UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarterly Period ended DECEMBER 31, 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.RS. 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)
(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 - 17,817,224 shares as of February 14, 2000
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets - December 31, 1999
and September 30, 1999 3
Condensed Consolidated Statements of Operations -- Three
month period ended December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -- Three
month period ended December 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 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, September 30,
1999 1999
(Unaudited) (Note)
------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,076 $ 1,625
Accounts receivable, less allowances of $481 and
$542 on December 31 and September 30, 1999,
respectively 20,518 19,661
Inventories (see Note 2) 72,683 54,486
Deferred income taxes 1,933 1,933
Income taxes refundable 4,631 3,739
Prepaid expenses and other current assets 1,408 1,469
---------------- -----------------
Total current assets 102,249 82,913
PROPERTY, PLANT, AND EQUIPMENT
Less accumulated depreciation (December 31, 1999 -
$41,103; September 30, 1999 - $39,122) 89,157 74,518
OTHER ASSETS 2,756 2,717
---------------- -----------------
TOTAL ASSETS $194,162 $160,148
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $30,396 $28,244
Accrued expenses and other liabilities 6,470 5,929
Deferred revenue 5,298 3,716
Current maturities of long-term debt 723 708
---------------- -----------------
Total current liabilites 42,887 38,597
LONG-TERM DEBT, less current maturities 7,300 7,518
REVOLVING CREDIT FACILITY 27,150 31,000
DEFERRED INCOME TAXES 3,387 3,387
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
5,000,000 shares authorized -- --
Common stock, $.01 par value;
40,000,000 authorized shares,
17,768,474 and 15,440,474 shares issued and
outstanding at December 31, 1999 and
September 30, 1999, respectively 178 154
Additional paid-in capital 79,314 44,248
Retained earnings 33,946 35,244
---------------- -----------------
Total stockholders' equity 113,438 79,646
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $194,162 $160,148
================ =================
<FN>
................................................................................
Note: The condensed consolidated balance sheet at September 30, 1999, 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 data)
(Unaudited)
Three months ended
December 31
1999 1998
----------------- ------------------
<S> <C> <C>
NET SALES $69,969 $41,388
COSTS and EXPENSES
Cost of goods sold 67,788 40,643
Selling, general and administrative 4,099 3,420
Start-up costs -- 719
------------------------------------
Loss from operations (1,918) (3,394)
OTHER INCOME (EXPENSE)
Interest expense (203) (335)
Other income 94 36
----------------- ------------------
Loss before income taxes (2,027) (3,693)
BENEFIT FROM INCOME TAXES (729) (1,329)
----------------- ------------------
NET (LOSS) ($1,298) ($2,364)
================= ==================
AVERAGE SHARES 17,564,246 15,437,474
BASIC LOSS PER SHARE ($0.07) ($0.15)
================= ==================
DILUTED LOSS PER SHARE ($0.07) ($0.15)
================= ==================
<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)
Three Months Ended
December 31,
1999 1998
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) ($1,298) ($2,364)
Adjustments to reconcile net (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 2,010 1,659
Provision for accounts receivable allowances (61) 245
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (796) 2,615
(Increase) decrease in inventories (18,197) 11,254
(Increase) decrease in prepaid expenses and other
assets (898) (466)
(Decrease) increase in accounts payable 2,152 (1,041)
(Decrease) increase in deferred revenue 1,582 (1,221)
(Decrease) increase in accrued expenses and other
liabilities 541 (51)
-------------- --------------
Cash provided (used) by operating activities (14,965) 10,630
INVESTING ACTIVITIES
Purchases of property, plant and equipment (16,621) (2,919)
FINANCING ACTIVITIES
Proceeds from borrowings 46,550 12,050
Principal payments on borrowings (50,603) (19,636)
-------------- --------------
(4,053) (7,586)
Net proceeds from sale of common stock 35,090 --
-------------- --------------
Cash provided (used) by financing acitivities 31,037 (7,586)
Increase (decrease) in cash and cash equivalents (549) 125
Cash and cash equivalents at beginning of period 1,625 748
-------------- --------------
Cash and cash equivalents at end of period $1,076 $873
============== ==============
<FN>
Supplemental disclosures of cash flow information: Cash paid (received) during
the period for:
Interest $423 $304
Income taxes $26 ($4,847)
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 direct and indirect
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 quarter ended December 31, 1999,
are not necessarily indicative of the results that may be expected for
the year ended September 30, 2000. 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, 1999.
(2) INVENTORIES
The components of inventories consisted of the following:
December 31, September 30,
1999 1999
(In thousands)
Finished goods $30,050 $29,309
Work-in-process 2,936 3,011
Raw materials 14,431 10,358
In-transit materials 19,745 6,867
Storeroom parts 5,521 4,941
-------------------------------------
$72,683 $54,486
=====================================
Inventories are principally valued at the lower of average cost or
market.
Gross profit for the quarter ended December 31, 1998 includes a
$707,000 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.
(3) 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 is being 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. As of December 31, 1999, the Company has expended $14.4
million and has an additional $12.2 million committed to the new
facility.
The Company funded this project principally through the issuance of 2.3
million shares of its common stock. The original 2.0 million shares
offered to the public closed on October 6, 1999. The underwriters'
over-allotment 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 were $35.1 million.
(4) 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 net costs of $719,000
in the first quarter 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.
As of October 1999, the net operating losses of the Beaver Falls
facility are included as a component of the industrial products gross
profit margin.
(5) LOSS PER SHARE
Diluted loss per share was omputed based upon the net loss of the Com-
pany and the weighted average number of shares of common stock
including the net effect of stock options. Total shares utilized in
this calculation were 17,564,246 for the quarter ended December 31,
1999 and 15,437,474 for the quarter ended December 31, 1998,
respectively.
(6) SEGMENT INFORMATION
The following table sets forth data for the quarters ended December
31, 1999 and 1998 for the reportable industry segments of energy pro-
ducts 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
December 31, 1999
Net sales $49,613 $20,356 $ -- $ 69,969
Operating income (loss) (243) (1,675) -- (1,918)
Identifiable assets 104,196 57,472 32,494 (1) 194,162
Depreciation and
amortization 981 665 364 2,010
Capital expenditures 1,117 671 14,833 (1) 16,621
December 31, 1998
Net sales $24,992 $16,396 $ -- $ 41,388
Operating income (loss) (2,759) (635)(2) -- (3,394)
Identifiable assets 88,831 42,944 9,559 141,334
Depreciation and
amortization 1,187 346 126 1,659
Capital expenditures 1,114 790 1,015 2,919
(1) Included in Corporate's identifiable assets and capital
expenditures is the $14.4 million construction in progress for
the new large diameter pipe and tubing facility.
(2) During the quarter ended December 31, 1999, the Company
incurred net operating losses of $719,000 related to the
operations of its Beaver Falls, Pennsylvania facility which
had not reached normal production capacity.
ITEM 2. 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" refer to Maverick Tube Corporation and its subsidiaries.
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, 1999.
OVERVIEW
Our products include electrical 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. Also, during the
first quarter of fiscal 1999, we began the production of cold drawn tubing
products for industrial applications.
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 natrual 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 increased by 12% for the
quarter ended Dcember 31, 1999, as compared to the same quarter of the previous
year. Natural gas drilling increased by 24%, while oil related drilling
decreased by 21%. Natural gas drilling increased due to a 31% increase in gas
prices. Oil drilling continued to decrease despite an 86% increase in oil
prices. Drilling levels continued to climb during the quarter as drilling at the
end of the first quarter was 3% higher than the average for the quarter.
The following table illustrates certain factors related to industry-wide
domestic drilling activity, domestic energy prices, domestic oil country tubular
goods consumption, shipment, imports and inventories for the periods presented:
Fiscal First Quarter Ended December 31,
1999 1998
U.S. Drilling Activity
Average rig count 775 692
Average energy prices
Oil per barrel (West Texas
Intermediate) $24.30 $13.09
Natural gas per MCF
(Average U.S.) $ 2.45 $ 1.87
U.S. oil country tubular goods consumption
(in thousands of tons)
U.S. producer shipments 376 134
Imports 83 48
Inventory (increase)/decrease (15) 153
Used pipe 44 27
Total U.S. consumption 488 362
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. 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 multipled by the Baker
Huges rig count. U.S. producer shipments are our estimates calculated based on
the components listed above.
Imports increased 73%, with market share growing from 13.3% during the first
quarter of fiscal 1999 to 17.0% during the first quarter of fiscal 2000. During
the first quarter of fiscal 2000, industry inventory increases resulted in an
estimated additional demand of 3.1%, while, during the first quarter of fiscal
1999, industry inventory decreases adversely affected U.S. producer shipments by
satisfying an estimated 42.2% of consumption. Management believes that at
December 31, 1999, industry inventories were below normal levels in relation to
demand, as inventory months of supply decreased 49.5%, from 9.5 months at
December 31, 1998 to 4.8 months at December 31, 1999.
As a result of increased drilling activity, partially offset by increased
imports, we estimate that total U.S. consumption increased by 34.8% as compared
to the first fiscal quarter of 1999. During that same period, our domestic ship-
ments of OCTG increased 108.4% and our export sales, primarily to Canada, in-
creased by 434.4%. We estimate that our domestic OCTG market share decreased
to 19.1% during the quarter ended December 31, 1999 from 25.9% during the quar-
ter ended December 31, 1998. The 19.1% market share captured by us during the
quarter ended December 31, 1999 was more in line with our historical ex-
periences.
Published information suggests that demand for line pipe also increased during
the first quarter of fiscal 2000 by an estimated 1%. However, domestic shipments
rose by 22% as the import market share fell from 44.4% to 32.9%.
Given the numerous applications for our 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.
We estimate that the demand for structural tube products (commonly referred to
as hollow structural sections or HSS) of the type we produce remained relatively
flat during the first quarter of fiscal 2000. Total U.S. producer shipments
declined by 2% as import market share increased slightly. According to published
reports, the standard pipe market demand increased 1%, while total domestic
producer shipments declined 10% as the import market share increased from 31.8%
to 39.5%.
Pricing of our products was mixed over our product lines during the first quar-
ter of fiscal 2000. Pricing of OCTG, structural and standard pipe was down 12%,
5% and 5%, respectively, as compared to the prior year quarter, but pricing of
line pipe was up 1%.
Steel costs included in cost of goods sold increased during the first quarter of
fiscal 2000 by $3 per ton, or 0.8%, to $297 per ton as compared to the quarter
ended December 31, 1998 and by $26 per ton, or 9.6%, as compared to the quarter
ended September 30, 1999. Our major supplier of steel has announced two price
increases since September 1999, which will increase our replacement cost of
steel by approximately $50 per ton. We estimate that these cost increases will
not be fully reflected in cost of goods sold until the third and fourth quarters
of 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 cost of steel. As a result
of these factors, anticipated future steel price increases may impact our
product margins.
RESULTS OF OPERATIONS
OVERALL COMPANY
Net sales of $70.0 million increased $28.6 million, or 69.1%, during the first
quarter of fiscal 2000 as compared to the prior year quarter. These results were
attributable primarily to an increase of 73.5% in total product shipments, from
76,158 tons in the first quarter of fiscal 1999 to 132,166 tons in the current
year quarter. Overall average net selling prices decreased from the prior year
by 2.6%, from an average of $543 per ton to $529 per ton.
Cost of goods sold of $67.8 million increased $27.1 million, or 66.8%, during
the first quarter of fiscal 2000 over the comparable prior year period. The
overall increase was due primarily to increased product shipments. However, the
overall unit cost per ton of products sold decreased 3.9%, from an average of
$534 per ton to $513 per ton in the first quarter of fiscal 2000 as compared
with the same period in fiscal 1999. This decrease was due to lower conversion
costs resulting from more favorable fixed cost absorption due to higher
production, partially offset by a modest increase in steel costs. See
"Overview."
The Company earned a gross profit of $2.2 million during the first quarter of
fiscal 2000 compared, to a gross profit of $745,000 in the prior year. Gross
profit, as a percentage of net sales was 3.1% for the three month period ended
December 31, 1999 as compared to 1.8% for the prior year period. The change in
the gross profit for the three month period ended December 31, 1999 is due to
the factors affecting cost of goods sold discussed above.
Selling, general and administrative expenses increased by $679,000, or 19.9%, in
the first quarter of fiscal 2000 over the prior year period. Selling, general
and administrative expenses were primarily impacted by additional depreciation
on our new enterprise resource planning system and general wage increases
granted as of the beginning of the fiscal year. Selling, general and
administrative expenses as a percentage of net sales in the first quarter of
fiscal 2000 were 5.8%, as compared to 8.3% for the comparable prior year period.
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 net costs of $719,000 during the first quarter of
fiscal 1999 related to the commencement of operations at this facility. These
costs were 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 were included in the indutrial products seg-
ment operating loss for the quarter ended December 31, 1998.
Interest expense decreased by $132,000, or 39.4%, in the first quarter of fiscal
2000 over the prior year. This was due to a lower average borrowing base during
the first quarter and the capitalization of interest for the large mill
facility. Our long-term debt to capitalization ratio improved from 33.0% to
23.7% during this time frame. This improvement was primarily due to the sale
of 2.3 million shares of common stock in October 1999 which increased stock-
holders' equity by $35.1 million.
The benefit from income taxes decreased by $600,000, or 45.1%, in the first
quarter of fiscal 2000 over the prior year. This change is attributable to the
decrease in pre-tax losses by $1.7 million.
As a result of the increased gross profit and the other factors discussed above,
we generated a net loss of $1.3 million in the first quarter of fiscal 2000, a
decrease of $1.1 million from the comparable prior year period.
ENERGY PRODUCTS SEGMENT
Energy product sales of $49.6 million increased $24.6 million, or 98.5%, for the
first quarter of fiscal 2000 as compared with the prior year period. Energy
product shipments increased 48,810 tons, or 120.1%, from 40,640 tons to 89,450
tons. Our domestic shipments of OCTG increased by 108.4% from the quarter ended
December 31, 1998 due to the rig count increasing from 692 active rigs to 775
active rigs. The Company's export shipments, primarily to Canada, increased
434.4%, from 2,436 tons in the quarter ended December 31, 1998 to 13,018 tons in
the quarter ended December 31, 1999, as the average level of Canadian drilling
rose 66.3% from 202 active rigs to 336 active rigs. Management believes that the
increase in shipments to Canada reflects current and anticipated drilling
activity arising from the improved oil and natural gas price environment. Line
pipe shipments increased by 21.9% principally due to reduced import penetration.
The average net selling price for energy products was $555 per ton, a decrease
of $60 per ton, or 9.8% as compared to the quarter ended December 31, 1999 and
an increase of $29 per ton, or 5.4% as compared to the quarter ended September
30, 1999. The decrease was due primarily to the market conditions which existed
in fiscal 1999 and a change in mix to lower priced products. See "Overview."
Energy products cost of goods sold of $47.3 million increased $21.4 million, or
82.5%, for the first quarter of fiscal 2000, compared with the prior year
period. The increase was due primarily to increased product shipments and more
favorable fixed cost absorption due to higher production, partially ofset by
higher steel costs. The gross profit for energy products of $2.3 million for the
quarter ended December 31, 1999 compares to a gross loss of $906,000 for the
prior year period. Energy products gross profit percentage was 4.7% for the
quarter ended December 31, 1999 as compared to a gross loss margin percentage of
3.6% for the prior year period.
INDUSTRIAL PRODUCTS SEGMENT
The industrial products segment gross profit margin now includes the results of
operations of our cold drawn tubing facility which were previously categorized
as start-up costs. Industrial products sales of $20.4 million increased $4.0
million, or 24.1%, for the first quarter as compared with the prior year period.
Industrial products shipments increased 7,198 tons, or 20.3%, from 35,518
tons to 42,716 tons (including 2,365 tons of cold drawn tubing sales). The aver-
age net selling price for industrial products during the first quarter of fiscal
2000 was $476, up $15 per ton, or 3.2% as compared to the prior year period.
This increase for the first quarter was due primarily to the addition of cold
drawn tubing sales which have a higher selling price per ton ($1,157 per ton).
Cost of goods sold of $20.5 million increased $5.8 million, or 40.1%, in the
first quarter of fiscal 2000 from the prior year period of fiscal 1999. Gross
loss for industrial products of $161,000 for the quarter ended December 31, 1999
compares to a gross profit of $1.7 million for the prior year period. The
decreased gross profits were due to the inclusion of our cold drawn tubing
losses of $1.1 million, increased steel prices and higher conversion costs.
Industrial products gross loss margin percentage was 0.8% for the quarter ended
December 31, 1999 as compared to a gross profit margin percentage of 10.1%
during the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1999 was $59.4 million and the ratio of current
assets to current liabilities was 2.4 to 1.0, compared to September 30, 1999
when working capital was $44.3 million and the ratio of current assets to
current liabilities was 2.1 to 1.0. The increase in working capital was due
principally to an $18.2 million increase in inventory, an $0.8 million increase
in accounts receivable and a $1.2 million decrease in accrued expenses and other
liabilities, partially offset by a $3.0 million increase in accounts payable and
a $1.6 million increase in deferred revenue. The above changes were due
primarily to the increased energy business volume and purchasing of steel in
advance of announced price increases. Cash used by operating activities was
$15.0 million for the quarter ended December 31, 1999. The primary source of
cash was the above described changes in operating assets and liabilities, which
offset the net cash provided of $0.7 million (excluding depreciation and
amortization of $2.0 million).
Cash used in investing activities was $16.6 million. This use was primarily for
the purchases of equipment of $1.1 million, completion of and enhancements to
our new enterprise resource planning system of $1.1 million and the construction
and equipping of our new large diameter pipe and tubing facility of $14.4
million.
Cash provided by financing activities was $31.0 million for the quarter ended
December 31, 1999. Outstanding borrowings on our Revolving Credit Facility
decreased $3.9 million, primarily due to the proceeds from the sale of 2.3
million shares of our common stock, which generated $35.1 million in net
proceeds. These net proceeds were offset by other working capital needs which
are discussed above. Other long-term indebtedness, including current maturities,
was reduced by approximately $203,000.
Our capital budget for fiscal 2000 is $49.0 million, of which $16.6 million was
expended during the quarter ended December 31, 1999. The capital budget includes
$40.0 million for the construction and equipping of a new large diameter pipe
and tubing facility which will be built adjacent to our existing facilties in
Hickman, Arkansas. We are funding this project principally though the proceeds
of our recently completed public offering of 2.3 million shares of common stock.
Total proceeds from the sale, net of underwriting discount and other expenses
were $35.1 million. The remaining $9 million of our capital expenditure budget
will be used to acquire new equipment for our existing manufacturing facilities
and to enhance our new enterprise resouce planning system. As of December 31,
1999, we had an additional $12.4 million committed for the purchase of equip-
ment. We expect to meet our ongoing working capital and capital expenditure
requirements from a combination of cash flows from operating activies, including
a $3.7 million income tax refund, and available borrowings under our Revolving
Credit Facility, all of which constitute our primary source of liquidity.
Our 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 Revolving Credit Facility is
secured by the Company's accounts receivable, inventories and equipment and will
expire on September 30, 2003. As of December 31, 1999, the applicable interest
rate on this Credit Facility was 8.2 percent per annum and we had $22.7 million
in additional available borrowings. As of December 31, 1999, we had $1.1 million
in cash and cash equivalents.
YEAR 2000 READINESS DISCLOSURE
The advent of the Year 2000 posed certain technological challenges resulting
from a reliance on computer technologies on two digits rather than four digits
to represent the calendar year (e.g. "99" for "1999.") During fiscal 1999 we
developed a Year 2000 Action Plan to deal with the potential impact of the Year
2000 on our information systems. This plan specified a range of tasks and goals
which we completed by various dates in 1999. The principal goals of our plan
included an assessment of our computer systems, remediation of any identified
problems and testing of our systems. We completed our plan and met our major
deadlines. Our Plan and the risks of the Year 2000 have been described in our
most recent annual report on Form 10-K for the year ended September 30, 1999.
In accordance with our Year 2000 Action Plan, we identified several older
information systems that presented certain risks of failure or malfunction in
connection with the Year 2000. Accordingly, we implemented a new enterprise
resource planning system, which replaced and upgraded our older systems. Our
implementation was completed as of December 31, 1999. The total costs of the
system implementation, including software, outside consulting fees and related
internal costs was $6.1 million.
Also, 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 and no problems occurred through the
transition.
Finally, we monitored the Year 2000 preparedness of our third party providers
and service providers, utilizing various methods for testing and verification.
However, our ability was 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 did not experience, and through January 2000 have not experienced, any
material problems related to the change from 1999 to 2000 or the arrival of the
Year 2000. Accordingly, we currently do not expect any signficiant disruptions
in the future as a result of the Year 2000 or the fact that 2000 is a leap year.
However, because our Year 2000 compliance is dependent on the continued
compliance of third parties, there can be no assurance that our efforts alone
have resolved all Year 2000 issues or that key third parties will not experience
Year 2000 compliance failures as the calendar year progresses. Our Year 2000
Action Plan committee will continue to monitor our systems and the preparedness
of third parties throughout calendar 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
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 December 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: February 14, 2000 /s/ Gregg Eisenberg
-------------------
Gregg Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2000 /s/ Barry Pearl
---------------
Barry Pearl
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,076
<SECURITIES> 0
<RECEIVABLES> 20,999
<ALLOWANCES> 481
<INVENTORY> 72,683
<CURRENT-ASSETS> 102,249
<PP&E> 130,260
<DEPRECIATION> 41,103
<TOTAL-ASSETS> 194,162
<CURRENT-LIABILITIES> 42,887
<BONDS> 0
0
0
<COMMON> 178
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 194,162
<SALES> 68,798
<TOTAL-REVENUES> 69,969
<CGS> 67,788
<TOTAL-COSTS> 4,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203
<INCOME-PRETAX> (2,027)
<INCOME-TAX> (729)
<INCOME-CONTINUING> (1,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,298)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
