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 June 30, 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.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)
(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 - 17,899,224 shares as of August 10, 2000
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets - June 30, 2000
and September 30, 1999 3
Condensed Consolidated Statements of Operations -
Three and Nine month periods ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -- Nine
month period ended June 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 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)
June 30, September 30,
2000 1999
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................$2,714 $1,625
Accounts receivable, less allowances of $801 and
$542 on June 30, 2000 and September 30, 1999,
respectively......................................................30,873 19,661
Inventories .........................................................87,013 54,486
Deferred income taxes.................................................2,083 1,933
Income taxes refundable..................................................-- 3,739
Prepaid expenses and other current assets.............................1,634 1,469
Total current assets............................................124,317 82,913
PROPERTY, PLANT, AND EQUIPMENT
Less accumulated depreciation (June 30, 2000 -
$45,394; September 30, 1999 - $39,122)............................110,468 74,518
OTHER ASSETS..........................................................1,164 2,717
TOTAL ASSETS.......................................................$235,949 $160,148
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................................................$30,736 $28,244
Accrued expenses and other liabilities................................6,868 5,929
Deferred revenue ....................................................16,420 3,716
Current maturities of long-term debt....................................748 708
Total current liabilities........................................54,772 38,597
LONG-TERM DEBT, less current maturities...............................6,919 7,518
REVOLVING CREDIT FACILITY ...........................................55,000 31,000
DEFERRED INCOME TAXES ................................................3,383 3,387
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
5,000,000 shares authorized..........................................-- --
Common stock, $.01 par value;
40,000,000 authorized shares,
17,899,224 and 15,440,474 shares issued and outstanding
at June 30, 2000 and September 30, 1999, respectively...............179 154
Additional paid-in capital...........................................80,163 44,248
Retained earnings....................................................35,533 35,244
Total stockholders' equity......................................115,875 79,646
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........................$235,949 $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 Nine months ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES......................................$74,851 $42,896 $215,721 $118,410
COSTS and EXPENSES
Cost of goods sold..............................67,674 42,423 201,719 118,047
Selling, general and administrative..............4,412 3,300 12,352 10,168
Start-up costs.......................................- 825 - 2,496
Income (loss) from operations ...................2,765 (3,652) 1,650 (12,301)
OTHER INCOME (EXPENSE)
Interest expense..................................(529) (468) (1,198) (1,261)
Income (loss) before income taxes................2,236 (4,120) 452 (13,562)
(BENEFIT FROM) PROVISION FOR INCOME TAXES..........807 (1,483) 163 (4,874)
NET INCOME (LOSS)...............................$1,429 ($2,637) $289 ($8,688)
AVERAGE SHARES 17,872,570 15,437,474 17,748,294 15,437,474
BASIC EARNINGS (LOSS) PER SHARE $0.08 ($0.17) $0.02 ($0.56)
DILUTED EARNINGS (LOSS) PER SHARE $0.08 ($0.17) $0.02 ($0.56)
<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
June 30,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).........................................$289 ($8,688)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization.........................6,572 5,471
Deferred income taxes .................................(154) (1,956)
Provision for accounts receivable allowances............259 322
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable..........(11,471) (7)
(Increase) decrease in inventories..................(32,527) 15,661
(Increase) decrease in prepaid expenses
and other asset....................................5,040 1,659
(Decrease) increase in accounts payable...............2,492 8,430
(Decrease) increase in deferred revenue .............12,704 (1,379)
(Decrease) increase in accrued expenses
and other liabilities................................939 (2,184)
Cash provided (used) by operating activities......(15,857) 17,329
INVESTING ACTIVITIES
Purchases of property, plant and equipment.............(42,435) (11,976)
FINANCING ACTIVITIES
Proceeds from borrowings...............................106,800 33,100
Principal payments on borrowings.......................(83,359) (38,716)
23,441 (5,616)
Net proceeds from sale of common stock .................35,940 --
Cash provided (used) by financing activities.......59,381 (5,616)
Increase (decrease) in cash and cash equivalents.........1,089 (263)
Cash and cash equivalents at beginning of period...........1,625 748
Cash and cash equivalents at end of period................$2,714 $485
<FN>
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest (net of amounts capitalized)................$464 $1,198
Income taxes......................................($3,497) ($5,277)
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 nine month periods ended
June 30, 2000, are not necessarily indicative of the results that may be
expected for the year ended September 30, 2000. For further informa-
tion, 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:
June 30, September 30,
2000 1999
(In thousands)
Finished goods $39,551 $29,309
Work-in-process 4,336 3,011
Raw materials 18,437 10,358
In-transit materials 18,337 6,867
Storeroom parts 6,352 4,941
$87,013 $54,486
Inventories are principally valued at the lower of average cost or
market.
Gross profit for the nine month period ended June 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.
(3) PURCHASE OF EQUIPMENT AND SALE OF STOCK
On September 3, 1999, the Company entered into an Asset Purchase Agree-
ment 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
June 30, 2000, the Company has expended $33.2 million and has an
additional $6.8 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 $35.2 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 $825,000
in the third quarter of fiscal 1999 and $2.5 million in the nine month
period ended June 30, 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 1, 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 and nine months ended June 30,
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 18,360,196 and 18,076,978, respectively.
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 15,437,474 for the
quarter and nine month period ended June 30, 1999.
(6) SEGMENT INFORMATION
The following table set forth data for the three and nine month periods
ended June 30, 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>
<CAPTION>
Energy Industrial
Products Products Corporate Total
<S> <C> <C> <C> <C>
Three Month Period Ended
June 30, 2000
Net sales $ 53,608 $21,243 $ -- $ 74,851
Operating income (loss) 3,543 (778) -- 2,765
Identifiable assets 127,660 58,089 50,200 (1) 235,949
Depreciation and
amortization 1,325 715 369 2,409
Capital expenditures 2,893 879 9,067 (2) 12,839
Nine Month Period Ended
June 30, 2000
Net sales $152,181 $63,540 $ -- $215,721
Operating income (loss) 4,784 (3,134) -- 1,650
Identifiable assets 127,660 58,089 50,200 (1) 235,949
Depreciation and
amortization 3,455 2,046 1,071 6,572
Capital expenditures 5,165 2,321 34,949 (2) 42,435
Three Month Period Ended
June 30, 1999
Net sales $ 25,099 $17,797 $ -- $ 42,896
Operating (loss) (2,689) (963) (3) -- (3,652)
Identifiable assets 82,377 50,950 12,063 145,390
Depreciation and
amortization 1,194 626 124 1,944
Capital expenditures 408 2,341 1,319 4,068
Nine Month Period Ended
June 30, 1999
Net sales $ 66,795 $51,615 $ -- $118,410
Operating (loss) (9,174) (3,127) (3) -- (12,301)
Identifiable assets 82,377 50,950 12,063 145,390
Depreciation and
amortization 3,578 1,491 402 5,471
Capital expenditures 2,597 6,008 3,371 11,976
<FN>
(1) Included in Corporate's identifiable assets at June 30, 2000 is the $33.2
million construction in progress for the new large diameter pipe and tubing
facility.
(2) Included in Corporate's capital expenditures for the three and nine month
periods ended June 30, 2000 is $8.4 million and $33.2 million, respectively, for
the new large diameter pipe and tubing facility.
(3) During the three and nine month periods ended June 30, 1999, the Company
incurred net operating losses of $825,000 and $2.5 million related to the
operations of its Beaver Falls, Pennsylvania facility which had not reached
normal production capacity.
</FN>
</TABLE>
(7) COMBINATION WITH PRUDENTIAL STEEL
On June 11, 2000, the Company and Prudential Steel Ltd. entered into a
definitive Combination Agreement providing for the combination of
Prudential with Maverick. The combination is expected to be accounted
for as a pooling of interests. The transaction is subject to the
approval of the stockholders of Maverick and Prudential and by the
Alberta courts, as well as customary closing conditions, including
regulatory and governmental approval in the U.S. and Canada.
Under the proposed transaction, Prudential stockholders will receive
0.52 of an exchangeable share for each of their Prudential common
shares. Each exchangeable share will have the economic and voting
rights equivalent to one share of Maverick common stock. The exchange-
able shares will be exchangeable at any time, at the holder's option,
for shares of Maverick common stock on a one-for-one basis.
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 state-
ments 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 61% for the
quarter ended June 30, 2000, compared to the same quarter of the previous year.
Natural gas drilling increased by 63%, while oil related drilling increased by
55%. The higher drilling levels for both oil and natural gas were primarily
attributable to significant increases in commodity prices, up by 65% and 64%,
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 Third Quarter Ended June 30,
2000 1999
U.S. Drilling Activity
Average rig count 845 524
Average energy prices
Oil per barrel (West Texas
Intermediate) $29.04 $17.68
Natural gas per MCF
(Average U.S.) $ 3.53 $ 2.14
U.S. oil country tubular goods consumption
(in thousands of tons):
U.S. producer shipments 509 181
Imports 176 26
Inventory (increase)/decrease (120) 79
Used pipe 15 13
Total U.S. consumption 580 299
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
Hughes rig count. U.S. producer shipments are our estimates calculated based on
the components listed above.
Imports increased 576.9%, with import market share growing from 8.6% during the
third quarter of fiscal 1999 to 30.3% during the third quarter of fiscal 2000.
During the third quarter of fiscal 2000, OCTG demand increased 20.6% due to
industry inventory increases. During the third quarter of fiscal 1999, OCTG
demand was adversely affected by industry inventory decreases which satisfied an
estimated 26.4% of consumption. Management believes that at June 30, 2000,
industry inventories were at or below normal levels in relation to demand, as
inventory months of supply decreased 31.0%, from 7.1 months at June 30, 1999 to
4.9 months at June 30, 2000.
As a result of the increased drilling activity, we estimate that total U.S.
consumption increased by 94.0% in the third quarter of fiscal 2000, compared to
the prior year quarter. During that same period, our domestic shipments of OCTG
increased 113.2% and our export sales, primarily to Canada, decreased by 34.0%.
We estimate that our domestic OCTG market share remained relatively stable at
16.2% during the quarter ended June 30, 2000.
Published information suggests that demand for line pipe decreased during the
third quarter of fiscal 2000 by an estimated 8%. However, domestic shipments
fell by 26% as the import market share rose from 33.6% to 46.5%.
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 5.0%
during the third quarter of fiscal 2000 over the prior year period. Total U.S.
producer shipments remained relatively stable as import market share increased
from 21.8% to 25.7%. According to published reports, the standard pipe market
demand remained relatively stable, while total domestic producer shipments
increased 20.2% as the import market share increased from 33.8% to 44.9%.
Pricing of our products was mixed over our product lines during the third
quarter of fiscal 2000. Pricing of OCTG, line, structural and standard pipe was
up 18%, 24%, 10% and 17%, respectively, compared to the prior year quarter.
Pricing of cold drawn tubing products decreased by 3%.
Steel costs included in cost of goods sold increased during the third quarter of
fiscal 2000 by $41 per ton, or 15.2%, to $309 per ton, compared to the quarter
ended June 30, 1999 and by $7 per ton, or 2.3%, compared to the quarter ended
March 31, 2000. The current replacement cost of steel is approximately 6% 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 inventory adjustments in the steel industry.
Purchased steel represents slightly more than two-thirds of our costs of goods
sold. As a result, the steel industry, which is highly volatile and cyclical in
nature, affects our business both positively and negatively. Numerous factors,
most of which are beyond our control, drive the cycles of the steel industry and
influence steel prices 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 $74.9 million increased $32.0 million, or 74.5%, during the third
quarter of fiscal 2000, compared to the prior year quarter. These results were
primarily attributable to an increase of 44.5% in total product shipments, from
86,391 tons in the third quarter of fiscal 1999 to 124,828 tons in the third
quarter of fiscal 2000. Overall average net selling prices increased from the
comparable quarter of the prior year by 20.8%, from an average of $497 per ton
to $600 per ton. Net sales of $215.7 million during the nine months ended June
30, 2000, increased $97.3 million or 82.2%, compared to the prior year period.
These results were primarily attributable to an increase of 64.5% in total
product shipments, from 231,494 tons in the first nine months of fiscal 1999 to
380,758 tons in the current year, and an overall increase of 10.8% in the
average selling prices of our products.
Cost of goods sold of $67.7 million increased $25.3 million, or 59.5%, during
the third 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 10.4%, from an average of $491 per
ton to $542 per ton in the third 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 level of energy shipments. See "Overview." Cost of goods
sold of $201.7 million increased $83.7 million, or 70.9%, during the nine months
ended June 30, 2000, compared to the same period of the previous year. Again,
the overall increase was primarily due to increased shipments.
The Company earned a gross profit of $7.2 million during the third quarter of
fiscal 2000, compared to a gross profit of $473,000 in the prior year period.
Gross profit, as a percentage of net sales, was 9.6% for the three month period
ended June 30, 2000, compared to a gross profit, as a percentage of net sales,
of 1.1% for the prior year period. The gross profit of $14.0 million during the
nine months ended June 30, 2000, compared to a gross profit of $363,000 during
the nine months ended June 30, 1999. The gross profit, as a percentage of net
sales, was 6.5% for the nine month period ended June 30, 2000, compared to a
gross profit, as a percentage of net sales, of 0.3% for the prior year period.
The change in the gross profit for the three and nine month periods ended June
30, 2000 was due to the factors affecting net sales and cost of goods sold
discussed above.
Selling, general and administrative expenses increased by $980,000, or 27.6%, in
the third quarter of fiscal 2000 and by $2.2 million, or 20.6%, in the first
nine 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 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 fiscal 2000 were 6.1% and 5.9%, respectively compared to 8.3% and 8.9%, for
the comparable prior year periods.
During September 1998, we acquired assets that are being utilized in the
production of cold drawn tubular products at a facility in Beaver Falls,
Pennsylvania. We incurred net costs of $825,000 during the third quarter and
$2.5 million during the first nine 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 nine month periods ended June 30, 1999.
Interest expense remained relatively stable in the third quarter and in the
first nine months of fiscal 2000 over the prior year periods. This was due to
higher average borrowings during the third fiscal quarter offset by the
capitalization of interest for the large mill facility. Our long-term debt to
capitalization ratio increased from 33.0% at September 30, 1999 to 35.1% at June
30, 2000, primarily due to the increase in working capital to $69.5 million at
June 30, 2000 from $44.3 million at September 30, 1999. This increase was
partially offset by the reduction of debt from a portion of the net proceeds of
the sale of 2.3 million shares of common stock in October 1999.
The provision for income taxes was $807,000 for the third quarter of fiscal
2000, compared to the prior year when we recorded a benefit from taxes of $1.5
million. This change is attributable to the generation of pre-tax income of $2.2
million in the third quarter of fiscal 2000, compared to a pre-tax loss of $4.1
million in the third quarter of fiscal 1999. The provision for income taxes was
$163,000 for the first nine months of fiscal 2000, compared to the prior year
when we recorded a benefit from taxes of $4.9 million. This change is
attributable to the generation of pre-tax income of $452,000 in the first nine
months of fiscal 2000, compared to a pre-tax loss of $13.6 million in the first
nine months of fiscal 1999.
As a result of the increased gross profits and the other factors discussed
above, we generated net income of $1.4 million in the third quarter of fiscal
2000, an increase of $4.1 million from the comparable prior year period. We
generated net income of $289,000 for the first nine months of fiscal 2000, an
increase of $9.0 million from the comparable prior year period.
ENERGY PRODUCTS SEGMENT
Energy product sales of $53.6 million increased $28.5 million, or 113.6%, for
the third quarter of fiscal 2000, compared to the prior year period. Energy
product shipments increased 37,522 tons, or 79.1%, from 47,413 tons to 84,935
tons. Our domestic shipments of OCTG increased by 113.2% from the quarter ended
June 30, 1999. The increase in both sales and shipments was due to the rig count
increasing from 524 active rigs to 845 active rigs. The Company's export
shipments, primarily to Canada, decreased 34.5%, from 5,846 tons in the quarter
ended June 30, 1999 to 3,890 tons in the quarter ended June 30, 2000, even
though the average level of Canadian drilling rose 111.8% from 102 active rigs
to 216 active rigs. Management believes that the decrease in shipments to Canada
reflects expanded production capacity and finishing capacity at Canadian mills.
Line pipe shipments decreased 24.6% from the third quarter of fiscal 1999 to the
third quarter of fiscal 2000. The average net selling price for energy products
was $631 per ton, an increase of $102 per ton, or 19.2%, compared to the quarter
ended June 30, 1999 and an increase of $19 per ton, or 3.1%, compared to the
quarter ended March 31, 2000. These increases are primarily due to improved
market conditions. See "Overview."
Energy products sales of $152.2 million increased $85.4 million, or 127.8%, for
the first nine months of fiscal 2000, compared with the prior year period.
Energy product shipments increased 136,037 tons, or 115.0%, from 118,296 tons to
254,333 tons. The average net selling price for energy products was $598 per
ton, an increase of $34 per ton. These changes were a result of the same market
conditions discussed above.
Energy products cost of goods sold of $47.0 million increased $21.1 million, or
81.5%, for the third 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 $6.6
million for the quarter ended June 30, 2000 compares to a gross loss of $900,000
for the prior year period. Energy products gross profit margin percentage was
12.2% for the quarter ended June 30, 2000, compared to a gross loss margin
percentage of 3.6% for the prior year period.
Energy products cost of goods sold of $139.2 million increased $68.5 million, or
96.8% for the first nine months of fiscal 2000, compared with the prior year
period. The gross profit for energy products of $13.0 million for the nine month
period ended June 30, 2000 compares to a gross loss of $3.9 million for the nine
month period ended June 30, 1999. Energy products gross profit percentage was
8.5% for the first nine months of fiscal 2000, compared to a gross loss margin
percentage of 5.9% 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 $21.2
million increased $3.4 million, or 19.4%, for the third quarter of fiscal 2000,
compared with the prior year period. Industrial products shipments increased 915
tons, or 2.3%, from 38,978 tons to 39,893 tons (including 4,115 tons of cold
drawn tubing sales). The average net selling price for industrial products
during the third quarter of fiscal 2000 was $533, up $76 per ton, or 16.6%,
compared to the prior year period. This increase for the third 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
substantially higher selling price per ton ($1,143 per ton).
Industrial products sales of $63.5 million increased $11.9 million, or 23.1%,
for the first nine months of fiscal 2000, compared with the prior year period.
Industrial product shipments increased 13,227 tons, or 11.7%, from 113,198 to
126,425 tons (including 10,097 tons of cold drawn tubing sales). The average
selling price for industrial products for the nine months ended June 30, 2000
was $503 per ton, an increase of $47 per ton from the prior year. These
increases were a result of the same market conditions discussed above.
Cost of goods sold of $20.6 million increased $4.2 million, or 25.5%, in the
third quarter of fiscal 2000 from the prior year period of fiscal 1999. Gross
profit for industrial products of $624,000 for the quarter ended June 30, 2000
compares to a gross profit of $1.4 million for the prior year period. The
decreased gross profits were due to the inclusion of our cold drawn tubing
losses of $247,000, increased steel prices and higher conversion costs.
Industrial products gross profit margin percentage was 2.9% for the quarter
ended June 30, 2000, compared to a gross profit margin percentage of 7.7% during
the prior year period.
Cost of goods sold of $62.5 million increased $15.2 million, or 32.2%, for the
first nine months of fiscal 2000, compared with the prior year period. Gross
profit for industrial products of $1.0 million for the nine months ended June
30, 2000 compares to a gross profit of $4.3 million for the prior year period.
The decreased gross profits were due to the inclusion of our cold drawn tubing
losses of $1.9 million, increased steel prices and higher conversion costs.
Industrial products gross profit percentage was 1.6% for the first nine months
of fiscal 2000, compared to 8.4% for the first nine months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 2000 was $69.5 million and the ratio of current
assets to current liabilities was 2.3 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 nine
month period ended June 30, 2000 was principally due to a $32.5 million increase
in inventory and a $11.5 million increase in accounts receivable, partially
offset by a $12.7 million increase in deferred revenue, a $2.5 million increase
in accounts payable, a $1.0 million increase in accrued expenses and other
liabilities and a $5.0 million decrease 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 effect of previously announced
price increases. Cash used by operating activities was $15.9 million for the
nine month period ended June 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 $6.9 million (excluding depreciation and
amortization of $6.6 million).
Cash used in investing activities was $42.4 million for the nine month period
ended June 30, 2000, primarily for the purchases of equipment of $6.8 million,
completion of and enhancements to our new enterprise resource planning system of
$2.4 million and the construction and equipping of our new large diameter pipe
and tubing facility of $33.2 million.
Cash provided by financing activities was $59.4 million for the nine month
period ended June 30, 2000. Outstanding borrowings on our Revolving Credit F
acility increased $24.0 million, primarily due to the construction and equipping
of our new large diameter pipe and tubing facility and the increased steel
inventories. Net proceeds of $35.1 million were generated from the sale of 2.3
million shares of common stock in the first quarter of fiscal 2000. Other
long-term indebtedness, including current maturities, was reduced by
approximately $599,000.
Our capital budget for fiscal 2000 is $49.0 million, of which $42.4 million was
expended during the nine month period ended June 30, 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
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 $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 June 30, 2000, we had an additional $9.2 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
Facility, all of which constitute our primary source of liquidity.
During June 2000, we amended our Revolving Credit Facility to increase the
maximum borrowings up to the lesser of the eligible borrowing base or $60
million. The $10.0 million overline is available until September 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 June 30, 2000, the applicable interest rate on this
Credit Facility was 8.6 percent per annum and we had $4.2 million in additional
available borrowings. As of June 30, 2000, we had $2.7 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 5. OTHER INFORMATION
On August 1, 2000, the Board of Directors of the Company adopted a
calendar year-end. Commencing with the current fiscal year, the fiscal year-end
of the Company will be changed from September 30 of each year to December 31 of
each year.
The Company will file a Quarterly Report on Form 10-Q to cover the three
month transition period from October 1, 1999 to and including December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
10.1 Fifth Amendment to Secured Credit Agreement
10.2 Sixth Amendment to Secured Credit Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K.
On June 12, 2000, the Company filed a Report on Form 8-K announcing a business
combination with Prudential Steel Ltd. The two companies have entered into a
definitive Combination Agreement providing for the combination of Prudential
with Maverick. The combination is expected to be accounted for as a pooling
of interest. The transaction is subject to the approval of the stockholders
of Maverick and Prudential and by the Alberta courts, as well as customary
closing conditions, including regulatory and governmental approval in the U.S.
and Canada.
Under the proposed transaction, Prudential stockholders who do not exercise
their dissenters' rights will receive exchangeable shares for each of their
Prudential common shares. Each exchangeable share will have the economic and
voting rights equivalent to one share of Maverick common stock. The exchangeable
shares will be exchangeable at any time, at the holder's option, for shares of
Maverick common stock on a one-for-one basis.
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: August 10, 2000 /s/ Gregg Eisenberg
Gregg Eisenberg
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 2000 /s/ Barry Pearl
Barry Pearl
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1 Fifth Amendment to Revolving Credit Agreement
10.2 Sixth Amendment to Revolving Credit Agreement
27 Financial Data Schedule
