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 September 30, 2000
[ ] 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
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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
Suite 700
Chesterfield, Missouri 63017
-------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
(636) 733-1600
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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(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 issuers classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value - 33,712,312 shares as of November 13, 2000
--------------------------------------------------------------------------------
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets - September 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations - Three
and Nine month periods ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -- Nine
month periods ended September 30, 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 Security Holders 17
Item 5. Other Information 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)
September 30, December 31,
2000 1999
(Unaudited) (Unaudited)
-----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,643 $1,076
Accounts receivable, less allowances of $2,196 and
$1,520 on September 30, 2000 and December 31, 1999,
respectively 63,626 55,809
Inventories 153,664 124,835
Deferred income taxes 5,908 3,000
Income taxes refundable -- 4,631
Prepaid expenses and other current assets 3,125 1,993
---------------- -----------------
Total current assets 228,966 191,344
PROPERTY, PLANT, AND EQUIPMENT, less accumulated depreciation
of $85,654 and $78,376 on September 30, 2000 and
December 31, 1999 161,393 128,799
OTHER ASSETS 697 3,112
---------------- -----------------
TOTAL ASSETS $391,056 $323,255
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $52,693 $48,745
Accrued expenses and other liabilities 27,918 17,400
Deferred revenue 14,071 5,298
Current maturities of long-term debt 23,433 10,790
---------------- -----------------
Total current liabilities 118,115 82,233
LONG-TERM DEBT, less current maturities 7,115 7,300
REVOLVING CREDIT FACILITY 56,850 27,150
POST EMPLOYMENT BENEFITS PAYABLE 519 479
DEFERRED INCOME TAXES 5,680 5,527
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
5,000,000 authorized shares; 1 share issued and
outstanding -- --
Common stock, $.01 par value;
80,000,000 authorized shares,
33,712,312 and 33,492,809 shares issued and outstanding
at September 30, 2000 and December 31, 1999, respectively 337 335
Additional paid-in capital 110,473 109,073
Retained earnings 98,977 94,314
Accumulated other comprehensive loss
Foreign currency translation (7,010) (3,156)
---------------- -----------------
Total stockholders' equity 202,777 200,566
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $391,056 $323,255
================ =================
<FN>
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 Nine months ended
September 30, September 30,
-----------------------------------------------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES $138,504 $90,128 $402,438 $213,356
COSTS and EXPENSES
Cost of goods sold 124,178 84,722 355,374 203,528
Selling, general and administrative 6,090 5,106 18,493 15,328
Start-up costs 615 966 615 3,309
Transaction costs 11,253 -- 11,253 --
-----------------------------------------------------------------
Income (loss) from operations (3,632) (666) 16,703 (8,809)
OTHER INCOME (EXPENSE)
Interest expense (731) (676) (2,155) (1,705)
-----------------------------------------------------------------
Income (loss) before income taxes (4,363) (1,342) 14,548 (10,514)
(BENEFIT FROM) PROVISION FOR INCOME TAXES 735 101 7,869 (2,699)
-----------------------------------------------------------------
NET INCOME (LOSS) ($5,098) ($1,443) $6,679 ($7,815)
=================================================================
AVERAGE SHARES 33,674,011 31,160,536 33,607,240 31,160,161
BASIC EARNINGS (LOSS) PER SHARE ($0.15) ($0.05) $0.20 ($0.25)
=================================================================
DILUTED EARNINGS (LOSS) PER SHARE ($0.15) ($0.05) $0.19 ($0.25)
=================================================================
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,
2000 1999
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $6,679 ($7,815)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 10,117 8,445
Deferred income taxes (2,714) (2,145)
Provision for accounts receivable allowances 1,741 (698)
(Gain) loss on sale of equipment 1 (46)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (10,001) (14,735)
(Increase) decrease in inventories (32,092) (1,074)
(Increase) decrease in prepaid expenses and other assets 1,738 (2,208)
(Decrease) increase in accounts payable 4,423 27,144
(Decrease) increase in deferred revenue 8,774 1,352
(Decrease) increase in accrued expenses and other
liabilities 16,083 (2,216)
---------------- -------------
Cash provided (used) by operating activities 4,749 6,004
INVESTING ACTIVITIES
Purchases of property, plant and equipment (44,379) (12,065)
Proceeds from sale of equipment 3 193
---------------- -------------
Cash used by investing activities (44,376) (11,872)
FINANCING ACTIVITIES
Proceeds from borrowings 219,126 56,038
Principal payments on borrowings (176,235) (46,396)
---------------- -------------
Dividends paid to Prudential Steel Ltd. Stockholders (3,089) (3,043)
Net proceeds from sale of common stock 1,392 19
---------------- -------------
Cash provided (used) by financing activities 41,194 6,618
Increase (decrease) in cash and cash equivalents 1,567 750
Cash and cash equivalents at beginning of period 1,076 873
---------------- -------------
Cash and cash equivalents at end of period $2,643 $1,623
================ =============
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest (net of amounts capitalized) $2,064 $1,505
Income taxes ($561) $2,566
<FN>
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. All operational and financial information contained herein includes
the business activities of Prudential Steel Ltd. ("Prudential") for all periods
presented.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring items) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2000, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report in the fiscal 1999 Form 10-K.
The assets, liabilities and operations of Prudential are measured using the
Canadian dollar as the functional currency but are presented in this report in
U.S. dollars unless otherwise indicated. Foreign currency translation
adjustments are reported as accumulated other comprehensive loss in the
stockholders' equity section of the balance sheet. Foreign currency translation
adjustments were ($1.6) million and $193,000 for the three month periods ended
September 30, 2000 and 1999 resulting in comprehensive income of ($6.7) million
and ($1.3) million, respectively. Foreign currency translation adjustments were
($3.9) and $3.4 million for the nine month periods ended September 30, 2000 and
1999 resulting in comprehensive income of $2.8 and ($4.4) million, respectively.
By unanimous consent of the Board of Directors dated August 1, 2000, the
directors changed the Company's fiscal year end from September 30 to December
31. As a result, the Company's fiscal year that commenced on October 1, 1999
ended on December 31, 1999, and the fiscal year 2000 commenced on January 1st
and will end on December 31st. Accordingly, the unaudited consolidated financial
statements for the period ended September 30, 1999 have been presented in this
report on a nine month basis instead of an annual fiscal basis as previously
reported.
(2) COMBINATION WITH PRUDENTIAL
On June 11, 2000, the Company and Prudential entered into a definitive
Combination Agreement providing for the combination of Prudential with the
Company. The transaction was completed on September 22, 2000.
Under the terms of the transaction, the Prudential stockholders received 0.52 of
an exchangeable share, issued by Maverick Tube (Canada) Inc., a wholly-owned
Canadian subsidiary of the Company, for each Prudential common share.
Consequently, Prudential stockholders received a total of 15,813,088
exchangeable shares. The exchangeable shares are Canadian securities that began
trading on The Toronto Stock Exchange on September 27, 2000 under the symbol
MAV. These shares have the same voting rights, dividend entitlements and other
attributes as shares of the Company's common stock and are exchangeable, at each
stockholder's option, for the Company's common stock on a one for one basis. The
transaction was accounted for as a pooling of interests.
During the third quarter of 2000, the Company recorded a pre-tax charge of $11.3
million ($9.4 million after tax) for direct costs and severance costs associated
with the transaction.
The historical consolidated financial statements of Prudential were prepared in
Canadian dollars but are presented in this report in U.S. dollars. The separate
results of operations of the Company and Prudential are as follows:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Maverick $82,689 $54,007 $228,411 $131,029
Prudential 55,815 36,121 173,997 82,327
-------- -------- -------- --------
Combined 138,504 $90,128 $402,438 $213,356
======== ======== ======== ========
Net Income (Loss)
Maverick ($2,958) ($1,760) $(1,371) $(8,085)
Prudential (2,140) 317 8,050 270
-------- -------- -------- --------
Combined $5,098) ($1,443) $6,679 ($7,815)
======== ======== ======== ========
Stockholder's Equity
Maverick $113,974 $79,646 $113,974 $79,646
Prudential 88,803 83,693 88,803 83,693
-------- -------- -------- --------
Combined $202,777 $163,339 $202,777 $163,339
======== ======== ======== ========
</TABLE>
(3) INVENTORIES
The components of inventories consisted of the following:
September 30, December 31,
2000 1999
---------------------------------------
(In thousands)
Finished goods $91,060 $58,897
Work-in-process 4,613 3,361
Raw materials 32,711 29,236
In-transit materials 17,228 26,504
Storeroom parts 8,052 6,837
-------- --------
$153,664 $124,835
======== ========
Inventories are principally valued at the lower of average cost or market.
Gross profit for the three and nine month periods ended September 30, 2000
include a $1.6 million charge to earnings for the reduction of carrying value at
the Company's Longview, Washington and Beaver Falls, Pennsylvania facilities
related to excess and obsolete inventory and to a decline in selling prices of
the industrial products at the Longview, Washington facility.
Gross profit for the nine month period ended September 30, 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.
(4) 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 to complete 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 $47 million.
As of September 30, 2000, the Company has expended $43.5 million and has an
additional $3.5 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 sale of the original 2.0 million shares offered
to the public closed on October 6, 1999. The sale of 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 $35.2 million. The remaining portion of the funds necessary to finance the
facility have come from its Long-Term Revolving Credit Facility.
(5) START-UP COSTS
During October 1999, the Company acquired the equipment and began the
construction of a new large diameter pipe and tubing facility adjacent to its
existing facilities in Hickman, Arkansas. The Company incurred costs of $615,000
in the three and nine month periods ended September 30, 2000 related to the
commencement of operations at this facility. These costs were primarily salary
and related costs for the production personnel incurred prior to the fully
integrated operation of the facility.
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 $966,000 in the third quarter of
1999 and $3.0 million in the nine month period ended September 30, 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 incurred prior to the fully integrated operation of the
facility.
The Longview facility completed its first year of operation in 1999, after its
start-up in December 1998. Initial production focused on industrial tubing.
Finishing lines were completed by March 1999, which added the capability to
produce energy products and standard pipe. For the nine months ended September
30, 1999, the Company incurred net costs of $283,000 related to the operations
of 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 this facility.
(6) INCOME (LOSS) PER SHARE
Diluted income per share for the nine months ended September 30, 2000 was
computed based upon the net income of the Company and the weighted average
number of shares of common stock including the exchangeable shares on an as-if
exchanged basis and the net effect of stock options. Total shares utilized in
this calculation were 34,549,173.
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, but including the exchangeable
shares on an as-if exchanged basis. Total shares utilized in this calculation
were 33,674,011 for the quarter ended September 30, 2000 and 31,160,536 and
31,160,161 for the quarter and nine month period ended September 30, 1999.
(7) SEGMENT INFORMATION
The following table sets forth data for the three and nine month periods ended
September 30, 2000 and 1999 for the reportable industry segments of Maverick
Tube L.P. and Prudential. The Company changed its segment reporting in
conjunction with its combination with of Prudential. Accordingly, segments are
now based on geographic regions instead of product lines as previously reported.
Maverick Tube L.P.("Maverick"), a wholly-owned subsidiary of the Company, is
responsible for the Company's operations in Hickman, Arkansas, Beaver Falls,
Pennsylvania and Conroe, Texas. Prudential, a wholly-owned subsidiary of the
Company, is responsible for the Company's operations in Calgary, Alberta and
Longview, Washington. Inter-segment sales are not material. Identifiable assets
are those used in the Company's operations in each segment.
<TABLE>
<CAPTION>
Maverick Prudential Corporate Total
-------------- --------------- --------------- ----------
Three Month Period Ended
September 30, 2000
------------------------
<S> <C> <C> <C> <C>
Net sales $ 82,689 $ 55,815 $ -- $138,504
Operating income (loss) 3,652 (4) 3,969 (11,253) (1) (3,632)
Identifiable assets 187,240 146,604 57,212 (2) 391,056
Depreciation and amortization 1,875 1,261 341 3,477
Capital expenditures 3,867 1,444 8,087 (3) 13,398
Nine Month Period Ended
September 30, 2000
-----------------------
Net sales $228,441 $173,997 $ -- $402,438
Operating income (loss) 7,117 (4) 20,839 (11,253) (1) 16,703
Identifiable assets 187,240 146,604 57,212 (2) 391,056
Depreciation and amortization 5.534 3,553 1,030 10,117
Capital expenditures 9,634 6,824 27,921 (3) 44,379
Three Month Period Ended
September 30, 1999
------------------------
Net sales $ 54,007 $ 36,121 $ -- $ 90,128
Operating income (loss) (2,008) (5) 1,342 -- (666)
Identifiable assets 142,630 111,702 17,518 271,850
Depreciation and amortization 1,733 1,067 152 2,952
Capital expenditures (1,409) 332 1,302 225
Nine Month Period Ended
September 30, 1999
-----------------------
Net sales $131,029 $ 82,327 $ -- $213,356
Operating income (loss) (10,935) (5) 2,126 -- (8,809)
Identifiable assets 142,630 111,702 17,518 271,850
Depreciation and amortization 5,345 2,748 352 8,445
Capital expenditures 5,293 3,114 3,658 12,065
</TABLE>
(1) During the three months ended September 30, 2000, the Company recorded
transaction costs of $11.3 million for direct costs and severance
costs associated with the transaction between the Company and
Prudential. These costs have been included in Corporate costs.
(2) Included in Corporate identifiable assets at September 30, 2000 is the
$39.5 million construction in progress for the Company's new large
diameter pipe and tubing facility.
(3) Included in Corporate capital expenditures for the three and nine
month periods ended September 30, 2000 is $6.6 million and $25.1
million, respectively, for the new large diameter pipe and tubing
facility.
(4) During the three and nine month periods ended September 30, 2000, the
Company incurred net operating losses of $615,000 related to the
operations of its new large diameter pipe and tubing facility which
had not reached normal production capacity.
(5) During the three and nine month periods ended September 30, 1999, the
Company incurred net operating losses of $966,000 and $3.0 million,
respectively, related to the operations of its Beaver Falls,
Pennsylvania facility which had not reached normal production
capacity.
(8) DEBT
In conjunction with the Prudential transaction, the Company included the
operating revolving credit facilities of Prudential in its balance sheet as
current maturities of debt. The two facilities consist of a $34.0 million
(C$50.0 million Canadian) unsecured demand operating credit facility through a
Canadian chartered bank and a $10.0 million credit facility through a U.S.
financial institution for use in funding the working capital requirements of the
Longview, Washington operation. The $10 million facility is secured by letters
of credit drawn on the Canadian bank and any borrowings on the U.S. line reduce
the amount available on the Canadian line.
(9) CAPITAL STOCK
In conjunction with the Prudential transaction, the Company's Board of Directors
designated one share of the Company's authorized preferred stock as Special
Voting Stock. The Special Voting Stock is entitled to a number of votes equal to
the number of outstanding exchangeable shares of Maverick Tube (Canada) Inc., on
all matters presented to the common stockholders of the Company. The one share
of Special Voting Stock was issued to CIBC Mellon Trust Company, as trustee
pursuant to the Voting and Exchange Trust Agreement among the Company, Maverick
Tube (Canada) Inc. and CIBC Mellon Trust Company, for the benefit of the holders
of the exchangeable shares of Maverick Tube (Canada) Inc. For financial
statement purposes, the exchangeable shares that have not been exchanged for
shares of the Company's common stock have been treated as if they had been
exchanged and are included in the Company's outstanding shares of common stock.
Upon the liquidation, dissolution or winding up of the Company, the holder of
the Special Voting Stock shall be entitled on behalf of all the holders of
exchangeable shares, prior and in preference to any distribution to the holders
of common stock and after the distribution to the holders of any class or series
of Preferred Stock ranking senior to the Special Voting Stock of all amounts to
which such holders are entitled, to receive an amount equal to the par value of
the Special Voting Stock. Except as aforesaid, no dividends or distributions are
payable to the holder of the Special Voting Stock. The
Special Voting Stock is not convertible into any other class or series of
capital stock or into cash, property or other rights, and may not be redeemed.
If the Special Voting Stock shall be purchased or otherwise acquired by the
Company, it shall be deemed retired and shall be cancelled and may not
thereafter be reissued or otherwise disposed of by the Company. As long as any
exchangeable shares of Maverick Tube (Canada) Inc. are outstanding, the number
of shares comprising the Special Voting Stock shall not be increased or
decreased and no other term of the Special Voting Stock shall be amended, except
upon the unanimous approval of all shares of common stock.
(10) CANADIAN ACCOUNTING PRINCIPLES
Reconciliation of Accounting Principles Generally Accepted in Canada:
Nine Months Ended
September 30,
2000 1999
-------------------------
Net income (loss) in accordance with Canadian basis (1) $6,679 ($7,815)
Net income (loss) per share using Canadian basis (2)
Basic $0.20 ($0.25)
Fully diluted $0.19 ($0.25)
(1) There are no differences between the Company's net income (loss) under
accounting principles generally accepted in the United States and net
income (loss) under accounting principles generally accepted in
Canada. In addition, there are no differences in any of the balance
sheet items reported between accounting principles generally accepted
in the United States or Canada.
(2) In accordance with accounting principles generally accepted in Canada,
the number of shares used for the calculation of the fully diluted
earnings per share is 35,028,110 and 32,634,504 for the nine months
ended September 30, 2000 and 1999, respectively.
<PAGE>
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 "the Company" 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 the 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 section of Maverick's proxy statement dated August 11,
2000 in connection with the business combinations of Maverick and Prudential
Steel Ltd. and 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.
All amounts are expressed in U.S. dollars unless otherwise indicated.
ACQUISITION OF PRUDENTIAL
On June 11, 2000, the Company entered into a definitive Combination Agreement
providing for the combination of Prudential, a corporation existing under the
laws of the Province of Alberta, Canada, with the Company. The transaction was
completed on September 22, 2000.
Under the terms of the Combination, Prudential shareholders received .52 of an
exchangeable share, issued by Maverick Tube (Canada) Inc., a wholly-owned
Canadian subsidiary of the Company, for each Prudential common share.
Consequently, Prudential stockholders received a total of 15,813,088
exchangeable shares. The exchangeable shares are Canadian securities that began
trading on The Toronto Stock Exchange on September 27, 2000 under the symbol
MAV. These shares have the same voting rights, dividend entitlements and other
attributes as shares of Maverick common stock and are exchangeable, at each
exchangeable stockholder's option, for Maverick common stock on a one for one
basis. The transaction was accounted for as a pooling of interests.
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. We
also produce cold drawn tubing products for high tolerance 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. Oil and gas well drilling activity can be influenced by or
largely dependent on oil and natural gas prices. U.S. end users obtain OCTG from
domestic and foreign pipe producers and from draw-downs of the end user,
distributor or mill inventories. Canadian end users obtain OCTG from domestic
and foreign pipe producers and from draw-downs of mill inventories. Canadian
distributors do not generally hold significant amounts of inventories.
The following table illustrates certain factors related to industry-wide
drilling activity, energy prices, oil country tubular goods consumption,
shipment, imports and inventories for the periods presented:
Third Quarter Ended September 30,
---------------------------------
2000 1999
---- ----
U.S. Market Activity:
---------------------
Average rig count 981 649
======= =======
Average energy prices
Oil per barrel (West Texas
Intermediate) $30.62 $21.59
======= =======
Natural gas per MCF
(Average U.S.) $ 4.44 $ 2.49
======= =======
U.S. oil country tubular goods consumption
(in thousands of tons)
U.S. producer shipments 522 256
Imports 197 35
Inventory (increase)/decrease (81) 72
Used pipe 10 13
------- -------
Total U.S. consumption 648 376
======= =======
Canadian Market Activity:
-------------------------
Average rig count 313 256
======= =======
Average energy prices
Natural gas per MCF
(Average Alberta spot price) $ 4.24 $ 2.02
======= =======
Canadian oil country tubular goods consumption
(in thousands of tons)
Canadian producer shipments 109 94
Imports 67 41
Inventory (increase)/decrease -- 1
------- -------
Total Canadian consumption 176 136
======= =======
The U.S. 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
Hughes rig count. U.S. producer shipments are our estimates calculated based on
the components listed above.
The Canadian 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 Alberta natural gas spot price. Imports are as reported by
Statistics Canada. Inventory (increase)/decrease are management estimated based
upon data reported by Statistics Canada. Canadian producer shipments are
reported by Statistics Canada Steel Pipe and Tube Report.
According to published industry reports, average U.S. drilling increased by
51.2% for the quarter ended September 30, 2000, compared to the same quarter of
the previous year. Natural gas drilling increased by 46.4%, while oil related
drilling increased by 72.9%. The higher drilling levels for both oil and natural
gas were primarily attributable to significant increases in oil and natural gas
prices, up by 42% and 78%, respectively. Drilling levels increased throughout
the quarter, as the rig count at the end of the quarter was approximately 3%
higher than the average rig count during the quarter.
According to published industry reports, average Canadian drilling increased by
22.3% for the quarter ended September 30, 2000, compared to the same quarter of
the previous year. The higher drilling levels were primarily attributable to
significant increases in commodity prices, with oil up 57% and natural gas up
110%.
Imports into the U.S. increased 462.9%, with import market share growing from
9.3% during the third quarter of 1999 to 30.4% during the third quarter of 2000
due to the increase in drilling activity. During the third quarter of 2000, U.S.
producer shipments of OCTG increased 103.9% as compared to the comparable prior
year period. During the third quarter of 1999, U.S. producer shipments were
adversely affected by industry inventory decreases that satisfied an estimated
19.5% of consumption. During the third quarter of 2000, U.S. producer shipments
were favorably impacted by industry inventory increases that created an
additional 12.5% of demand. Management believes that at September 30, 2000,
industry inventories were at normal levels in relation to demand, as inventory
months of supply decreased 4.0%, from 5.0 months at September 30, 1999 to 4.8
months at September 30, 2000.
As a result of the increased drilling activity, we estimate that total U.S.
consumption increased by 72.3% in the third quarter of 2000, compared to the
prior year quarter. During that same period, our domestic shipments of OCTG
increased 58.6% and our export sales, primarily to Canada, decreased by 14.5%.
We estimate that our domestic OCTG market share decreased from 22.3% during the
quarter ended September 30, 1999 to 16.7% during the quarter ended September 30,
2000. The 16.7% market share captured by us during the quarter ended September
30, 2000 was more in line with our historical experience.
Imports into Canada increased 63.4%, with import market share increasing from
30.1% during the third quarter of 1999 to 38.1% during the third quarter of
2000. During the third quarter of 2000, Canadian producer shipments of OCTG
increased by 16.0%. Shipments in Canada were adversely impacted by wet weather
conditions which delayed certain shipments of energy product.
As a result of the increased drilling activity, we estimate that total Canadian
consumption increased by 29.4% in the third quarter of 2000, compared to the
prior year quarter. During that same period, our Canadian shipments of OCTG
increased 34%. We estimate that our Canadian OCTG market share increased from
26.3% during the quarter ended September 30, 1999 to 27.1% during the quarter
ended September 30, 2000.
Published information suggests that U.S. demand for line pipe decreased during
the third quarter of 2000 by an estimated 2.0% and domestic shipments fell by
7.8% as the import market share rose from 27.7% to 32.0%. Canadian demand for
line pipe increased during the third quarter by an estimated 140% and domestic
shipments rose by 54% as the import market share rose from 33% to 57%.
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 U.S. demand for structural tube products (commonly referred
to as hollow structural sections or HSS) of the type we produce increased 5.0%
during the third quarter of 2000 over the prior year period. Total U.S. producer
shipments remained relatively stable as import market share increased from 20.9%
to 24.9%. According to published reports, the U.S. standard pipe market demand
increased 2.1%. However, total domestic producer shipments decreased 27.4% as
the import market share increased from 29.5% to 49.9%.
Pricing of our products was mixed over our product lines during the third
quarter of 2000. Pricing of U.S. energy and industrial products was up 26.1% and
9.0%, respectively, compared to the prior year quarter. Pricing of cold drawn
tubing products decreased by 3%. Pricing of our Canadian energy products pricing
was up 9.3%, while industrial products pricing fell by 2.6%, respectively.
U.S. steel costs included in cost of goods sold increased during the third
quarter of 2000 by 14.0%, compared to the quarter ended September 30, 1999 and
remained relatively stable compared to the quarter ended June 30, 2000. The
current replacement cost of steel is approximately 20% lower than the cost
recorded in cost of goods sold during the quarter due to recent price decreases
implemented by our major supplier of steel. These price decreases reflect
reduced demand, imports and inventory adjustments in the steel industry.
The same factors that have influenced steel costs and costs of goods sold in our
U.S. operations have also affected the steel costs and cost of goods sold in our
Canadian operations. Canadian cost of goods sold are higher in the current
quarter as compared to the comparable prior year period but will also decrease
through early 2001 as reduced replacements costs are realized.
Purchased steel represents approximately two-thirds of our costs of goods sold.
As a result, the steel industry, which is highly volatile and cyclical in
nature, affects our business both positively and negatively. Numerous factors,
most of which are beyond our control, drive the cycles of the steel industry and
influence steel prices including general economic conditions, industry capacity
utilization, import duties and other trade restrictions and currency exchange
rates. Changes in steel prices have a significant impact on the margin levels of
our products.
RESULTS OF OPERATIONS
OVERALL COMPANY
Net sales of $138.5 million increased $48.4 million, or 53.7%, during the third
quarter of 2000, compared to the prior year quarter. These results were
primarily attributable to an increase of 29.5% in total product shipments, from
163,817 tons in the third quarter of 1999 to 212,085 tons in the third quarter
of 2000. Overall average net selling prices increased from the comparable
quarter of the prior year by 18.7%, from an average of $550 per ton to $653 per
ton.
Net sales of $402.4 million during the nine months ended September 30, 2000,
increased $189.1 million or 88.6%, compared to the prior year period. These
results were primarily attributable to an increase of 62.3% in total product
shipments, from 389,422 tons in the first nine months of 1999 to 631,915 tons in
the current year, and an overall increase of 16.5% in the average selling prices
of our products.
Cost of goods sold of $124.2 million increased $39.5 million, or 46.6%, during
the third quarter of 2000 over the comparable prior year period. The overall
unit cost per ton of products sold increased 13.3%, from an average of $517 per
ton to $586 per ton in the third quarter of 2000, compared with the same period
in fiscal 1999. This increase was primarily due to the increase in steel costs
and by a higher level of energy shipments. See "Overview."
Cost of goods sold of $355.4 million increased $151.6 million, or 74.4%, during
the nine months ended September 30, 2000, compared to the same period of the
previous year. Again, the overall increase was primarily due to the factors
discussed above.
The Company earned a gross profit of $14.3 million during the third quarter of
2000, compared to a gross profit of $5.4 million in the prior year period. Gross
profit per ton was $67 per ton as compared to $33 per ton in the comparable
prior year period. Gross profit per ton was impacted by the strengthening
selling prices partially offset by higher steel costs. Gross profit, as a
percentage of net sales, was 10.3% for the three month period ended September
30, 2000, compared to a gross profit, as a percentage of net sales, of 6.0% for
the prior year period.
The gross profit of $47.1 million during the nine months ended September 30,
2000, compared to a gross profit of $9.8 million during the nine months ended
September 30, 1999. Gross profit per ton was $74 per ton as compared to $25 per
ton in the comparable prior year period. Gross profit per ton was impacted by
the same factors discussed above. The gross profit, as a percentage of net
sales, was 11.7% for the nine month period ended September 30, 2000, compared to
a gross profit, as a percentage of net sales, of 4.5% for the prior year period.
Selling, general and administrative expenses increased by $984,000, or 19.3%, in
the third quarter of 2000 and by $3.2 million, or 20.7%, in the first nine
months of 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 the
beginning of the fiscal year. Selling, general and administrative expenses as a
percentage of net sales in the third quarter and first nine months of 2000 were
4.4% and 4.6%, respectively compared to 5.7% and 7.2%, for the comparable prior
year periods.
During October 1999, we acquired the equipment for and began the construction of
a new large diameter pipe and tubing facility adjacent to our existing
facilities in Hickman, Arkansas. We incurred net costs of $615,000 during the
third quarter and first nine months of 2000 related to the commencement of
operations at this facility. These costs were primarily salary and related costs
for the production personnel prior to the fully integrated operations of the
facility. These start-up costs were included in Maverick Tube L.P. segment
operating loss for the three and nine month periods ended September 30, 2000.
During September 1998, we acquired assets that are being utilized in the
production of cold drawn tubular products at our facility in Beaver Falls,
Pennsylvania. We incurred net costs of $966,000 during the third quarter and
$3.0 million during the first nine months of 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
Maverick Tube L.P. segment operating loss for the three and nine month periods
ended September 30, 1999.
During 1998, we acquired the equipment and began the construction of a new
facility in Longview, Washington. Initial production focused on industrial
tubing. Finishing lines were completed by March 1999, which added the capability
to produce energy products and standard pipe. We incurred net costs of $283,000
during the first nine months of 1999 related to the operations of this facility.
These costs were comprised primarily of salary and related costs for the
production, sales and administrative personnel prior to the fully integrated
operations of this facility. These start-up costs were included in Maverick Tube
(Canada) Inc. segment operating loss of the nine month period ended September
30, 1999.
On September 22, 2000, the business combination with Prudential Steel Ltd. was
completed. See "Acquisition of Prudential." As this transaction was accounted
for as a pooling of interests, we recorded a pre-tax charge of $11.2 million
($9.4 million after tax) for direct and severance costs associated with the
transaction. These costs reduced income per share by $0.28 per share for the
quarter and nine months ended September 30, 2000.
Interest expense increased by $55,000, or 8.1%, in the third quarter and
increased by $450,000, or 26.4% in the first nine months of 2000 over the prior
year periods. This was due to higher average borrowings during the third quarter
offset by the capitalization of interest for our large mill facility in Hickman,
Arkansas. The increase for the nine months ended September 30, 2000 was due to
higher average borrowings. Our debt to capitalization ratio increased from 18.4%
at December 31, 1999 to 30.1% at September 30, 2000, primarily due to $44.4
million in purchases of property, plant and equipment during the nine months
ended September 30, 2000 (primarily related to the large mill facility in
Hickman, Arkansas).
The provision for income taxes was $735,000 for the third quarter of 2000,
compared to the prior year's provision of $101,000. A provision was recorded in
these two periods even though a pre-tax loss had been generated. During the
three months ended September 30, 2000, we recorded $11.3 million in transaction
costs related to the business combination between Maverick and Prudential. A
large portion of these costs are not fully deductible for tax purposes and thus,
an additional provision was required. During the three months ended September
30, 1999, we incurred a loss of $1.4 million at our Longview, Washington
facility that has not yet been recognized for tax purposes and thus, no benefit
has been recognized in our financial statements. The provision for income taxes
was $7.9 million for the first nine months of 2000, compared to the prior year
when we recorded a benefit from taxes of $2.7 million. This change is
attributable to the generation of pre-tax income of $14.5 million in the first
nine months of 2000, compared to a pre-tax loss of $10.5 million in the first
nine months of 1999 and to the impact of the transaction costs as stated above.
As a result of the transaction costs of our business combination partially
offset by increased gross profit and the other factors discussed above, we
generated a net loss of $5.1 million in the third quarter of 2000, an increase
in the net loss of $3.7 million from the comparable prior year period. We
generated net income of $6.7 million for the first nine months of 2000, an
increase in the net income of $14.5 million from the comparable prior year
period.
MAVERICK TUBE L.P. SEGMENT
In conjunction with the Prudential transaction, we changed our segment
reporting. Accordingly, the segments are now based on geographic regions instead
of product line as previously reported. Maverick Tube L.P. ("Maverick"), a
wholly-owned subsidiary of the Company, is responsible for our operations in
Hickman, Arkansas, Beaver Falls, Pennsylvania and Conroe, Texas. Prudential, is
responsible for our operations in Calgary, Alberta and Longview, Washington.
The Maverick 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. Maverick's sales of $82.7 million
increased $28.7 million, or 53.1%, for the third quarter of 2000, compared to
the prior year period. Maverick's sales increased 25,569 tons, or 24.0%, from
106,466 tons to 132,035 tons. Energy sales increased 25,606 tons due to the rig
count increasing from 649 active rigs to 981 active rigs. Industrial products
sales decreased 37 tons. Overall average net selling prices for Maverick
increased from the comparable quarter of the prior year by 23.5%, from an
average of $507 per ton to $626 per ton. This increase results from selling a
larger mix of energy products. Energy selling prices increased 28.0% from $526
per ton to $673 per ton. Industrial selling prices increased 8.6%, from an
average of $476 per ton to $517 per ton. These increases are primarily due to
improved market conditions. See "Overview."
Maverick's sales of $228.4 million increased $97.4 million, or 74.3%, for the
first nine months of 2000, compared with the prior year period. Maverick's
shipments increased 118,826 tons, or 45.4%, from 261,801 tons to 380,627 tons.
The average net selling price for Maverick for the nine months ended September
30, 2000 was $600 per ton, an increase of $100 per ton. These changes were a
result of the same market conditions discussed above.
Maverick's cost of goods sold of $73.9 million increased $22.4 million, or
43.5%, for the third quarter of 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 Maverick of $8.8 million for the
quarter ended September 30, 2000 compares to a gross profit of $2.5 million for
the prior year period. See "Overview." The gross profit per ton was $66 per ton
as compared to $23 per ton in the comparable prior year period. Gross profit per
ton was impacted by strengthening selling prices and better fixed cost
absorption offset partially by increased steel prices. Maverick's gross profit
margin percentage was 10.6% for the quarter ended September 30, 2000, compared
to a gross profit margin percentage of 4.6% for the prior year period.
Maverick's cost of goods sold of $207.9 million increased $78.9 million, or
61.2% for the first nine months of fiscal 2000, compared with the prior year
period. The gross profit for Maverick of $20.6 million for the nine month period
ended September 30, 2000 compares to a gross profit of $2.1 for the nine month
period ended September 30, 1999. The gross profit per ton was $54 per ton as
compared to $8 per ton was impacted by the same factors discussed above.
Maverick's gross profit margin percentage was 9.0% for the first nine months of
2000, compared to a gross profit margin percentage of 1.6% for the prior year
period.
PRUDENTIAL SEGMENT
Prudential's sales of $55.8 million increased $19.7 million, or 54.5%, for the
third quarter of 2000, compared with the prior year period. Prudential's
shipments increased 20,699 tons, or 34.9%, from 59,351 tons to 80,050 tons.
Energy sales increased 23,159 tons due to the rig count increasing from 256
active rigs to 313 active rigs. Industrial products sales decreased 2,460 tons.
Overall average net selling price for Prudential increased from the
comparable quarter of the prior year by 14.5%, from an average of $609 per ton
to $697 per ton. Energy selling prices increased 10.2% from $639 per ton to $704
per ton. This increase is a continuation of selling prices recovery which began
in late 1999. Industrial selling prices fell by 1.0% from $450 per ton to $446
per ton. This decrease was primarily due to the impact of lower hot rolled steel
costs selling prices.
Prudential's sales of $174.0 million increased $91.7 million, or 113.5%, for the
first nine months of 2000, compared with the prior year period. Prudential's
shipments increased 118,948 tons, or 89.9%, from 132,340 to 251,288 tons. The
average net selling price for Prudential for the nine months ended September 30,
2000 was $692 per ton, an increase of $70 per ton from the prior year. These
increases were a result of the same market conditions discussed above.
Prudential's cost of goods sold of $50.3 million increased $17.1 million, or
51.3%, in the third quarter of 2000 from the prior year period of 1999. Gross
profit for Prudential of $5.6 million for the quarter ended September 30, 2000
compares to a gross profit of $2.9 million for the prior year period. Gross
profit per ton was $70 per ton as compared to $49 per ton in the comparable
prior year period. Strengthening selling prices partially offset by higher steel
costs impacted gross profit margin per ton. Prudential's gross profit margin
percentage was 10.0% for the quarter ended September 30, 2000, compared to a
gross profit margin percentage of 8.1% during the prior year period.
Prudential's cost of goods sold of $147.5 million increased $72.6 million, or
97.0%, for the first nine months of 2000, compared with the prior year period.
Gross profit for Prudential of $26.5 million for the nine months ended September
30, 2000 compares to a gross profit of $7.4 million for the prior year period.
Gross profit per ton was $105 per ton as compared to $56 per ton in the
comparable prior year period. Gross profit per ton was impacted by the same
factors discussed above. Prudential's gross profit percentage was 15.2% for the
first nine months of 2000, compared to 9.0% for the first nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 2000 was $110.9 million and the ratio of
current assets to current liabilities was 1.9 to 1.0, compared to December 31,
1999 when working capital was $109.1 million and the ratio of current assets to
current liabilities was 2.3 to 1.0. The increase in working capital for the nine
month period ended September 30, 2000 was principally due to a $32.1 million
increase in inventory and a $10.0 million increase in accounts receivable,
partially offset by a $8.8 million increase in deferred revenue, a $4.4 million
increase in accounts payable, a $16.1 million increase in accrued expenses and
other liabilities and a $1.7 million decrease in prepaid expenses and other
assets. The above changes were primarily due to the increased energy business
volume. Cash provided by operating activities was $4.7 million for the nine
month period ended September 30, 2000. The primary use of cash was the above
described changes in operating assets and liabilities, which offset the net cash
provided from operations of $16.8 million (excluding depreciation and
amortization of $10.1 million).
Cash used in investing activities was $44.4 million for the nine month period
ended September 30, 2000, primarily for the purchases of equipment of $10.4
million, completion of and enhancements to our new enterprise resource planning
system of $2.0 million and the construction and equipping of our new large
diameter pipe and tubing facility of $32.0 million.
Cash provided by financing activities was $41.2 million for the nine month
period ended September 30, 2000. Outstanding borrowings on our Long-Term
Revolving Credit Facility increased $29.7 million and outstanding borrowings on
our Short-Term Revolving Credit Facility increased $12.5 million. These
increases were 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 $55,000.
Dividends paid to the former stockholders of Prudential prior to the Company's
combination with Prudential, reduced the cash provided by financing activities
by $3.1 million. Consistent with the Company's business strategy prior to the
combination, the Company currently intends to retain earnings to finance the
growth and development of our business and do not anticipate paying cash
dividends in the near future. Any payment of cash dividends in the future will
depend upon our financial condition, capital requirements and earnings as well
as other factors the Board of Directors may deem relevant. Our Long-Term
Revolving Credit Facility with commercial lenders restricts the amount of
dividends we can pay to our stockholders.
Our capital budget for 2000 is $52.0 million, of which $44.4 million was
expended during the nine month period ended September 30, 2000. The capital
budget includes $39.0 million for the completion of our new large diameter pipe
and tubing facility that is adjacent to our existing facilities in Hickman,
Arkansas. We are funding this project principally through 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 $15.0 million of our capital expenditure
budget will be used to acquire new equipment for our existing manufacturing
facilities and to enhance our new enterprise resource planning system. As of
September 30, 2000, we had an additional $3.5 million committed for the purchase
of equipment. We expect to meet our ongoing working capital and capital
expenditure requirements from a combination of cash flow from operating
activities and available borrowings under our Revolving Credit Facilities, all
of which constitute our primary source of liquidity.
We have three Revolving Credit Facilities. The Short-Term Revolving Credit
Facility is with a Canadian financial institution, the Operating Line of Credit
is with a U.S. financial institution and the Long-Term Revolving Credit Facility
is with a group of U.S. financial institutions. The Short-Term Facility is a
$34.0 million (C$50.0 million Canadian) unsecured demand operating credit
facility. This facility is considered to be short-term and is included in our
current maturities of long-term Debt. The Operating Line of Credit is a $10.0
million facility which is used to fund the working capital requirements of the
Longview, Washington operation. It is secured by letters of credit drawn on the
Canadian bank and any borrowings on the U.S. Operating Line reduce the
availability of the Short-Term Revolving Credit Facility. As of September 30,
2000, the applicable interest rate on the U.S. Operating Line and the Short-Term
facility was 7.13 percent and 7.5 percent per annum, respectively, and we had
$16.2 million in additional available borrowings on the Short-Term facility.
During September 2000, we amended our Long-Term Revolving Credit Facility to
increase the maximum borrowings up to the lesser of the eligible borrowing base
or $70 million. The $20.0 million overline is available until December 31, 2000.
The Long-Term 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 September 30, 2000, the applicable interest rate on
this Credit Facility was 8.62 percent per annum and we had $6.9 million in
additional available borrowings. As of September 30, 2000, we had $2.6 million
in cash and cash equivalents.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's reported cash flowed related to its Canadian operations is based
on cash flows measured in Canadian dollars converted to the U.S. dollar
equivalent based on published exchange rates for the period reported. The
Company believes its current risk exposure to the exchange rate movements, based
on net cash flows, to be immaterial.
<PAGE>
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of the Stockholders of the Company was held on
September 22, 2000. Of the 17,899,224 shares entitled to vote at such
meeting, 13,215,504 shares were present at the meeting in person or by
proxy.
(b) The proposal to approve the issuance of shares of Maverick's common
stock, par value $0.01 per share, in connection with the combination
of Maverick and Prudential Steel, Ltd. was approved. Shares voting for
the proposal were 13,073,004; shares voting against the proposal were
87,150; and shares abstaining were 54,850.
(c) The proposal to amend Maverick's certificate of incorporation to
increase the number of authorized shares of Maverick's common stock
from 40,000,000 to 80,000,000 was approved. Shares voting for the
proposal were 11,836,660; shares voting against were 1,323,408; and
shares abstaining were 55,436.
There were no brokers' non-votes.
ITEM 5. OTHER INFORMATION
On August 1, 2000, the Board of Directors of the Company adopted a calendar
year-end. Commencing with the current year, the year-end of the Company changed
from September 30 of each year to December 31 of each year. Accordingly, the
unaudited consolidated financial statements for the period ended September 30,
1999 have been presented on a nine month basis instead of an annual fiscal basis
as previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation, as Amended
10.1 Seventh Amendment to Revolving Credit Facility
10.2 Eighth Amendment to Revolving Credit Facility
27 Financial Data Schedule
(b) Reports on Form 8-K.
On August 30, 2000, the Company filed a Report on Form 8-K, containing the
definitive proxy statement on Schedule 14A relating to the proposed combination
of the businesses of Maverick Tube Corporation and Prudential Steel Ltd., which
was filed with the Securities and Exchange Commission on August 11, 2000. The
Proxy Statement was filed under cover of this Form 8-K solely for the purpose of
allowing the Company to incorporate the Proxy by reference into a Form S-3.
On September 22, 2000, the Company filed a Report on Form 8-K announcing the
completion of its business combination with Prudential Steel Ltd.
On October 25, 2000, the Company filed a Report on Form 8-K containing certain
historical financial information utilized by analysts and investors.
On November 8, 2000, the Company filed a Report on Form 8-K containing slide
show presentation to be given to various lenders and certain individual and
institutional investors.
<PAGE>
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: November 13, 2000 /s/ Gregg Eisenberg
------------------------------------------------------
Gregg Eisenberg, President and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 /s/ Barry Pearl
------------------------------------------------------
Barry Pearl, Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation, as Amended
10.1 Seventh Amendment to Revolving Credit Facility
10.2 Eighth Amendment to Revolving Credit Facility
27 Financial Data Schedule
