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, 2000
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)
(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 - 17,884,224 shares as of May 10, 2000
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets - March 31, 2000
and September 30, 1999 3
Condensed Consolidated Statements of Operations -
Three and Six month periods ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -- Six
month period ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of the Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, September 30,
2000 1999
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ $1,091 $1,625
Accounts receivable, less allowances of $745 and
$542 on March 31, 2000 and September 30, 1999,
respectively.......................................... 29,073 19,661
Inventories (see Note 2)................................. 89,125 54,486
Deferred income taxes.................................... 1,933 1,933
Income taxes refundable.................................. 261 3,739
Prepaid expenses and other current assets................ 1,645 1,469
Total current assets................................. 123,128 82,913
PROPERTY, PLANT, AND EQUIPMENT
Less accumulated depreciation (March 31, 2000 -
$43,226; September 30, 1999 - $39,122)................... 100,011 74,518
OTHER ASSETS............................................. 637 2,717
TOTAL ASSETS............................................. $223,776 $160,148
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable......................................... $35,195 $28,244
Accrued expenses and other liabilities................... 6,634 5,929
Deferred revenue ........................................ 13,398 3,716
Current maturities of long-term debt..................... 736 708
Total current liabilities............................ 55,963 38,597
LONG-TERM DEBT, less current maturities.................. 7,112 7,518
REVOLVING CREDIT FACILITY ............................... 44,000 31,000
DEFERRED INCOME TAXES ................................... 2,667 3,387
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
5,000,000 shares authorized.......................... -- --
Common stock, $.01 par value;
40,000,000 authorized shares,
17,832,474 and 15,440,474 shares issued and out-
standing at March 31, 2000 and September 30, 1999,
respectively......................................... 178 154
Additional paid-in capital............................... 79,752 44,248
Retained earnings........................................ 34,104 35,244
Total stockholders' equity........................... 114,034 79,646
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $223,776 $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 and per share data)
(Unaudited)
Three months ended Six months ended
March 31 March 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES................................... $70,901 $34,126 $140,870 $75,515
COSTS and EXPENSES
Cost of goods sold.......................... 66,257 34,980 134,044 75,624
Selling, general and administrative......... 4,064 3,552 8,163 6,973
Start-up costs.............................. -- 952 -- 1,671
Income (loss) from operations .............. 580 (5,358) (1,337) (8,753)
OTHER INCOME (EXPENSE)
Interest expense............................ (465) (458) (668) (793)
Other income ............................... 129 66 222 103
Income (loss) before income taxes........... 244 (5,750) (1,783) (9,443)
(BENEFIT FROM) PROVISION FOR INCOME TAXES... 86 (2,062) (644) (3,391)
NET INCOME (LOSS)........................... $158 ($3,688) ($1,139) ($6,052)
AVERAGE SHARES 17,810,045 15,437,474 17,686,474 15,437,474
BASIC EARNINGS (LOSS) PER SHARE $0.01 ($0.24) ($0.06) ($0.39)
DILUTED EARNINGS (LOSS) PER SHARE $0.01 ($0.24) ($0.06) ($0.39)
<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,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss).............................................. ($1,139) ($6,052)
Adjustments to reconcile net (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization......................... 4,162 3,527
Deferred income taxes ................................ (720) 102
Provision for accounts receivable allowances.......... 203 229
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........... (9,615) 4,199
(Increase) decrease in inventories................... (34,639) 18,462
(Increase) decrease in prepaid expenses and
other assets...................................... 5,322 (442)
(Decrease) increase in accounts payable.............. 6,951 (2,180)
(Decrease) increase in deferred revenue ............. 9,682 (2,225)
(Decrease) increase in accrued expenses and other
liabilities....................................... 705 (1,219)
Cash provided (used) by operating activities....... (19,088) 14,401
INVESTING ACTIVITIES
Purchases of property, plant and equipment.............. (29,596) (7,908)
FINANCING ACTIVITIES
Proceeds from borrowings................................ 86,750 20,350
Principal payments on borrowings........................ (74,128) (26,098)
12,622 (5,748)
Net proceeds from sale of common stock ................. 35,528 --
Cash provided (used) by financing activities....... 48,150 (5,748)
Increase (decrease) in cash and cash equivalents........ (534) 745
Cash and cash equivalents at beginning of period.......... 1,625 748
Cash and cash equivalents at end of period................ $1,091 $1,493
<FN>
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest (net of amounts capitalized).............. $630 $793
Income taxes....................................... ($3,551) ($5,398)
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 three and six month periods ended March 31,
2000, 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:
March 31, September 30,
2000 1999
(In thousands)
Finished goods $39,810 $29,309
Work-in-process 3,496 3,011
Raw materials 25,577 10,358
In-transit materials 14,304 6,867
Storeroom parts 5,938 4,941
$89,125 $54,486
Inventories are principally valued at the lower of average cost or
market.
Gross profit for the six month period ended March 31, 1999 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 March 31, 2000,
the Company has expended $24.8 million and has an additional $13.5
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 $952,000 in
the second quarter of fiscal 1999 and $1.7 million in the six month period
ended March 31, 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) INCOME (LOSS) PER SHARE
Diluted income per share for the quarter ended March 31, 2000 was computed
based upon the net income of the Company and the weighted average number of
shares of common stock including the net effect of stock options. Total
shares utilized in this calculation were 18,308,472.
Diluted loss per share was computed based upon the net loss of the Company
and the weighted average number of shares of common stock excluding the net
effect of stock options which were anti-dilutive. Total shares utilized in
this calculation were 17,686,474 for the six months ended March 31, 2000
and 15,437,474 for the quarter and six month period ended March 31, 1999,
respectively.
(6) SEGMENT INFORMATION
The following table set forth data for the three and six month periods
ended March 31, 2000 and 1999 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.
<TABLE>
Energy Industrial
Products Products Corporate Total
<S> <C> <C> <C> <C>
Three Month Period
March 31, 2000
Net sales $48,960 $21,941 $ -- $70,901
Operating income (loss) 1,418 (837) -- 581
Identifiable assets 129,407 57,384 36,985 (1) 223,776
Depreciation and
amortization 1,361 663 128 2,152
Capital expenditures 1,155 771 11,049 12,975
Six Month Period Ended
March 31, 2000
Net sales $98,573 $42,297 $ -- $140,870
Operating income (loss) 1,175 (2,512) -- (1,337)
Identifiable assets 129,407 57,384 36,985 (1) 223,776
Depreciation and
amortization 2,342 1,328 492 4,162
Capital expenditures 2,272 1,442 25,882 29,596
Three Month Period
March 31, 1999
Net sales $16,705 $17,422 $ -- $34,127
Operating income (loss) (3,776) (1,583) (3) -- (5,359)
Identifiable assets 78,450 47,007 11,280 136,737
Depreciation and
amortization 1,197 519 152 1,868
Capital expenditures 1,075 2,877 1,037 4,989
Six Month Period Ended
March 31, 1999
Net sales $41,697 $33,818 $ -- $ 75,515
Operating income (loss) (6,535) (2,218) (3) -- (8,753)
Identifiable assets 78,450 47,007 11,280 136,737
Depreciation and
amortization 2,384 865 278 3,527
Capital expenditures 2,189 3,667 2,052 7,908
<FN>
(1) Included in Corporate's identifiable assets is the $24.8 million
construction in progress for the new large diameter pipe and tubing facility.
(2) Included in Corporate's capital expenditures for the three and six month
periods ended March 31, 2000 is $10.4 million and $14.4 million, respectively,
for the net large diameter pipe and tubing facility.
(3) During the three and six month periods ended March 31, 1999, the Company
incurred net operating losses of $952,000 and $1.7 million related to the
operations of its Beaver Falls, Pennsylvania facility which had not reached
normal production capacity.
</FN>
</TABLE>
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 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 increased by 39% for the
quarter ended March 31, 2000, compared to the same quarter of the previous
year. Natural gas drilling increased by 42%, while oil related drilling
increased by 30%. The higher drilling levels for both oil and natural gas were
primarily attributable to significant increases in commodity prices, up by 121%
and 46%, respectively. Drilling levels remained relatively stable throughout
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 Second Quarter Ended March 31,
2000 1999
U.S. Drilling Activity
Average rig count 771 554
Average energy prices
Oil per barrel (West Texas
Intermediate) $28.88 $13.09
Natural gas per MCF
(Average U.S.) $ 2.53 $ 1.73
U.S. oil country tubular goods consumption
(in thousands of tons):
U.S. producer shipments 432 150
Imports 133 26
Inventory (increase)/decrease (101) 66
Used pipe 21 44
Total U.S. consumption 485 286
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 multiplied by the Baker
Huges rig count. U.S. producer shipments are our estimates calculated based on
the components listed above.
Imports increased 411.5%, with import market share growing from 9.1% during the
second quarter of fiscal 1999 to 27.4% during the second quarter of fiscal 2000.
During the second quarter of fiscal 2000, industry inventory increases resulted
in an estimated additional demand of 20.8%, while, during the second quarter of
fiscal 1999, industry inventory decreases adversely affected U.S. producer ship-
ments by satisfying an estimated 23.1% of consumption. Management believes that
at March 31, 2000, industry inventories were at or below normal levels in rela-
tion to demand, as inventory months of supply decreased 46.9%, from 9.8 months
at March 31, 1999 to 5.2 months at March 31, 2000.
As a result of the increased drilling activity, we estimate that total U.S. con-
sumption increased by 69.6%, compared to the second fiscal quarter of 1999.
During that same period, our domestic shipments of OCTG increased 184.3% and our
export sales, primarily to Canada, increased by 299.1%. We estimate that our
domestic OCTG market share remained relatively stable at the 16.0% level during
the quarter ended March 31, 2000.
Published information suggests that demand for line pipe decreased during the
second quarter of fiscal 2000 by an estimated 8%. However, domestic shipments
rose by 5% as the import market share fell from 41.6% to 33.1%.
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 increased 16.2%
during the second quarter of fiscal 2000 over the prior year period. Total U.S.
producer shipments increased by 19.0% as import market share decreased from
26.6% to 24.8%. According to published reports, the standard pipe market demand
increased 1%, while total domestic producer shipments declined 19% as the import
market share increased from 28.5% to 42.4%.
Pricing of our products was mixed over our product lines during the second quar-
ter of fiscal 2000. Pricing of OCTG, line, structural and standard pipe was up
4%, 20%, 4% and 14%, respectively, compared to the prior year quarter. Pricing
of cold drawn tubing products decreased by 5%.
Steel costs included in cost of goods sold increased during the second quarter
of fiscal 2000 by $21 per ton, or 7.5%, to $302 per ton, compared to the
quarter ended March 31, 1999 and by $5 per ton, or 1.7%, compared to the
quarter ended December 31, 1999. The current replacement cost of steel is
approximately 8% higher than the cost recorded in cost of goods sold during the
quarter due to recent price increases implemented by our major supplier of
steel. However, we believe there is a potential for stabilization of the current
steel prices based upon world market conditions.
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 contri-
buting 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 $70.9 million increased $36.8 million, or 107.8%, during the second
quarter of fiscal 2000, compared to the prior year quarter. These results were
primarily attributable to an increase of 79.5% in total product shipments, from
68,944 tons in the second quarter of fiscal 1999 to 123,763 tons in the second
quarter of fiscal 2000. Overall average net selling prices increased from the
prior year by 15.7%, from an average of $495 per ton to $573 per ton. Net sales
of $140.9 million during the six months ended March 31, 2000, increased $65.4
million, or 86.5%, compared to the prior year period. These results were
primarily attributable to an increase of 76.4% in total product shipments, from
145,102 tons in the first six months of fiscal 1999 to 255,930 tons in the
current year, and an overall increase of 5.8% in the average selling prices of
our products.
Cost of goods sold of $66.3 million increased $31.3 million, or 89.4%, during
the second quarter of fiscal 2000 over the comparable prior year period. The
overall increase was due to increased product shipments. However, the overall
unit cost per ton of products sold increased 5.5%, from an average of $507 per
ton to $535 per ton in the second quarter of fiscal 2000, compared with the same
period in fiscal 1999. This increase was primarily due to the increase in steel
costs and by a higher cost mix of production. See "Overview." Cost of goods
sold of $134.0 million increased $58.4 million, or 77.3%, during the six months
ended March 31, 2000, compared to the same period of the previous year. Again,
the overall increase was due primarily to increased shipments.
The Company earned a gross profit of $4.6 million during the second quarter of
fiscal 2000, compared to a gross loss of $854,000 in the prior year period.
Gross profit, as a percentage of net sales, was 6.5% for the three month period
ended March 31, 2000, compared to a gross loss, as a percentage of net sales, of
2.5% for the prior year period. The gross profit of $6.8 million during the six
months ended March 31, 2000, compares to a gross loss of $109,000 during the
six months ended March 31, 1999. The gross profit, as a percentage of net sales,
was 4.8% for the six month period ended March 31, 2000, compared to a gross
loss, as a percentage of net sales, of 0.1% for the prior year period. The
change in the gross profit for the three and six month periods ended March 31,
2000 was due to the factors affecting net sales and cost of goods sold discussed
above.
Selling, general and administrative expenses increased by $512,000, or 14.4%, in
the second quarter of fiscal 2000 and by $1.2 million, or 17.1%, in the first
six months 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 effective
at of the beginning of the fiscal year. Selling, general and administrative
expenses as a percentage of net sales in the second quarter and first six months
of fiscal 2000 were 5.7% and 5.8%, as compared to 10.4% and 9.2%, respectively
for the comparable prior year periods.
During September 1998, we acquired assets that are being utilized in the produc-
tion of cold drawn tubular products at a facility in Beaver Falls, Pennsylvania.
We incurred net costs of $952,000 during the second quarter and $1.7 million
during the first six months of fiscal 1999 related to the commencement of
operations at this facility. These costs were comprised 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
industrial products segment operating loss for the three and six month periods
ended March 31, 1999.
Interest expense remained relatively stable in the second quarter of fiscal 2000
over the prior year period. This was due to a higher average borrowing base
during the second fiscal quarter offset by the capitalization of interest for
the large mill facility. Interest expense decreased $125,000, or 15.8%, in the
first six months of fiscal 2000 over the prior year period. 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
decreased from 33.0% at September 30, 1999 to 31.3% at March 31, 2000, primarily
due to the sale of 2.3 million shares of common stock in October 1999, which
increased stockholders' equity by $35.1 million.
The provision for income taxes was $86,000 for the second quarter of fiscal
2000, compared to the prior year when we recorded a benefit from taxes of $2.1
million. This change is attributable to the generation of pre-tax income of
$244,000 in the second quarter of fiscal 2000, compared to a pre-tax loss of
$5.8 million in the second quarter of fiscal 1999. The benefit from income
taxes decreased $2.7 million, from $3.4 million in the first six months of
fiscal 1999 to $644,000 in the first six months of fiscal 2000, as a result of
the reduced pre-tax loss.
As a result of the increased gross profit and the other factors discussed above,
we generated net income of $158,000 in the second quarter of fiscal 2000, an
increase of $3.8 million from the comparable prior year period. We generated
a net loss of $1.1 million for the first six months of fiscal 2000, a decrease
of $4.9 million from the comparable prior year period.
ENERGY PRODUCTS SEGMENT
Energy product sales of $49.0 million increased $32.3 million, or 193.4%, for
the second quarter of fiscal 2000, compared to the prior year period. Energy
product shipments increased 49,705 tons, or 164.4%, from 30,243 tons to 79,948
tons. Our domestic shipments of OCTG increased by 184.3% from the quarter ended
March 31, 1999 due to the rig count increasing from 554 active rigs to 771
active rigs. The Company's export shipments, primarily to Canada, increased
299.1%, from 1,693 tons in the quarter ended March 31, 1999 to 6,757 tons in the
quarter ended March 31, 2000, as the average level of Canadian drilling rose
65.7% from 283 active rigs to 469 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 remained relatively stable from the second quarter of fiscal
1999 to the second quarter of fiscal 2000. The average net selling price for
energy products was $612 per ton, an increase of $60 per ton, or 10.9%, compared
to the quarter ended March 31, 1999 and an increase of $58 per ton, or 10.4%,
compared to the quarter ended December 31, 1999. These increases are primarily
due to improved market conditions and a change in mix to higher priced products.
See "Overview."
Energy products sales of $98.6 million increased $56.9 million, or 136.4%, for
the first six months of fiscal 2000, compared with the prior year period. Energy
product shipments increased 98,515 tons, or 139.0%, from 70,883 tons to 169,398
tons. The average net selling price for energy products was $582 per ton, a
decrease of $6 per ton. These changes were a result of the same market condi-
tions discussed above.
Energy products cost of goods sold of $44.9 million increased $26.0 million, or
138.2%, for the second quarter of fiscal 2000, compared with the prior year
period. The increase was primarily due to increased product shipments and
higher steel costs. See "Overview." The gross profit for energy products of
$4.1 million for the quarter ended March 31, 2000 compares to a gross loss of
$2.1 million for the prior year period. Energy products gross profit percentage
was 8.4% for the quarter ended March 31, 2000, compared to a gross loss margin
percentage of 12.7% for the prior year period.
Energy products cost of goods sold of $92.1 million increased $47.4 million, or
106.0% for the first six months of fiscal 2000, compared with the prior year
period. The gross profit for energy products of $6.4 million for the six month
period ended March 31, 2000 compares to a gross loss of $3.0 million for the six
month period ended March 31, 1999. Energy products gross profit percentage was
6.5% for the first six months of fiscal 2000, compared to a gross loss margin
percentage of 7.3% for the prior year period.
INDUSTRIAL PRODUCTS SEGMENT
The industrial products segment gross profit margin as of October 1, 1999
includes the results of operations of our cold drawn tubing facility, which were
previously categorized as start-up costs. Industrial products sales of $21.9
million increased $4.5 million, or 25.9%, for the second quarter of fiscal 2000,
compared with the prior year period. Industrial products shipments increased
5,114 tons, or 13.2%, from 38,701 tons to 43,815 tons (including 3,617 tons of
cold drawn tubing sales). The average net selling price for industrial products
during the second quarter of fiscal 2000 was $501, up $51 per ton, or 11.2%,
compared to the prior year period. This increase for the second quarter was due
to a selling price increase implemented during the quarter on structural and
standard pipe and the addition of cold drawn tubing sales, which have a sub-
stantially higher selling price per ton ($1,081 per ton).
Industrial products sales of $42.3 million increased $8.5 million, or 25.1%, for
the first six months of fiscal 2000, compared with the prior year period.
Industrial product shipments increased 12,313 tons, or 16.6%, from 74,219 to
86,532 tons (including 5,982 tons of cold drawn tubing sales). The average
selling price for industrial products for the six months ended March 31, 2000
was $489 per ton, an increase of $33 per ton from the prior year. These
increases were a result of the same market conditions discussed above.
Cost of goods sold of $21.4 million increased $5.3 million, or 32.7%, in the
second quarter of fiscal 2000 from the prior year period of fiscal 1999. Gross
profit for industrial products of $544,000 for the quarter ended March 31, 2000
compares to a gross profit of $1.3 million for the prior year period. The
decreased gross profits were due to the inclusion of our cold drawn tubing
losses of $609,000, increased steel prices and higher conversion costs.
Industrial products gross profit margin percentage was 2.5% for the quarter
ended March 31, 2000, compared to a gross profit margin percentage of 7.4%
during the prior year period.
Cost of goods sold of $41.9 million increased $11.0 million, or 35.8%, for the
first six months of fiscal 2000, compared with the prior year period. Gross
profit for industrial products of $383,000 for the six months ended March 31,
2000 compares to a gross profit of $2.9 million for the prior year period. The
decreased gross profits were due to the inclusion of our cold drawn tubing
losses of $1.7 million, increased steel prices and higher conversion costs.
Industrial products gross profit percentage was 0.9% for the first six months of
fiscal 2000, compared to 8.7% for the first six months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 2000 was $67.2 million and the ratio of current
assets to current liabilities was 2.2 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 for the six
month period ended March 31, 2000 was due to a $34.6 million increase in inven-
tory and a $9.6 million increase in accounts receivable, partially offset by a
$9.7 million increase in deferred revenue, a $7.0 million increase in accounts
payable and a $5.3 million increase in prepaid expenses and other assets. The
above changes were primarily due to the increased energy business volume and
purchasing of steel in advance to lessen the impact of announced price
increases. Cash used by operating activities was $19.1 million for the six month
period ended March 31, 2000. The primary use of cash was the above described
changes in operating assets and liabilities, which offset the net cash provided
of $3.0 million (excluding depreciation and amortization of $4.2 million).
Cash used in investing activities was $29.6 million, primarily for the purchases
of equipment of $3.1 million, completion of and enhancements to our new enter-
prise resource planning system of $1.7 million and the construction and
equipping of our new large diameter pipe and tubing facility of $24.8 million.
Cash provided by financing activities was $48.2 million for the six month period
ended March 31, 2000. Outstanding borrowings on our Revolving Credit Facility
increased $13.0 million, primarily due to the construction and equipping of our
new large diameter pipe and tubing facility and the increased steel inventories.
Other long-term indebtedness, including current maturities, was reduced by
approximately $378,000.
Our capital budget for fiscal 2000 is $49.0 million, of which $29.6 million was
expended during the six month period ended March 31, 2000. The capital budget
includes $40.0 million for the construction and equipping of a new large
diameter pipe and tubing facility which is being constructed adjacent to our
existing facilities in Hickman, Arkansas. We are funding this project prin-
cipally though the proceeds of our public offering of 2.3 million shares of
common stock completed in October 1999. 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
resource planning system. As of March 31, 2000, we had an additional $15.4
million committed for the purchase of equipment. We expect to meet our ongoing
working capital and capital expenditure requirements from a combination of cash
flows from operating activities and available borrowings under our Revolving
Credit Facility, all of which constitute our primary source of liquidity.
During March 2000, we amended our Revolving Credit Facility to increase the
maximum borrowings up to the lesser of the eligible borrowing base or $57
million. The $7.0 million overline is available until June 30, 2000. The
Revolving Credit Facility 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 March 31, 2000, the applicable interest rate on this
Credit Facility was 8.1 percent per annum and we had $12.6 million in additional
available borrowings. As of March 31, 2000, we had $1.1 million in cash and
cash equivalents.
ITEM 3. 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
7, 2000. Of the 17,768,474 shares entitled to vote at such meeting 15,781,512
shares were present at the meeting in person or by proxy.
(b) The individuals listed below were elected as Directors of the Company, and,
with respect to each Director, the number of shares voted for and withheld were
as follows:
No. of Shares Voted
Name of Nominees For Withheld
Gregg M. Eisenberg 15,728,263 53,249
William E. Macaulay 15,727,263 54,249
Robert Bunch 15,723,663 57,849
C. Adams Moore 15,724,188 57,324
David H. Kennedy 15,727,563 53,949
Wayne P. Mang 15,727,633 54,879
John M. Fox 15,727,463 54,049
(c) The Board of Directors' adoption of the Maverick Tube Corporation 1999
Director Stock Option Plan was approved with 14,337,978 shares voting for the
proposal, 1,398,583 shares voting against the proposal and 44,951 shares
abstained.
There were no brokers' non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
10.1 Fourth Amendment to Secured Credit Agreement
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, 2000.
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 10, 2000 /s/ Gregg Eisenberg
Gregg Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 2000 /s/ Barry Pearl
Barry Pearl
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1 Fourth Amendment to Revolving Credit Agreement
27 Financial Data Schedule
MAVERICK TUBE CORPORATION
FOURTH 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 the Credit Agreement and to
modify certain other terms and conditions of the Credit Agreement, all on the
terms and conditions set forth in this Amendment.
SECTION 1. AMENDMENTS 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. The second paragraph of Section 1.1 (a) of the Credit Agreement is hereby
amended in its entirety and as so amended shall be restated to read as follows:
(b) The Revolving Credit shall consist of a base revolving credit (the "Base
Credit") in an aggregate principal amount at any one time outstanding of up to
$50,000,000, which shall be available at all times during the term of this
Agreement and an excess revolving credit (the "Excess credit") in an aggregate
principal amount at any one time outstanding of up to $7,000,000, which shall be
available only during the period commencing on March [30], 2000 to and including
June 30, 2000 (the Excess Credit Availability Period").
The respective maximum aggregate principal amounts of the Base Credit at any one
time outstanding and the percentage of the Base Credit available at any time
which each Bank by its acceptance hereof severally agrees to make available to
the Company is as follows (collectively, the "Base Revolving Credit Commitments"
and individually, a "Base Revolving credit Commitment"):
Harris Trust and Savings Bank $25,000,000.00
Mercantile Bank National Association $25,000,000.00
Total $50,000,000.00
The respective maximum aggregate principal amounts of the Excess Credit at any
one time outstanding and the percentage of the Excess Credit available at any
time which each Bank by its acceptance hereof severally agrees to make available
to the Company are as follows (collectively, the "Excess Revolving Credit
Commitments" and individually, an "Excess Revolving Credit Commitment"):
Harris Trust and Savings Bank $7,000,000.00
Mercantile Bank National Association $0
Total $7,000,000.00
Each Bank's Base Revolving Credit Commitment and Excess Revolving Credit
Commitment during any period are hereinafter referred to collectively as the
"Revolving Credit Commitment" for such Bank during such period and the Base
Revolving Credit Commitments and Excess Revolving Credit commitments for all
Banks during any period are hereinafter collectively referred to as the
"Revolving Credit Commitments" during such period. Each Bank acknowledges and
agrees that upon the expiration of the Excess Credit Availability Period there
shall be such non-ratable repayments and borrowings under the Credit Agreement,
as amended hereby, so that, after giving effect thereto, the percentages of each
Bank's Revolving Credit Commitments in use shall be identical.
1.2 Section 4.1 of the Credit Agreement shall be amended by adding thereto the
following new definition in the appropriate alphabetical location:
"Commitment Percentage" means, at any time and as to any Bank, the percentage of
the Revolving Credit Commitments then in effect represented by such Bank's
Revolving Credit Commitment as then in effect or, if the Revolving Credit
Commitments have been terminated or expired, the percentage held by such Bank of
the aggregate principal amount of all Revolving Credit Loans then outstanding.
SECTION 2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all of the
following 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 The Borrower shall have executed and delivered to each Bank which has
increased its Revolving Credit Commitment pursuant hereto a Secured Revolving
Credit note in the form attached to the Credit Agreement as Exhibit A to reflect
the amount of the Excess Credit.
2.3 The Agent shall have received copies (executed or certified as may be
appropriate) of all legal documents or proceedings taken in connection with the
execution and delivery of this Amendment and the other instruments and documents
contemplated hereby and an opinion of counsel to the Borrower, in form and
substance satisfactory to the Banks.
2.4 The Agent shall have received copies, certified by the secretary or
assistant secretary of the Borrower, of resolutions regarding the transactions
contemplated by this Amendment, duly adopted by the Board of Directors of the
Borrower, and satisfactory in form and substance to all of the Banks.
2.5 A Guarantor's Consent of the benefit of the Banks shall have been executed
and delivered by each Guarantor to the Agent, a form of which is attached
hereto.
2.6 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.
2.7 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
dated 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, 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 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 limitation 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 March 30, 2000.
MAVERICK TUBE CORPORATION
By /s/ Barry R. Pearl
Its Vice President
Accepted and agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK
Individually and as Agent
By /s/ Don Buse
Its Vice President
MERCANTILE BANK NATIONAL ASSOCIATION
By /s/ David Higbee
Its Vice President
GUARANTOR'S CONSENT
The undersigned, MAVERICK INVESTMENT CORPORATION and MAVERICK TUBE, L.P. have
heretofore executed and delivered to the Banks a Guaranty Agreement dated
September 18, 1998 (the "Guaranty), pursuant to which the undersigned have
jointly and severally guaranteed all of the indebtedness, obligations and
liabilities of Maverick Tube Corporation owing to the Agent and the Banks. The
undersigned hereby agree that Maverick Tube Corporation and the Banks may enter
into the foregoing Amendment shall not in any way affect or impair or modify the
terms or provisions of, or the obligations of the undersigned under, the
Guaranty. The undersigned further agree that their consent to any further
amendments to the Loan Documents, or to the foregoing Amendment or any other
documents which the Banks and Maverick Tube Corporation may enter into from time
to time hereafter, shall not be required as a result of this consent having been
obtained.
MAVERICK INVESTMENT CORPORATION
By /s/ Barry R. Pearl
Its Vice President
MAVERICK TUBE, L.P.
By: Maverick Tube Corporation
Its: General Partner
By /s/ Barry R. Pearl
Its Vice President
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