
Company) are forward-looking statements. Because such forward-looking statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. For example,
uncertainty continues to exist as to future levels and volatility of oil and gas
prices and their effect on drilling levels and demand for the Company's energy-
related products, the future impact of industry-wide draw downs of inventories
and future import levels. Uncertainty also exists as to the trend and direction
of both product pricing and purchased steel costs. Reference is made to the
"Risk Factors" discussed in Exhibit 99.1 of the Company's Annual Report on Form
10-K for its fiscal year ended September 30, 1998.
OVERVIEW
The Company's products consist of electrical resistance welded ("ERW") tubular
products sold primarily for energy and industrial applications in North America.
The Company's energy segment includes Oil Country Tubular Goods (OCTG) and line
pipe which are sold primarily to distributors that supply end users in the
energy industry. The Company's industrial products segment consists of struc-
tural tubing and standard pipe which are sold primarily to service centers that
supply end users in construction, transportation, agriculture and other indus-
tries. Also, during the second quarter of fiscal 1999, the Company began the
production of cold drawn mechanical tubing, which is included in its industrial
products segment. At March 31, 1999 sales of cold drawn mechanical tubing had
not reached material levels.
Demand for the Company's energy-related products depends primarily upon the num-
ber of oil and natural gas wells being drilled in the United States and Canada,
the depth and drilling conditions of these wells and the number of well com-
pletions, which are in turn primarily dependent on oil and natural gas prices.
Domestic consumption of OCTG is supplied by domestic and foreign pipe products.
According to published industry reports, domestic drilling activity fell by 43%
for the quarter ended March 31, 1999, as compared to the same quarter of the
previous year. Natural gas drilling in the United States decreased by 27%
during the second quarter of fiscal 1999 as compared to the comparable period of
fiscal 1998, and oil related drilling decreased by 67%. The Company believes
that gas and oil drilling decreased due to gas and oil price decreases of 18%
and 19%, respectively, as compared to the quarter ended March 31, 1998. The
trend in overall drilling continued downward through the quarter, as drilling
at the end of the second quarter of fiscal 1999 was 44% lower than at the end
of the comparable period of the prior year and 5% lower than the average
drilling level for the quarter.
Shipments of domestic OCTG decreased by 68% during the second quarter ended
March 31, 1999 from the comparable period of the prior year. Import penetration
of the domestic OCTG market decreased to an estimated 9% during the quarter as
compared to 20% during the same quarter last year. Domestic consumption of OCTG
decreased 49% during the same period. The domestic OCTG business was also
impacted by an estimated 53% decrease in exports during the quarter, with
exports accounting for an estimated 22% of domestic production during the
quarter. The Company's energy related shipments during the second quarter
decreased by 56% from the same quarter last year and its exports to Canada
decreased 54%. The Canadian rig count decreased 40% during this time frame.
Industry inventory draw down accounted for 23% of demand for OCTG as compared
to an industry inventory build-up which created 12% additional demand during
the same quarter last year. At March 31, 1999, the ratio of OCTG inventories
to current consumption rates remained out of balance, as months of supply of
inventory has increased by 8% from 9.5 months to 10.3 months as drilling
activity continued to fall.
Given the numerous applications for the Company's industrial products, sources
of demand for such products are diversified. Such demand generally depends
on the general level of economic activity in the construction, transportation,
agricultural, material handling and recreational segments, the use of structural
tubing as a substitute for other structural steel forms, such as I-beams and
H-beams, and draw downs of existing customer inventories.
According to published industry reports, total structural tube shipments
increased by approximately 5% in the quarter ended March 31, 1999 as compared to
the comparable prior year quarter. In addition, imports increased 13%,
increasing their market penetration from 25% during the quarter ended March 31,
1998 to 27% during the quarter ended March 31, 1999. Domestic producers' ship-
ments increased by approximately 2% as total shipments rose and imports
increased. Management estimates that inventories of HSS held by steel service
centers also declined during the quarter, primarily due to concerns over falling
steel prices and the impact on product pricing. As a result of these market
conditions and an initial reluctance to lower selling prices, the Company's
shipments of industrial products fell by 10%. The decrease in industrial
products shipments was evenly shared by both HSS and standard pipe.
Pricing of the Company's products declined in all product lines during the
second quarter of fiscal 1999, primarily due to unfavorable market conditions
and declining steel prices. Pricing of OCTG, line, structural and standard pipe
was down 22%, 27%, 12% and 17%, respectively, as compared to the prior year
quarter.
Steel costs included in cost of goods sold decreased during the second quarter
of fiscal 1999 by $40 per ton, or 12.4% as compared to the quarter ended March
31, 1998 and by $13 per ton, or 4.5% as compared to the quarter ended December
31, 1998. These steel costs were above current replacement costs. The Company's
major supplier of steel has announced three price increases since December 1998.
These price changes will increase the Company's replacement cost modestly
through the end of July. The Company estimates that these cost increases will
not be reflected in cost of goods sold until the fourth quarter of fiscal 1999.
The supply of steel in the United States increased significantly during calendar
1998, primarily due to previous capacity additions and increased import levels.
The Company anticipates that these market conditions should help keep steel
costs relatively low during fiscal 1999. However, steel trade cases filed with
the International Trade Commission in September, 1998 have been a contributing
factor to the recent steel cost increases and could have additional impact on
future replacement costs.
RESULTS OF OPERATIONS
OVERALL COMPANY
Net sales of $34.1 million decreased $36.4 million, or 51.6%, during the second
quarter of fiscal 1999 as compared to the second quarter of fiscal 1998. These
results were attributable primarily to a decrease of 38.1% in total product
shipments, from 111,223 tons in second quarter of fiscal 1998 to 68,804 tons in
the current year quarter and an overall decrease of 21.8% in the average selling
prices of the Company's products. Net sales of $75.5 million decreased $81.5
million, or 51.9%, during the six months ended March 31, 1999 as compared to the
same period of the previous year. These results were attributable primarily to
a decrease of 40.9% in total product shipments, from 245,327 tons in the first
six months of fiscal 1998 to 144,960 tons in the current year and an overall
decrease of 18.6% in the average selling prices of the Company's products.
Cost of goods sold of $35.0 million decreased $25.2 million, or 42.1%, during
the second quarter of fiscal 1999 over the comparable prior year period. The
overall decrease was due primarily to decreased product shipments. However, the
overall unit cost per ton of products sold decreased 6.1% (from an average of
$541 to $508 per ton) in the second quarter of fiscal 1999 as compared with
the same period in fiscal 1998. This decrease was due to a decrease in steel
costs of $40 per ton, or 12.4%, offset by an increase in conversion costs from
less favorable fixed cost absorption due to lower production. See "Overview."
Cost of goods sold of $75.6 million decreased $57.3 million, or 43.1%, during
the six months ended March 31, 1999 as compared to the same period of the pre-
vious year. Again, the overall decrease was due primarily to decreased shipments
and low unit costs as compared to the six months ended March 31, 1998.
The Company experienced a gross loss of $854,000 compared to a gross profit of
$10.3 million during the second quarter of fiscal 1999 over the prior year
period. The gross loss, as a percentage of net sales was 2.5% for the three
month period ended March 31, 1999 as compared to a gross profit margin percen-
tage of 14.6% for the three month period ended March 31, 1998. The gross loss
of $109,000 during the six months ended March 31, 1999 compares to a gross
profit of $24.1 million during the six months ended March 31, 1998. The gross
loss, as a percentage of net sales was 1.0% for the six-month period ended March
31, 1999 as compared to a gross profit margin percentage of 15.3% for the six-
month period ended March 31, 1998.
During September 1998, the Company acquired assets that will be used in the
production of cold drawn tubular products at a production facility in Beaver
Falls, Pennsylvania. The Company incurred costs of $952,000 during the quarter
and $1.7 million in the first six months of fiscal 1999 related to the commence-
ment of operations at this facility. 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.
Selling, general and administrative expenses increased by $708,000, or 24.9%, in
the second quarter of fiscal 1999 over the prior year period. Selling, general
and administrative expenses were impacted by general wage increases granted as
of the beginning of the 1999 fiscal year. The increases were partially offset by
decreased selling commissions on sales of industrial products. Selling, general
and administrative expenses increased by $933,000, or 15.4%, in the first six
months of fiscal 1999 over the prior year period. These costs were impacted by
an increase in the allowance for doubtful accounts (which reflects the
deterioration of a specific accounts receivable balance) and wage increases,
partially offset by a decrease in industrial products selling commissions. Also,
due to the significant decline in net sales revenue caused by the market condi-
tions discussed above, selling, general and administrative expenses as a percen-
tage of net sales in the second quarter and first six months of fiscal 1999 were
10.4% and 9.2%, respectively as compared to 4.0% and 3.8%, respectively for the
comparable prior year periods.
Interest expense increased $60,000, or 15.1%, in the second quarter of fiscal
1999 compared to the prior year period. The increased interest expense was
primarily due to higher average debt levels. Interest expense decreased
$47,000, or 5.6% in the first six months of fiscal 1999 as compared to the
comparable prior year period. The decreased interest expense for this time
period is primarily due to additional amounts of interest expense capitalized on
additions to property, plant and equipment.
The benefit from income taxes was $2.1 million for the second quarter and $3.4
million for the six months ended March 31, 1999 as compared to the prior year
periods when the Company recorded provisions of $2.4 million and $6.0 million,
respectively. This change is attributable to the generation of pre-tax losses
by the Company of $5.7 million and $9.4 million in the second quarter and first
six months of fiscal 1999, respectively. The Company recorded pre-tax income in
the second quarter and first six months of fiscal 1998 of $7.1 million and $17.3
million, respectively.
As a result of the decreased gross profit and the other factors discussed above,
the Company generated net losses of $3.7 million and $6.1 million in the second
quarter and first six months of fiscal 1999, respectively, a decrease of $8.4
million and $17.3 million from the comparable prior year periods.
ENERGY PRODUCTS SEGMENT
Energy product sales of $16.7 million decreased $33.0 million, or 66.4%, for the
second quarter of fiscal 1999 as compared with the prior year period. Energy
product shipments decreased 38,802 tons, or 56.2% from 69,045 tons to 30,243
tons. The Company's domestic shipments of OCTG fell 59.3% from the quarter ended
March 31, 1998 due to excessive levels of industry inventory and a declining rig
count (from 965 active rigs to 554 active rigs). The Company's export shipments,
primarily to Canada, decreased 39.7%, from 3,714 tons in the quarter ended March
31, 1999 to 1,693 tons in the quarter ended March 31, 1998, as average Canadian
drilling fell 54.4% from 469 active rigs to 283 active rigs. Line pipe shipments
decreased by 25.8% principally due to increased import penetration. The average
net selling price for energy products was $552 per ton, a decrease of $168 per
ton. The decrease was due primarily to the market conditions discussed above and
a change in mix to lower value products.
See "Overview."
Energy product sales of $41.7 million decreased $74.9 million, or 64.2%, for the
first six months of fiscal 1999 as compared with the prior year period. Energy
product shipments decreased 92,924 tons, or 56.7% from 163,807 to 70,883. The
average net selling price for energy products was $588 per ton, a decrease of
$123 per ton. These decreases were a result of the same market conditions dis-
cussed above.
Energy products cost of goods sold of $18.8 million decreased $23.8 million, or
55.8%, for the second quarter of fiscal 1999, compared with the prior year
period. Gross loss for energy products of $2.1 million decreased $9.2 million.
Energy products gross loss percentage was 12.7% for the quarter ended March 31,
1999 as compared to a gross profit margin percentage of 14.3% for the quarter
ended March 31, 1998.
Energy products cost of goods sold of $44.7 million decreased $53.8 million, or
54.6%, for the first six months of fiscal 1999, compared with the prior year
period. Gross loss for energy products of a negative $3.0 million for the six
month period ended March 31, 1999 compares to a gross profit of $18.0 million
for the six months ended March 31, 1998. Energy products gross loss percentage
was 7.3% for the first six months of fiscal 1999 as compared to a gross profit
margin percentage of 15.5% for the first six months of fiscal 1998. Gross loss
for the six months ended March 31, 1999 includes a 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.
Continued downward pressure on energy selling prices could require the Company
to further reduce the carrying value of its inventory. While the Company
believes that its inventory is now in line with its anticipated future sales
levels, any significant decrease in prices would have a negative impact on con-
version costs recorded in cost of goods sold.
INDUSTRIAL PRODUCTS SEGMENT
Industrial products sales of $17.4 million decreased $3.4 million, or 16.4%, for
the second quarter as compared with the prior year period. Industrial products
shipments decreased 3,477 tons, or 8.2%, in the second quarter of 1999 as
compared to the second quarter of 1998. The decrease in sales and shipments of
industrial products was negatively impacted by declines in inventories held by
HSS distributors, primarily related to concern over falling steel and tube
prices and the Company's initial reluctance to lower selling prices. The average
net selling prices for industrial products during the second quarter of fiscal
1999 was $450, down $44 per ton as compared to the same period of the prior
year. This decrease for the second quarter was due primarily to declining
steel prices.
Industrial products sales of $33.8 million decreased $6.6 million, or 16.4%, for
the first six months of fiscal 1999 as compared with the prior year period.
Energy product shipments decreased 7,301 tons, or 9.0%, from 81,520 to 74,219
tons. The average selling price for industrial products was $456 per ton, a
decrease of $40 per ton. These decreases were a result of the same market
conditions discussed above.
Cost of goods sold of $16.1 million decreased $1.5 million, or 8.4%, in the
second quarter of fiscal 1999 over the prior year period of fiscal 1998. Gross
profit for industrial products of $1.3 million decreased $1.9 million, or 59.9%.
The decreased gross profit margin was due to lower selling prices and reduced
operating efficiencies, partially offset by lower steel costs. Industrial gross
profit margin percentage declined to 7.4% during the quarter ended March 31,
1999 from 7.4% during the quarter ended March 31, 1998.
Cost of goods sold of $30.7 million decreased $3.6 million, or 10.6%, for the
first six months of fiscal 1999 as compared with the prior year period. Gross
profit for industrial products of $2.9 million decreased $3.1 million, or 51.5%.
Industrial products gross profit percentage was 8.7% for the first six months
of fiscal 1999 as compared to 15.0% for the first six months of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1999 was $42.6 million and the ratio of current
assets to current liabilities was 3.3 to 1.0, as compared to September 30, 1998
when working capital was $60.3 million and the ratio of current assets to
current liabilities was 3.3 to 1.0. The decrease in working capital was due
principally to an $18.5 million decrease in inventory, a $4.2 million decrease
in accounts receivable, partially offset by a $2.2 million decrease in accounts
payable, a $2.2 million decrease in deferred revenue and a $1.2 million decrease
in accrued expenses and other liabilities. The above changes in inventory,
accounts receivable, accounts payable and deferred revenue are due to the
decreased volume of energy business. Cash provided by operating activities was
$14.4 million for the six months ended March 31, 1999.
Cash used by financing activities was $5.7 million for the six months ended
March 31, 1999. Outstanding borrowings on the Company's Revolving Credit
Facility decreased $5.4 million primarily due to the reduction in accounts
receivable and inventory. The Company's other long-term indebtedness including
current maturities was reduced by approximately $348,000.
The Company's capital budget for fiscal 1999 has been reduced to approximately
$13 million of which $7.9 million was expended during the six months ended March
31, 1999. The budgeted funds are being utilized principally to complete the
newly purchased cold drawn mechanical tube facility, acquire equipment for its
existing manufacturing facilities, and to purchase and install a new enter-
prise resource planning system. As of March 31, 1999, the Company had an
additional $2.2 million committed for the purchase of equipment.
The Company expects that it will meet its ongoing working capital and capital
expenditure requirements from a combination of cash flows from operations, which
constitutes its primary source of liquidity, and available borrowings under its
Revolving Credit Facility. The Revolving Credit Facility provides for maximum
borrowings up to the lesser of the eligible borrowing base or $50 million, and
bears interest at either the prevailing prime rate or an adjusted Eurodollar
rate, plus an interest margin, depending upon certain financial measurements.
The lending group providing the Revolving Credit Facility has agreed to revise
certain financial covenants contained therein in order to reflect the current
economic environment in the Company's energy related markets and to provide
additional availability in the Company's borrowing base. Definitive documenta-
tion providing for such revisions is expected to be executed on or before the
end of May and will be effective as of March 31, 1999. The Amended Revolving
Credit Facility will now be secured by the Company's accounts receivable,
inventories and equipment and will expire on September 30, 2003. As of March
31, 1999, the applicable interest rate under the Revolving Credit Facility was
6.1 percent per annum. The borrowing cost on the Amended Revolving Credit
Facility will increase by 100 basis points. The Company had $12.4 million in
unused availability under the Amended Revolving Credit Facility and had $1.5
million in cash and cash equivalents at March 31, 1999.
YEAR 2000 READINESS DISCLOSURE
The Company is in the implementation phase of its conversion to a new Year 2000
compliant enterprise resource planning system which will replace and upgrade
many of the Company's older information systems, some of which are not year 2000
compliant. The integrated information provided by this new system will enhance
the Company's ability to make more informed decisions regarding sales and
inventory, optimize inventory levels and minimize costs. Implementation is
expected to be completed by the Company's fourth fiscal quarter of 1999. The
total cost of the system implementation, including the cost of software and
related internal cost, is expected to be $4.7 million, of which approximately
$2.0 million has been expended through March 31, 1999. In addition, the Company
is performing a separate evaluation of its other systems for Year 2000
compliance and is contacting its significant customers, suppliers and vendors to
determine their Year 2000 compliance. Business interruption caused by these
suppliers could negatively impact the Company's operations. These evaluations
and the conversion of these systems (if necessary) are also expected to be
completed in the same time frame as the implementation of the Company's new
enterprise resource planning system and the cost of these activities is not
expected to be material.
Although the Company believes that the plans described above will address its
Year 2000 issues and as a result, the Company will not be significantly impacted
by it, the Company has established a contingency plan to address non-compliance
issues. This plan involves the utilization of various manual procedures that
bypass computer applications and may be utilized in the event of a significant
system shutdown or if the Company faces problems with its customers, suppliers
or vendors. If the Company is require d to implement its contingency plan, such
action could have an adverse effect on its operations, liquidity and financial
condition.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of the Stockholders of the Company was held on February
8, 1999. Of the 15,437,474 shares entitled to vote at such meeting,
14,649,228 shares were present at the meeting in person or by proxy.
(b) The individuals listed below were elected as Directors of the Company, and
with respect to each Director, the number of shares voted for and withheld
were as follows:
Number of Shares
Name of Nominee For Withheld
Gregg M. Eisenberg 14,502,054 147,174
William E. Macaulay 14,489,929 169,299
David H. Kennedy 14,489,829 169,399
C. Robert Bunch 14,490,229 158,999
C. Adams Moore 14,486,604 162,624
John M. Fox 14,497,729 161,499
Wayne P. Mang 14,481,254 167,974
(c) 13,769,096 shares voted in favor of the approval of the amendment to
the Maverick Tube Corporation Director Stock Option Plan, which increased
the number of shares available to be issued under the Plan from 50,000 to
200,000. This was more than the requisite number of shares required for
approval. 793,616 shares voted against the amendment to the Plan and
86,516 shares were withheld.
(d) There were no brokers' non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the three
month period ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Maverick Tube Corporation
(Registrant)
Date: May 14, 1999 /s/ Gregg Eisenberg
Gregg Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1999 /s/ Barry Pearl
Barry Pearl
Chief Financial Officer
(Principal Financial Officer)
Exhibit Index
Exhibit 27 Financial Date Schedule as of March 31, 1999 27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial informa-
tion extracted from the Maverick Tube Corporation
Quarterly Report on Form 10-Q for the Quarterly
period ended March 31, 1999 and is qualified in its
entirety by reference to such report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,493
<SECURITIES> 0
<RECEIVABLES> 11,707
<ALLOWANCES> 620
<INVENTORY> 43,223
<CURRENT-ASSETS> 61,233
<PP&E> 109,679
<DEPRECIATION> 35,360
<TOTAL-ASSETS> 136,737
<CURRENT-LIABILITIES> 18,591
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 136,737
<SALES> 74,566
<TOTAL-REVENUES> 75,515
<CGS> 75,624
<TOTAL-COSTS> 6,973
<OTHER-EXPENSES> 1,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 793
<INCOME-PRETAX> (9,443)
<INCOME-TAX> (3,391)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,052)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
