UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period ended March 31, 2003
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
16401 Swingley Ridge Road
Seventh Floor
Chesterfield, Missouri 63017
(636) 733-1600
State or other jurisdiction of incorporation or organization - Delaware
I.R.S. Employee Identification No. - 43-1455766
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 - 41,891,930 shares as of May 13, 2003
- --------------------------------------------------------------------------------
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
INDEX
- --------------------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets - March 31, 2003
and December 31, 2002 3
Condensed Consolidated Statements of Income - Three
Months Ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 7
Independent Accountants' Review Report 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 27
Item 4. Controls and Procedures 27
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 30
CERTIFICATIONS 31
EXHIBIT INDEX 33
2
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MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
- --------------------------------------------------------------------------------
March 31, December 31,
2003 2002
(Unaudited)
-------------------------
ASSETS
Current assets:
Cash and cash equivalents............................ $4,158 $2,551
Accounts receivable, less allowance of $4,096
and $5,188 on March 31, 2003 and December
31, 2002, respectively............................. 100,700 73,660
Inventories.......................................... 177,790 210,207
Deferred income taxes................................ 11,344 11,338
Income taxes refundable.............................. 2,913 637
Prepaid expenses and other current assets............ 8,958 10,375
-------------------------
Total current assets................................... 305,863 308,768
Property, plant and equipment, less accumulated
depreciation of $132,901 and $117,412 on
March 31, 2003 and December 31, 2002,
respectively......................................... 183,926 179,244
Goodwill............................................... 109,117 93,184
Note receivable........................................ 6,727 6,877
Other assets........................................... 8,406 7,810
-------------------------
$614,039 $595,883
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $70,521 $78,457
Accrued expenses and other liabilities............... 31,237 23,531
Deferred revenue..................................... 3,514 2,608
Current maturities of long-term debt................. 2,977 2,977
-------------------------
Total current liabilities.............................. 108,249 107,573
Long-term debt, less current maturities................ 7,274 2,742
Revolving credit facility.............................. 130,116 132,927
Other liabilities...................................... 7,849 7,640
Deferred income taxes.................................. 7,632 6,715
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 5,000,000
authorized shares; 1 share issued and
outstanding.......................................... - -
Common stock, $0.01 par value; 80,000,000
authorized shares; 41,691,192 and
40,942,976 shares issued and outstanding
at March 31, 2003 and December 31, 2002,
respectively......................................... 417 409
Additional paid-in capital............................. 224,567 212,361
Retained earnings...................................... 139,477 139,235
Accumulated other comprehensive loss................... (11,542) (13,719)
-------------------------
352,919 338,286
-------------------------
$614,039 $595,883
=========================
See accompanying notes to condensed consolidated financial statements.
3
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MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2003 2002
-------------------------
Net sales.............................................. $219,438 $103,923
Cost of goods sold..................................... 204,529 92,296
-------------------------
Gross profit........................................... 14,909 11,627
Selling, general and administrative.................... 12,313 7,176
Restructuring charges.................................. - 369
-------------------------
Income from operations................................. 2,596 4,082
Interest expense....................................... 2,235 961
-------------------------
Income from continuing operations before income taxes.. 361 3,121
Provision for income taxes............................. 119 1,282
-------------------------
Income from continuing operations...................... 242 1,839
Gain on disposal of DOM facility, net of income taxes. - 518
-------------------------
Net income............................................. $242 $2,357
=========================
Basic earnings per share
Income from continuing operations.................... $0.01 $0.06
Gain on disposal of DOM facility..................... - 0.02
-------------------------
Net income........................................... $0.01 $0.07
=========================
Diluted earnings per share
Income from continuing operations.................... $0.01 $0.05
Gain on disposal of DOM facility..................... - 0.02
-------------------------
Net income........................................... $0.01 $0.07
=========================
See accompanying notes to condensed consolidated financial statements.
4
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MAVERICK TUBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2003 2002
-------------------------
OPERATING ACTIVITIES
Income from continuing operations...................... $242 $1,839
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization....................... 5,375 4,383
Deferred income taxes............................... 288 (83)
Provision for losses on accounts receivable......... (1,028) (139)
Changes in operating assets and liabilities:
Accounts receivable............................... (25,229) 1,256
Inventories....................................... 39,069 27,466
Prepaid expenses and other current assets......... 1,401 (648)
Other assets...................................... 94 (1,612)
Accounts payable.................................. (11,646) (2,429)
Accrued expenses and other liabilities............ 4,909 (9,503)
Deferred revenue.................................. 906 2,584
-------------------------
Cash provided by continuing operating activities....... 14,381 23,114
INVESTING ACTIVITIES
Cash paid for acquisition, net of cash received........ (4,000) (55,265)
Expenditures for property, plant and equipment......... (2,692) (5,615)
-------------------------
Cash used by investing activities...................... (6,692) (60,880)
FINANCING ACTIVITIES
Proceeds from borrowings and notes..................... 220,385 118,920
Principal payments on borrowings and notes............. (226,604) (101,495)
-------------------------
(6,219) 17,425
Deferred debt costs.................................... (456) -
Principal payments on long-term note receivable........ 150 -
Proceeds from sale of common stock..................... - 10,494
Proceeds from sale of treasury stock................... - 15,853
Proceeds from exercise of stock options................ 110 79
-------------------------
Cash (used) provided by financing activities........... (6,415) 43,851
5
DISCONTINUED OPERATIONS
Gain on discontinued operations........................ - 518
Adjustments to reconcile income (loss) from
discontinued operations to net cash used by
discontinued operations:
Depreciation....................................... - 376
Gain on disposal................................... - (518)
Changes in operating assets and other liabilities
of discontinued operations....................... - (742)
Proceeds from sale of discontinued operations...... - 1,238
-------------------------
Net cash provided by discontinued operations........... - 872
Effect of exchange rate changes on cash................ 333 (75)
-------------------------
Increase in cash and cash equivalents.................. 1,607 6,882
Cash and cash equivalents at beginning of period....... 2,551 1,940
-------------------------
Cash and cash equivalents at end of period............. $4,158 $8,822
=========================
Supplemental disclosures of cash flow information:
Noncash investing and financing activities:
Note receivable for sale of discontinued operations $- $6,877
Stock issued for acquisition....................... $12,105 $2,290
Debt issued for acquisition........................ $5,000 $-
See accompanying notes to condensed consolidated financial statements.
6
- --------------------------------------------------------------------------------
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
The unaudited, condensed, consolidated financial statements include the accounts
of Maverick Tube Corporation and its direct and indirect wholly-owned
subsidiaries, collectively referred to as the "Company." All significant
intercompany accounts and transactions have been eliminated. The accompanying
condensed, consolidated financial statements include the financial statements of
Prudential Steel Ltd. ("Prudential") for all periods presented, Precision Tube
Holding Corporation ("Precision") since its acquisition on March 29, 2002, the
tubular division of The LTV Corporation since its acquisition on December 31,
2002 and SeaCAT Corporation ("SeaCAT") since its acquisition on February 28,
2003.
The accompanying unaudited, condensed, consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States 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 notes 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 months
ended March 31, 2003, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2003. For further information, refer to
the consolidated financial statements and notes thereto included in the
Company's Annual Report in the 2002 Form 10-K.
Certain reclassifications have been made to prior year balances in order to
conform to the current year presentation.
2. BUSINESS ACQUISITIONS
- --------------------------------------------------------------------------------
Precision Tube Holding Corporation
- ----------------------------------
On March 29, 2002, the Company completed its purchase of all the common stock of
Precision, a privately held, Houston based, coiled tubular goods manufacturer,
in exchange for $60,678,000 cash and 200,000 common shares of the Company. The
acquisition was accounted for as a purchase business combination and the
financial statements of Precision have been consolidated from the acquisition
date. The cost to acquire Precision has been allocated to the assets acquired
and liabilities assumed according to their estimated fair values as described
below. The final allocation resulted in acquired goodwill of $43,131,000, which
is not deductible for tax purposes. The Company acquired Precision to add
premium coiled tubing and coiled line pipe to its product lines.
The Tubular Division of The LTV Corporation
- -------------------------------------------
On December 31, 2002, the Company acquired the assets and certain liabilities of
the tubular division of The LTV Corporation for $119,863,000 cash (which
included a $9,863,000 working capital adjustment). The acquisition was accounted
for as a purchase business combination and the financial statements of the
tubular division of The LTV Corporation have been consolidated from the
acquisition date. The cost to acquire the tubular division of The LTV
Corporation has been preliminarily allocated to the assets acquired and
liabilities assumed according to their estimated fair values as described below.
The final fixed asset appraisals, identification of intangible assets and the
exit costs associated with the Company's rationalization plans are subject to
adjustment as additional information becomes available. The preliminary
allocation resulted in acquired goodwill of $51,442,000, which is deductible for
tax purposes. The Company acquired the tubular division of The LTV Corporation
to add steel electrical conduit to its product lines and to expand its line pipe
sales.
7
SeaCAT Corporation
- ------------------
On February 28, 2003, the Company completed its purchase of all the common stock
of SeaCAT, a privately held, Houston based, coiled tubular goods manufacturer,
in exchange for $4,000,000 cash, a $5,000,000 subordinated note and 733,676
common shares of the Company. The purchase price is subject to an earn-out over
a three-year period with a maximum payment of $250,000 per year. The acquisition
was accounted for as a purchase business combination and the financial
statements of SeaCAT have been consolidated from the acquisition date. The cost
to acquire SeaCAT has been preliminarily allocated to the assets acquired and
liabilities assumed according to their estimated fair values as described below.
The identification of intangible assets is subject to adjustment as additional
information becomes available. The preliminary allocation resulted in acquired
goodwill of $14,544,000, which is not deductible for tax purposes. The Company
acquired SeaCAT to expand its premium coiled tubing operations.
Following is a summary of the net assets and liabilities acquired during 2003
and 2002 (in thousands):
The tubular
division of
The LTV
Precision Corporation SeaCAT
------------------------------------
Purchase price (including transaction costs) $62,966 $121,477 $21,116
Assets acquired:
Cash...................................... 3,855 5 35
Accounts receivable....................... 8,141 22,208 187
Inventory................................. 4,217 42,462 2,563
Property, plant and equipment............. 7,443 12,874 5,706
Other assets.............................. 5,218 2,729 327
------------------------------------
28,874 80,278 8,818
Liabilities acquired:
Accounts payable.......................... (1,718) (6,430) (1,328)
Other accruals............................ (7,321) (3,813) (918)
------------------------------------
(9,039) (10,243) (2,246)
Net assets acquired....................... 19,835 70,035 6,572
------------------------------------
Goodwill.................................... $43,131 $51,442 $14,544
====================================
As a result of the Precision acquisition, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill no longer be amortized but tested
for impairment at least annually. On an ongoing basis (absent any impairment
indicators), the Company expects to perform its impairment tests during the
fourth quarter.
8
3. DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
During the quarter ended March 31, 2001, the Company adopted a formal plan to
sell the operating assets of its Cold Drawn Tubular Business ("DOM").
Accordingly, the operating results of the DOM facility, have been segregated
from continuing operations and reported separately as discontinued operations in
the statement of income.
On March 29, 2002, pursuant to an asset purchase agreement dated March 21, 2002,
the Company completed the sale of the DOM business for $8,115,000, consisting of
cash in the amount of $1,238,000 and the buyer's nine-year secured promissory
note of $6,877,000. To accommodate the buyer's purchase of the DOM business, the
Company guaranteed the $1,500,000 asset-based line of credit (advances limited
to 80% of eligible accounts receivable) of the buyer. In exchange, the Company
was granted liens and appropriate subrogation rights to the assets conveyed to
the buyer. The Company recognized a $518,000 after-tax gain from the sale of the
DOM facility in the quarter ended March 31, 2002.
4. RESTRUCTURING CHARGES
- --------------------------------------------------------------------------------
During December 2001, the Company announced its plans to exit its Longview,
Washington facility and move the operations to one of its existing buildings in
Hickman, Arkansas. As a result, all 124 employees at the facility were
terminated as of September 30, 2002. Restructuring costs recorded in the
consolidated statement of income during the quarter ended March 31, 2002
included the following items (in thousands):
Cash costs:
Adjustment to the original estimate................................ $(312)
Other.............................................................. 681
-------------
Total restructuring costs......................................... $369
=============
Following is a summary of the accrued restructuring liabilities and activity
through March 31, 2003 (in thousands):
Employee
Severance Other Total
------------------------------------
Balance, December 31, 2001.................. $581 $1,004 $1,585
Additional costs............................ - 681 681
Cash payments............................... (239) (1,191) (1,430)
Adjustment to original estimate............. (342) (14) (356)
------------------------------------
Balance, March 31, 2003..................... $- $480 $480
====================================
Future cash outlays expected in 2003 relating to the Company's exit from the
Longview, Washington facility are anticipated to be the remaining $480,000 cash
costs above. These cash outlays are ultimately expected to be funded through the
future sale of the Longview, Washington land and building, which is held for
sale at a carrying value of $6,000,000 and is currently being marketed through a
national broker.
9
5. REVOLVING CREDIT FACILITY
- --------------------------------------------------------------------------------
The Company has a $185,000,000 senior revolving credit facility, which is used
to fund working capital requirements of the Company. The facility is secured by
all accounts receivable, inventories, equipment and real estate and expires in
March 2006. The senior credit facility bears interest at U.S. or Canadian prime,
Bankers' Acceptance rates plus stamping fees or the LIBOR rate, all adjusted by
an interest margin, depending upon excess availability. Under the senior credit
facility, the Company can borrow an amount based on a percentage of eligible
accounts receivable, eligible inventory and property, plant and equipment
reduced by outstanding letters of credit. The senior credit facility includes
restrictive covenants relating to, among other things, a minimum fixed charge
coverage ratio if excess availability falls below $30,000,000 and a capital
expenditure limitation of $30,000,000 per year. As of March 31, 2003, the
applicable interest rate on this credit facility was 4.7% per annum. The
additional available borrowing amount under the senior credit facility is
approximately $57,000,000 as of March 31, 2003.
6. DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The components of the adjustment to accumulated other comprehensive loss for
derivatives qualifying as hedges of future cash flows at December 31, 2002 and
March 31, 2003 are presented in the following table (in thousands):
Adjustment
of Fair Income Net
Value of Tax Unrealized
Derivatives Effects Loss (Gain)
------------------------------------
Balance at December 31, 2002................ $- $- $-
Change in values of derivatives
qualifying as cash flow hedges........... 575 (201) 374
------------------------------------
Balance at March 31, 2003................... $575 $(201) $374
====================================
The unrealized loss as of March 31, 2003, reflects the Company's use of interest
rate swaps to convert variable rate debt to fixed rate debt and the decline in
interest rates from the inception date of the derivative contracts. During the
quarter ended March 31, 2003, no additional interest expense was recorded as the
cash flow hedge was considered to be effective. The accumulated other
comprehensive loss (along with the corresponding swap liability) will be
adjusted as market interest rates change over the remaining life of the swap.
The Company uses derivatives for hedging purposes only and does not enter into
derivative financial instruments for trading or speculative purposes. As part of
managing the exposure to changes in market interest rates, the Company, as an
end-user, enters into various interest rate swap transactions in the
over-the-counter markets, with other financial institutions acting as principal
counterparties. To ensure both appropriate use as a hedge and hedge accounting
treatment, all derivatives are designated according to a hedge objective against
the revolving credit facility. The Company's primary hedge objectives include
the conversion of variable rate debt to fixed rates. The notional amounts,
rates, indices and maturities of the Company's derivatives are required to
closely match the related terms of the Company's hedged liabilities.
The following table presents the notional principal amounts of interest rate
swaps by class and the corresponding hedge objectives at March 31, 2003 (in
thousands):
Interest Rate Swaps Notional Amount Description
- --------------------------------------------------------------------------------
Floating to fixed rate swaps $50,000 Effectively converts the
(cash flow hedges) interest rate on an
equivalent amount of
variable rate borrowings
to a fixed rate.
10
7. INVENTORIES
- --------------------------------------------------------------------------------
Inventories at March 31, 2003 and December 31, 2002, consist of the following
(in thousands):
2003 2002
-------------------------
Finished goods......................................... $96,403 $109,878
Work-in-process........................................ 10,207 7,982
Raw materials.......................................... 59,317 80,480
Storeroom parts........................................ 11,863 11,867
-------------------------
$177,790 $210,207
=========================
Inventories are principally valued at the lower of average cost or market.
8. SEGMENT INFORMATION
- --------------------------------------------------------------------------------
The following table sets forth data (in thousands) for the three months ended
March 31, 2003 and 2002 regarding the continuing reportable industry segments of
energy products and industrial products of the Company. Intersegment sales are
not material. Identifiable assets are those used in the Company's operations in
each segment.
Energy Industrial
Products Products Corporate Total
--------------------------------------------
Three Months Ended March 31, 2003
- ------------------------------------
Net sales........................... $152,413 $67,025 $ - $219,438
Income (loss) from operations....... 3,279 (683) - 2,596
Identifiable assets................. 408,161 162,270 43,608 614,039
Goodwill............................ 57,675 51,442 - 109,117
Depreciation and amortization....... 3,431 939 1,005 5,375
Capital expenditures................ 1,385 889 418 2,692
Three Months Ended March 31, 2002
- ------------------------------------
Net sales........................... $85,258 $18,665 $ - $103,923
Income (loss) from operations....... 5,787 (1,705) - 4,082
Identifiable assets................. 280,965 100,050 29,847 410,862
Goodwill............................ 41,282 - - 41,282
Depreciation and amortization....... 2,411 1,045 927 4,383
Capital expenditures................ 3,481 1,115 1,019 5,615
Segment information is presented in accordance with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This standard is based
on a management approach, which requires segmentation based upon the Company's
internal organization and reporting of revenue and operating income based upon
internal accounting methods.
On January 1, 2003, the Company revised its segments. The two new segments are
designed to improve the alignment of strategies and objectives between sales,
marketing, and production; provide for more timely and rational allocation of
resources within businesses and focus long-term planning efforts on key
objectives and initiatives. The Company's two segments are: Energy Products and
Industrial Products.
The Energy Products segment includes revenue and operating expenses associated
with those products of the Company sold to the energy industry, such as oil
country tubular goods ("OCTG"), line pipe, coiled steel pipe and tolling
services. The Industrial Products segment includes revenue and operating
expenses associated with those products of the Company sold to the industrial
industry, such as electrical conduit, rigid conduit, structural shapes and
rounds, standard pipe, mechanical tubing and pipe piling.
11
The Corporate information in the above table is not considered a segment;
however, it represents the Corporate assets necessary for the day to day
operations of the Company (that are not identifiable to the reporting segments)
and their related depreciation, amortization and capital expenditures.
9. STOCK-BASED COMPENSATION
- --------------------------------------------------------------------------------
The Company has three employee stock option plans and two stock option plans for
eligible directors allowing for incentive and non-qualified stock options.
Effective January 1, 2003, the Company adopted SFAS No. 148 "Accounting for
Stock-Based Compensation" which allows the Company to account for stock option
plans under the intrinsic value method in accordance with Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. Pursuant
to the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, pro forma net income and earnings per
share are presented in the table below as if compensation cost for stock options
was determined as of the grant date under the fair value method (in thousands,
except per share information):
2003 2002
-------------------------
Net income, as reported................................ $242 $2,357
Deduct: total stock-based employee compensation
expense determined under fair value-based
method for all awards, net of related tax effects.... (385) (209)
-------------------------
Pro forma net (loss) income............................ $(143) $2,148
=========================
Basic earnings per share
Net income - as reported............................. $0.01 $0.07
Net income - pro forma............................... $0.00 $0.06
Diluted earnings per share
Net income - as reported............................. $0.01 $0.07
Net income - pro forma............................... $0.00 $0.06
SFAS No. 123 requires the use of option pricing models that were not developed
for use in valuing employee stock options. Further, option pricing models
require the input of highly subjective assumptions, including the options'
expected life and price volatility of the underlying stock. Thus, in the opinion
of management, existing option pricing models do not necessarily provide a
reliable measure of the fair value of employee stock options.
The compensation expense associated with the fair value of the options
calculated for the quarters ended March 31, 2003 and 2002 is not necessarily
representative of the potential effects on reported net income (loss) in future
periods. The fair value of each option grant is estimated on the date of the
grant by use of the Black-Scholes option pricing model.
12
10. 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.
As long as any exchangeable shares of Maverick Tube (Canada) Inc. are
outstanding, the Special Voting Stock may not be redeemed, 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 common stockholders of the Company. If the Special
Voting Stock is purchased or otherwise acquired by the Company, it shall be
deemed retired, cancelled, and therefore will become an authorized but unissued
and undesignated preferred share of the Company.
On February 28, 2003, in connection with the Company's acquisition of SeaCAT,
the Company issued 733,676 shares of common stock to the shareholders of SeaCAT.
11. EARNINGS PER COMMON SHARE
- --------------------------------------------------------------------------------
Basic earnings per share exclude any dilutive effects of options but include the
exchangeable shares (as further discussed in Note 10) from the business
combination with Prudential on an as-if exchanged basis. Diluted earnings per
share include the exchangeable shares on an as-if exchanged basis and the net
effect of stock options.
The reconciliation for diluted earnings per share for the quarter ended March
31, 2003 and 2002 is as follows (in thousands):
2003 2002
-------------------------
Average shares outstanding............................. 41,207 33,132
Dilutive effect of outstanding stock options........... 354 394
-------------------------
Average shares deemed outstanding...................... 41,561 33,526
=========================
Net income used in the calculation of basic
and diluted earnings per share........................ $242 $2,357
=========================
13
12. COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
The following table sets forth the components of other comprehensive income for
the quarters ended March 31, 2003 and 2002 (in thousands):
2003 2002
-------------------------
Net income............................................. $242 $2,357
Change in fair value of derivative
qualifying as a cash flow hedge....................... (374) -
Foreign currency translation adjustment................ 2,676 811
Minimum pension liability adjustment................... (125) 2
-------------------------
Comprehensive income................................... $2,419 $3,170
=========================
14
Independent Accountants' Review Report
The Board of Directors and Stockholders
Maverick Tube Corporation
We have reviewed the accompanying condensed, consolidated balance sheet of
Maverick Tube Corporation and subsidiaries as of March 31, 2003, and the related
condensed, consolidated statements of income for the three-month periods ended
March 31, 2003 and 2002, and the condensed, consolidated statements of cash
flows for the three-month periods ended March 31, 2003 and 2002. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed, consolidated financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Maverick Tube
Corporation and subsidiaries as of December 31, 2002, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended [not presented herein] and in our report dated February 3, 2003,
except for Note 18, as to which the date is February 19, 2003, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed, consolidated balance
sheet as of December 31, 2002, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
May 5, 2003
St. Louis, Missouri
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
As used herein, Maverick Tube Corporation and its direct and indirect
wholly-owned subsidiaries are collectively referred to as the "Company." Also,
unless the context otherwise requires, the terms "we," "us" or "our" refers to
the Company.
Certain statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of this report regarding
matters (including statements as to beliefs or expectations) that are not
historical facts are forward-looking statements, as that term is defined under
the Private Securities Litigation Reform Act of 1995. Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. For example, uncertainty continues to exist as to future levels and
volatility of oil and gas price expectations and their effect on drilling levels
and demand for our energy related products, the future impact of industry-wide
draw-downs of inventories, future import levels and the value of the U.S.
dollar. Also, uncertainty continues to exist as to future purchased steel cost
(the Company's principal raw material, representing approximately two-thirds of
cost of goods sold).
It is not possible to foresee or identify all factors that could have a material
and negative impact on the future financial performance of the Company. The
forward-looking statements in this report are based on certain assumptions and
analyses made by the Company in light of its experience and perception of
historical conditions, expected future developments and other factors it
believes appropriate under the circumstances. Further information covering
issues that could materially affect the Company's financial performance is
contained in the "Risk Factors" section of the Company's Annual Report on Form
10-K for the year ended December 31, 2002, filed with the Securities and
Exchange Commission on March 28, 2003. This information can be found on the
Company's website at www.maverick-tube.com.
Our condensed, consolidated financial statements have been prepared in
accordance with accounting principles generally applied in the United States. It
should be noted that the application of certain accounting estimates of the
Company require judgment and/or estimates of management that could have a
significant impact on amounts reported in these financial statements. In
particular, the accounting for and analysis with respect to areas such as
goodwill, accounts receivable collectibility, discontinued operations, income
tax matters and pension plan are discussed. These critical accounting estimates
are more fully described in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our 2002 Annual
Report on Form 10-K.
All amounts are expressed in U.S. dollars unless otherwise indicated.
OVERVIEW
- --------------------------------------------------------------------------------
We are a leading North American producer of welded tubular steel products used
in energy and industrial applications. We are the largest producer of oil
country tubular goods ("OCTG") and line pipe products for use in newly drilled
oil and gas wells and for transporting oil and natural gas. We primarily sell
these products to distributors in the U.S. and Canada. We expanded our business
into coiled tubing products with our acquisition of Precision Tube Holding
Corporation ("Precision") and SeaCAT Corporation ("SeaCAT"). Coiled tubing
products are used primarily to maintain existing wells and to complete new
wells. We sell coiled tubing to customers throughout North America and
internationally. OCTG, line pipe and coiled tubing products comprise our energy
product line. We also manufacture structural tubing, also known as hollow
structural sections or HSS, standard pipe and pipe piling. In January 2003, we
entered the steel electrical conduit business with our acquisition of the
tubular division of The LTV Corporation. Structural tubing, standard pipe, pipe
piling and steel electrical conduit products comprise our industrial product
line. We sell these industrial products to service centers, fabricators and end
users. During the first quarter of 2003, energy products accounted for
approximately 69% of our total revenues.
16
Business Acquisitions
- ---------------------
On March 29, 2002, we completed the purchase of all the common stock of
Precision, a privately held, Houston based, coiled tubular goods manufacturer,
in exchange for $60.7 million cash and 200,000 common shares. The acquisition
was accounted for as a purchase business combination and the financial
statements of Precision have been consolidated from the acquisition date.
On December 31, 2002, we acquired the assets and certain liabilities of the
tubular division of The LTV Corporation for $119.9 million cash. The acquisition
was accounted for as a purchase business combination and the financial
statements of the tubular division of The LTV Corporation have been consolidated
from the acquisition date. In February 2003, we announced the closure of the
Youngstown facility, one of the facilities acquired in the LTV acquisition.
On February 28, 2003, we completed the acquisition of SeaCAT, a privately held,
Houston based, coiled tubular goods manufacturer, in exchange for $4.0 million
cash, a $5.0 million secured, 11.0% subordinated note and 733,676 shares of
common stock of the Company. The purchase price is subject to an earn-out over a
three-year period with a maximum payment of $250,000 per year. The acquisition
was accounted for as a purchase business combination and the financial
statements of SeaCAT have been consolidated from the acquisition date.
Energy Products Demand and Consumption
- --------------------------------------
OCTG
Demand for our energy products depends primarily upon the number of oil and
natural gas wells being drilled, completed and worked over in the U.S. 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. Many factors,
such as the supply and demand for oil and natural gas, general economic
conditions and global weather patterns, influence these prices. As a result, the
future level and volatility of oil and natural gas prices is uncertain.
U.S. end-users obtain OCTG not only from domestic and foreign pipe producers,
but also from inventories held by end-users, distributors and mills. Industry
inventories of our products can change significantly from period to period.
These changes generally signal shifts in demand for our products caused by
customers drawing down from inventory rather than purchasing our products.
Canadian distributors do not generally hold significant amounts of inventories.
17
The following table illustrates certain factors related to industry-wide
drilling activity, energy prices, OCTG consumption, shipment, imports and
inventories for the periods presented:
Three Months Ended
March 31,
2003 2002
-------------------------
U.S. Market Activity:
Average rig count...................................... 901 818
=========================
Average U.S. energy prices
Oil per barrel (West Texas Intermediate)............. $34.18 $21.72
=========================
Natural gas per MCF (Average U.S.)................... $6.45 $2.40
=========================
U.S. OCTG Consumption:
(in thousands of tons)
U.S. producer shipments.............................. 430 324
Imports.............................................. 131 127
Inventory (increase)/decrease........................ 38 72
Used pipe............................................ 9 38
-------------------------
Total U.S. Consumption............................. 608 561
=========================
Canadian Market Activity:
Average rig count...................................... 494 377
=========================
Average Canadian energy prices
Natural gas per U.S. $ per MCF
(Average Alberta spot price)....................... $5.41 $2.16
=========================
Canadian OCTG Consumption:
(in thousands of tons)
Canadian producer shipments.......................... 145 120
Imports.............................................. 70 56
Inventory (increase)/decrease........................ 22 32
-------------------------
Total Canadian Consumption......................... 237 208
=========================
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 is 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 is our estimate
based on estimated per rig consumption of OCTG multiplied by the Baker
Hughes rig count. U.S. producer shipments are our estimates 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 the
average Alberta natural gas spot price. Imports are as reported by
Statistics Canada. Inventory (increase)/decrease is our estimates
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 for the first
quarter of 2003 was approximately 901 rigs, representing an increase of 10.1%
compared to the first quarter of 2002. Natural gas drilling increased by 10.5%,
while oil related drilling increased by 6.3%. The higher drilling levels for
both oil and natural gas were primarily attributable to significant increases in
oil and natural gas prices, up by 57.4% and 168.8%, respectively. Drilling
levels increased throughout the first quarter of 2003, as the rig count at the
end of the quarter was approximately 4.4% higher than the average rig count
during the quarter.
According to published industry reports, average Canadian drilling for the first
quarter of 2003 was approximately 494 rigs, representing an increase of 31.0%
compared to the first quarter of 2002. The higher drilling levels were primarily
attributable to significant increases in oil and natural gas prices, up by 57.4%
and 150.5%, respectively. However, drilling levels decreased throughout the
first quarter of 2003, as the rig count at the end of the quarter was
approximately 9.1% lower than the average rig count during the quarter.
18
Although imports into the U.S. increased by 3.1%, import market share declined
slightly from 22.6% during the first quarter of 2002 to 21.5% during the first
quarter of 2003. During the first quarter of 2003, U.S. producer shipments of
OCTG increased 32.7% as compared to the comparable prior year period. During the
first quarters of 2003 and 2002, U.S. producer shipments were negatively
impacted by industry inventory draw-downs that supplied an additional 6.3% and
12.8%, respectively, of demand. Management believes that at March 31, 2003,
industry inventories were below historical levels in relation to demand, as
inventory months of supply decreased 17.2%, from 6.4 months at March 31, 2002 to
5.3 months at March 31, 2003.
As a result of the increased drilling activity, we estimate that total U.S.
consumption increased by 8.4% in the first quarter of 2003, compared to the
prior year quarter. During that same period, our domestic shipments of OCTG
increased 44.4% and our export sales, primarily to Canada, increased by 161.5%.
We estimate that our domestic OCTG market share increased from 17.8% during the
quarter ended March 31, 2002 to 20.7% during the quarter ended March 31, 2003.
This increased market share is slightly higher than the market share we have
captured historically. We believe this increase is partially due to increased
OCTG market penetration by our large diameter mill, our customers being
generally more active and stronger alliance business than the market as a whole.
Imports into Canada increased 25.0%, or approximately 14,000 tons, with import
market share increasing from 26.9% during the first quarter of 2002 to 29.5%
during the first quarter of 2003. Approximately one-half of this increase in
import market share is due to exports of our U.S. OCTG products into Canada.
During the first quarter of 2003, Canadian producer shipments of OCTG increased
by 20.8%. Overall, Canadian shipments in the first quarter 2003 were positively
impacted by higher commodity energy prices, that led to stronger drilling
activity than experienced during the first quarter 2002.
As a result of the increased drilling activity, we estimate that total Canadian
consumption increased by 13.9% in the first quarter of 2003, compared to the
prior year quarter. During that same period, our Canadian shipments of OCTG
increased 17.6%. We estimate that our Canadian OCTG market share of domestic
shipments decreased from 39.6% during the quarter ended March 31, 2002 to 38.7%
during the quarter ended March 31, 2003. However, we estimate that our Canadian
OCTG market share including our U.S. OCTG exports to Canada increased from 29.6%
during the quarter ended March 31, 2002 to 31.5% during the quarter ended March
31, 2003.
Line Pipe
Published information suggests that U.S. demand for line pipe decreased during
the first quarter of 2003 by an estimated 6.0%, and domestic shipments decreased
by 5.3% as the import market share fell from 41.6% to 35.7%. Canadian demand for
line pipe increased during the first quarter by an estimated 30.8%, and domestic
shipments increased by 70.2% due to more project work than in the first quarter
2002. Import volumes increased by 105.9%, and the import market share increased
from 19.0% for the first quarter 2002 to 29.9% for the first quarter 2003.
Coiled Tubing
Coiled down-hole tubing is primarily used to service existing oil and gas wells
by reestablishing well production and extending well life. Commodity pricing and
industry cash flow are primary drivers of well service work and demand for
coiled down-hole tubing. Industry cash flows declined throughout 2002 primarily
due to a decline in demand and lower natural gas prices. Uncertainty within the
energy sector continued to stall capital expenditures and impacted demand for
well service work; however, expectations for 2003 are for increased well service
work, which could lead to increased demand for coiled down-hole tubing. Coiled
line pipe is an application of technology in offshore, sub-sea applications
where continuous lengths of steel pipe are used as flow lines and umbilical
lines sheathing control cables.
19
Industrial Products Demand and Consumption
- ------------------------------------------
Given the numerous applications for our industrial products, sources of demand
for these products are diversified. Demand depends on the general level of
economic activity in the construction, transportation, agricultural, material
handling and recreational market segments; the use of structural tubing as a
substitute for other structural steel forms, such as I-beams and H-beam 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, decreased 19.1%
during the first quarter of 2003 over the prior year period. Total U.S. producer
shipments decreased 26.8% during the first quarter of 2003 over the prior year
period as import market share increased from 19.6% to 27.2%. Imports increased
due to a stronger Canadian and Turkish presence in the structural tube market.
On December 31, 2002, we acquired the tubular division of The LTV Corporation
and expanded our industrial product line into electrical conduit. Electrical
conduit is primarily used as sheathing for electrical and computer wiring in
industrial, commercial and institutional construction, which are referred to as
non-residential construction. As such, electrical conduit demand is primarily
influenced by changes in non-residential construction expenditures. We estimate
that the U.S. demand for electrical conduit of the types we produce, decreased
6.7% during the first quarter of 2003 over the prior year period. Published
forecasts for non-residential construction activity in 2003 are mixed ranging
from flat to a further drop of 7%. However, industry forecasts suggest conduit
shipments may remain flat in 2003 as the decline in non-residential construction
should not impact those applications that use electrical conduit. Maverick and
three other domestic producers manufacture most of the electrical conduit
consumed in the U.S. The import and export markets for conduit are limited due
to the fact that this product is easily damaged when shipped over long
distances.
Standard pipe is used in a variety of applications for transporting fluids such
as water and steam and structural applications in industrial and commercial
buildings and industrial processing plants. Demand for standard pipe is
primarily affected by general economic activity and non-residential construction
expenditures. According to published reports, the U.S. standard pipe demand
increased 16.2%. To satisfy that demand, total U.S. domestic producer shipments
increased by 46.1% resulting in the import market share decreasing from 44.7% to
30.5%. Prices tend to be very competitive and margins are typically thin.
Pricing and Costs of Our Products
- ---------------------------------
Pricing of our products was mixed during the first quarter of 2003. Pricing of
U.S. energy products was down 1.4% compared to the prior year quarter. Pricing
of U.S. industrial products, excluding electrical conduit and mechanical tubing,
was up 14.8% compared to the prior year quarter. This pricing increase was
primarily due to increased steel costs being passed on to our customers. The
addition of the tubular division of The LTV Corporation that added both
electrical conduit and mechanical tubing increased the average selling price of
our industrial product line by an additional 78.5%. These products are more
value added and thus sell for a higher price. Pricing of Canadian energy and
industrial products was up 11.0% and 23.6%, respectively, compared to the prior
year quarter. Canadian energy prices were impacted by a 5.7% increase in the
exchange rate; while industrial product prices were impacted both by the
increase in the exchange rate and higher steel costs being passed on to our
customers.
Average steel costs included in cost of goods sold increased during first
quarter of 2003 over the first quarter of 2002 by $104 per ton, or 39.5%. The
majority of this change resulted from our major supplier of steel effecting
three price increases ($15 per ton in January 2002, $40 per ton in April 2002
and $60 per ton in July 2002) during the first eleven months of 2002 offset
somewhat by three price decreases in December 2002 and the first quarter of 2003
($15 per ton in December 2002, $10 per ton in January 2003 and $25 per ton in
February 2003). Replacement cost of hot rolled steel are approximately 10.0%
below the average cost of goods sold per unit experienced during the quarter
ended March 31, 2003.
20
Purchased steel represents approximately two-thirds of our cost 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 energy products because energy product pricing is driven by OCTG and line
pipe demand and not steel costs. In addition, we depend on a few suppliers for a
significant portion of our steel. The loss of one or more of our significant
steel suppliers could affect our ability to produce our products and could have
a material adverse effect on our business.
Impact of Market Conditions
- ---------------------------
The OCTG market conditions described above impacted our operations and our
competitors significantly during the first quarter of 2003 as sales returned to
normal levels throughout the first quarter of 2003 due to the increase in
drilling activity. The increase in drilling levels during the first quarter of
2003 resulted in higher than expected sales. Consequently, industry-wide
inventory levels declined during the year and the impact of these industry
decreases had a negative impact on domestic shipments. As our recent experience
indicates, oil and gas prices are volatile and can have a substantial effect on
drilling levels and resulting demand for our energy related products.
Uncertainty also exists as to the future demand and pricing for our electrical
conduit, HSS and other industrial related products.
Trade Cases
- -----------
The level of imports of OCTG, which has varied significantly over time, affects
the U.S. and Canadian OCTG markets. We believe that these import levels are
affected by, among other things:
o North American and overall world demand for OCTG,
o The trade practices of and government subsidies to foreign producers,
o The presence or absence of antidumping and countervailing duties and
o The value of the U.S. dollar.
Antidumping and countervailing duty orders require special duties to be imposed
in amounts designed to offset unfair pricing and government subsidization,
respectively. In the U.S., once an order is in place, foreign producers,
importers, domestic producers and other parties may request an "administrative
review" on a yearly basis to determine the duty rates to be applied to imports
from the companies covered by the review. In addition, a company that did not
ship to the U.S. during the original period examined by the U.S. government, may
request a "new shipper review" to obtain its own duty rate on an expedited
basis.
U.S. antidumping and countervailing duty orders may be revoked as a result of
periodic "sunset reviews." An individual importer may also obtain revocation
applicable only to itself under certain circumstances. In June 2001, the U.S.
government completed sunset reviews of the orders covering Argentina, Italy,
Japan, Korea and Mexico and kept those orders in place. However, those orders
will be subject to a new sunset review beginning in 2005. If the orders covering
imports from Argentina, Italy, Japan, Korea and Mexico are revoked in full or in
part or the duty rates lowered, we could be exposed to increased competition
from imports that could have a material adverse effect on our U.S. business. In
addition, The Continued Dumping and Subsidy Offset Act was passed during 2000.
This act allowed for the tariffs collected by the U.S. Customs Department to be
dispersed to those companies that supported the original suit. The three-year
tariff rate quota on welded line pipe 16-inch and under imposed in March 2000
under Section 201 expired on March 1, 2003. It was not renewed. The revocation
of the import duty orders on line pipe could expose us to increased competition
from imports that could adversely affect our sales and operating profits in the
energy segment of our business.
In March 2002, an antidumping petition was filed with the U.S. government
covering OCTG from Austria, Brazil, China, France, Germany, India, Indonesia,
Romania, South Africa, Spain, Turkey, Ukraine and
21
Venezuela. On May 10, 2002, the U.S. government voted to end this case. As a
result of this ruling, there will not be any additional import relief for OCTG.
Imports of OCTG products not covered by this trade case ruling have remained at
existing levels due to low market demand for most of 2002. However, as the
market begins to improve, our OCTG products will be subject to both price and
demand pressure throughout 2003.
The Section 201 trade case signed by the President in March 2002 provides a
three-year program of quotas and tariffs covering a wide range of imported steel
products with the exception of OCTG. Of specific interest to our business,
imported flat rolled products, including hot rolled steel coils, are subject to
a three-year decreasing tariff system of 30%, 24% and 18%. Also, our standard
pipe product line and HSS product line are subject to this same tariff system of
15%, 12% and 9%. Our OCTG and electrical conduit product lines were not
protected in the trade case ruling. The Section 201 trade case is scheduled for
a review in September 2003. The President may adjust or eliminate the tariffs
based upon the results of this review.
In August of 2002, the Canadian International Trade Tribunal found injury on the
part of all imported steel products except hot rolled products. At this point in
time, the Canadian government has not acted on the Tribunal's findings; thus, no
further trade action has been taken.
The U.S. Section 201 plan resulted in an increase in the cost of foreign
imported hot rolled steel and steel products. This, in turn, increased the cost
of our purchased steel. During 2002, we experienced steel price increases that
we believe were caused by the U.S. Section 201 trade case.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Overall Company
- ---------------
Net sales of $219.4 million recorded for the first quarter of 2003, represents
an increase of $115.5 million, or 111.2%, compared to the prior year period.
These results were primarily attributable to an increase of 77.1% in total
product shipments, from 184,483 tons in the first quarter of 2002 to 326,671
tons in the first quarter of 2003. Also, overall average net selling prices
increased from the comparable quarter of the prior year by 19.4%, from an
average of $563 per ton to $672 per ton. The increase we experienced in
shipments and average selling prices primarily resulted from our acquisitions of
Precision, the tubular division of The LTV Corporation and SeaCAT as none of
these acquisitions contributed to our operations during the first quarter of
2002. See "Overview."
Cost of goods sold of $204.5 million recorded for the first quarter of 2003,
represents an increase of $112.2 million, or 121.6%, compared to the prior year
period. Overall unit cost per ton of products sold increased from the comparable
quarter of the prior year by 25.2%, from an average of $500 per ton to $626 per
ton. Costs were primarily impacted by our recent acquisitions of Precision, the
tubular division of The LTV Corporation and SeaCAT as none of these acquisitions
contributed to our operations during the first quarter of 2002. See "Overview."
The increase was also due to the steel cost increasing as our major supplier of
steel increased prices three times during the first eleven months of 2002 offset
somewhat by three price decreases in December 2002 and the first quarter of
2003. See "Overview."
The Company earned a gross profit of $14.9 million during the first quarter of
2003, compared to a gross profit of $11.6 million in the prior year period.
Gross profit per ton was $46 per ton as compared to $63 per ton in the
comparable prior year period. Gross profit per ton was impacted by the higher
steel costs offset by higher selling prices. Accordingly, gross profit, as a
percentage of net sales, was 6.8% for the three month period ended March 31,
2003, compared to a gross profit, as a percentage of net sales, of 11.2% for the
comparable prior year period.
Selling, general and administrative expenses increased $5.1 million, or 70.8%,
from $7.2 million in the first quarter of 2002 to $12.3 million in the first
quarter of 2003. This increase resulted primarily from the additional expenses
associated with the Precision and the tubular division of The LTV Corporation
businesses. See "Overview." Selling, general and administrative expenses as a
percentage of net sales in
22
the first quarter of 2003 was 5.6% compared to 6.9% for the comparable prior
year period. The decrease was due to the higher shipment levels in the first
quarter of 2003 compared to the first quarter of 2002.
Interest expense increased $1.2 million or 120.0%, from $1.0 million in the
first quarter of 2002 to $2.2 million in the first quarter of 2003. This
increase was due to higher average borrowings (primarily as a result of the
acquisitions of Precision and the tubular division of The LTV Corporation) and
lower average interest rates during the first quarter 2003 compared to first
quarter of 2002. Our debt to capitalization ratio decreased from 29.1% at
December 31, 2002 to 28.5% at March 31, 2003.
The provision for income taxes was $0.1 million for the first quarter of 2003,
compared to the prior year's provision of $1.3 million. This change is
attributable to the generation of pre-tax income of $0.4 million for the first
quarter of 2003, compared to the pre-tax income in the first quarter of 2002 of
$3.1 million.
Net income of $0.2 million was generated in the first quarter of 2003, a
decrease of $2.1 million from the comparable prior year period.
Segment Information
- -------------------
The Company revised its segments for 2003. The Company's two new segments are
the Energy Products segment and the Industrial Products segment.
Energy Products Segment
- -----------------------
Energy product sales of $152.4 million for the first quarter of 2003 represented
an increase of $67.1 million, or 78.8%, compared to the prior year period.
Energy product shipments increased 87,219 tons, or 62.5%, from 139,632 tons to
226,851 tons. Energy product shipments primarily increased due to the U.S. and
Canadian rig counts increasing from 818 and 377 active rigs, respectively, for
the first quarter of 2002 to 901 and 494 active rigs, respectively, for the
first quarter of 2003. Overall average net selling prices for energy products
increased from the comparable quarter of the prior year by 10.0%, from an
average of $611 per ton to $672 per ton. The increases in energy product sales
were primarily due to strengthening market conditions and the additional sales
attributable to the Precision and SeaCAT businesses. See "Overview."
Energy products cost of goods sold of $140.8 million for the first quarter of
2003 represented an increase of $67.2 million, or 91.3%, compared with the prior
year period. The increase was primarily due to increased product shipments and
higher steel costs. See "Overview." Gross profit for energy products of $11.6
million for the quarter ended March 31, 2003 compared to a gross profit of $11.6
million for the prior year period. See "Overview." Gross profit was $51 per ton
as compared to $83 per ton in the comparable prior year period, reflecting
higher steel prices, partially offset by stronger selling prices and higher
fixed cost absorption. Energy products gross profit margin percentage was 7.6%
for the quarter ended March 31, 2003, compared to a gross profit margin
percentage of 13.7% for the prior year period.
Industrial Products Segment
- ---------------------------
Industrial product sales of $67.0 million for the first quarter of 2003
represented an increase of $48.4 million, or 259.1%, compared with the prior
year period. Industrial product shipments increased 54,969 tons, or 122.5%, from
44,851 tons to 99,820 tons. This increase in industrial product sales and
shipments resulted from the additional $48.8 million in sales and 62,221 tons
attributable to the industrial products of the tubular division of The LTV
Corporation. See "Overview." Overall average net selling price for industrial
products increased 61.3% from the comparable quarter of the prior year from an
average of $416 per ton to $671 per ton. The addition of the tubular division of
The LTV Corporation that added both electrical conduit and mechanical tubing
increased the average selling price of our industrial product line by an
additional 78.5%. These products are more value added and thus sell for a higher
price.
Industrial products cost of goods sold of $63.7 million in the first quarter of
2003 represented an increase of
23
$45.0 million, or 240.6%, from the prior year period. The increase was primarily
due to increased product shipments and higher steel costs. See "Overview." Gross
profit for industrial products of $3.3 million for the quarter ended March 31,
2003 compared to a gross profit of $(17,000) for the prior year period. The
increase in gross profit was primarily attributable to the addition of the
industrial products from the tubular division of The LTV Corporation. Gross
profit was $33 per ton as compared to break-even in the comparable prior year
period, reflecting stronger selling prices, partially offset by higher steel
prices. Industrial products gross profit margin percentage was 4.9% for the
quarter ended March 31, 2003, compared to a break-even gross profit margin
during the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
Working capital at March 31, 2003 was $197.6 million, and the ratio of current
assets to current liabilities was 2.8 to 1.0. Working capital at December 31,
2002 was $201.2 million, and the ratio of current assets to current liabilities
was 2.9 to 1.0. The decrease in working capital for the three months ended March
31, 2003 was due to a $32.4 million decrease in inventory partially offset by a
$27.0 million increase in accounts receivable and a $1.6 million increase in
cash and cash equivalents. Cash provided by operating activities was $14.4
million for the three months ended March 31, 2003.
Cash used in investing activities was $6.7 million for the three months ended
March 31, 2003, attributable primarily to the cash paid in connection with the
acquisition of SeaCAT ($4.0 million, net of cash received).
Cash used by financing activities was $6.4 million for the three months ended
March 31, 2003.
We have a senior credit facility providing for up to a $185.0 million revolving
line of credit. In addition, we have outstanding letters of credit under this
agreement representing an additional $1.5 million at March 31, 2003. Interest is
payable monthly at the LIBOR rate adjusted by an interest margin, depending upon
certain financial measurements. Under the revolving senior credit facility, we
can borrow an amount based on a percentage of eligible accounts receivable,
eligible inventory and property, plant and equipment reduced by outstanding
letters of credit. The additional available borrowing under the senior credit
facility is approximately $57.0 million as of March 31, 2003. The senior credit
facility includes a restrictive covenant relating to maintaining a minimum fixed
charge coverage ratio if availability falls below $30.0 million. The senior
credit facility also limits capital expenditures to $30.0 million per year and
limits our ability to pay dividends, create liens, sell assets or enter into
transactions with affiliates without the consent of the lenders.
We anticipate we will comply with the covenants in 2003 and beyond; however, if
our operations are less than projected, we could be in default under this
facility. We believe that our projections for 2003 are based on reasonable
assumptions and that it is unlikely that we would default absent any material
negative event affecting our industry and the economy as a whole. Although we
would attempt to obtain an amendment to the facility to cure this breach or a
waiver from the lender, we cannot give any assurance that we could obtain an
amendment or waiver or one with terms as favorable as the terms of the facility.
If we are unable to obtain an amendment or waiver, we would remain in default
and the lender would have the right to exercise all of its remedies, including,
without limitation, the ability to accelerate all of the debt under the
facility. We also believe our lender would provide waivers if necessary.
However, our expectation of future operating results and continued compliance
with our debt covenants cannot be ensured as we do not control our lender's
actions. If our projections are not achieved and our debt is placed in default,
we would experience a material adverse impact on our reported financial position
and results of operations.
We have entered into an interest rate swap agreement with a total notional
amount of $50.0 million that fixes the LIBOR-based variable rate in our senior
credit facility at 2.24% (before the applicable margin). The swap agreement
terminates on March 21, 2005. The swap is being accounted for as cash flow hedge
under SFAS No. 133. Accordingly, the difference between the interest received
and interest paid is reflected as an adjustment to interest expense. Under the
terms of the swap agreement, no settlement
24
amount is due until June of 2003. At March 31, 2003, the swap agreement is
reflected in the accompanying consolidated balance sheet in other accrued
liabilities at its fair value of $0.6 million. The unrealized loss on the fair
value of the swap agreement is reflected, net of taxes, in other comprehensive
loss.
Consistent with the Company's business strategy, we currently intend to retain
earnings to finance the growth and development of our business, and we 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 2003 is approximately $20.0 million, of which $2.7
million was expended during the three month period ended March 31, 2003 The
capital budget includes $4.2 million for a new slitter at one of our existing
facilities in Hickman, Arkansas. The remaining $15.8 million of our capital
budget will be used to acquire new equipment for our existing manufacturing
facilities, to enhance our enterprise resource planning system and to fully
integrate our recent acquisitions. We expect to meet ongoing working capital and
the capital expenditure requirements from a combination of cash flow from
operating activities and available borrowings under our revolving credit
facility.
CRITICAL ACCOUNTING ESTIMATES
- --------------------------------------------------------------------------------
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make judgments, estimates
and assumptions regarding uncertainties that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses.
Areas of uncertainty that require judgments, estimates and assumptions include
the valuation of goodwill, the collectibility of accounts receivables, valuation
of the note receivable for the sale of the discontinued operations, income tax
matters and the pension plan.
Management uses historical experience and all available information to make
these judgments and estimates; however, actual results will inevitably differ
from those estimates and assumptions that are used to prepare the Company's
financial statements at any given time. Despite these inherent limitations,
management believes that Management's Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements and footnotes
contained in this report provide a meaningful and fair perspective of the
Company.
The Company's critical accounting policies and estimates are more fully
described in our Annual Report on Form 10-K for the year ended December 31,
2002, beginning on page 25. The Company's critical accounting policies and
estimates did not change during the first quarter of 2003. Management believes
that the application of these policies on a consistent basis enables the Company
to provide the users of the financial statements with useful and reliable
information about the Company's operating results and financial condition.
PROSPECTIVE ACCOUNTING STANDARDS
- --------------------------------------------------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 establishes accounting standards for the
recognition and measurement of an asset retirement obligation and its associated
asset retirement cost. It also provides accounting guidance for legal
obligations associated with the retirement of tangible long-lived assets. This
statement is effective for fiscal years beginning after June 15, 2002. The
Company believes adoption of this standard will not have a material impact.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. SFAS No. 146
25
replaces EITF Issue No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123," which provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The provisions relating to
interim periods are effective for internal periods beginning after December 15,
2002. We currently intend to continue to account for stock-based compensation
under the intrinsic value method and to provide pro forma disclosure of the
impact of the fair value method on reported net income.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
Interest Rate Risk
- ------------------
We are subject to interest rate risk to the extent we borrow against our
revolving credit facility with variable interest rates. However, we utilize an
interest rate swap agreement to moderate a portion of our exposure. We do not
use derivative financial instruments for trading or other speculative purposes.
Assuming the current level of borrowings and a two-percentage point change in
the average interest rates under these borrowings, and taking into account the
swap agreement in place, it is estimated that our interest expense for the
quarter ended March 31, 2003 would have increased by approximately $0.4 million.
In the event of an adverse change in interest rates, management would likely
take further actions, in addition to the swap agreement currently in place, that
would mitigate our exposure to interest rate risk; however, due to the
uncertainty of the further actions that would be taken and their possible
effects, this analysis assumes no such action. Further, this analysis does not
consider the effects of the change in the level of overall economic activity
that could exist in such an environment.
Steel Commodity Risk
- --------------------
We are also subject to commodity price risk with respect to purchases of steel.
Purchased steel represents approximately two-thirds of our cost of goods sold.
As a result, the steel industry, which is highly volatile and cyclical in
nature, affects and will affect our business both positively and negatively. See
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Pricing and Costs of Our Products."
Foreign Currency Risk
- ---------------------
The Company's reported cash flows related to its Canadian operations are 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.
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------
Our chief executive officer and chief financial officer have reviewed and
evaluated the Company's disclosure controls and procedures within 90 days of the
filing date of this Quarterly Report. Based on such review and evaluation, the
officers believe that the disclosure controls and procedures are designed
effectively to ensure that the information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended, (a) is recorded, processed, summarized and reported
within the time period specified in the SEC's rules and forms, and (b) is
accumlated and communicated to the Company's management, including the officers,
as appropriate to allow timely decisions regarding required disclosure. In
addition, the officers believe that there have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
27
- --------------------------------------------------------------------------------
MAVERICK TUBE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- --------------------------------------------------------------------------------
On February 28, 2003, the Company issued 733,676 shares of common stock (the
"Acquisition Shares") to certain shareholders of SeaCAT Corporation as partial
consideration for the Company's acquisition of SeaCAT Corporation. The issuance
of the Acquisition Shares was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The
Company registered on Form S-3 (No. 333-103355) the resale of these shares by
the SeaCAT Corporation shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibit No. Description
10.1 International Swap Dealers Association, Inc. Master Agreement
dated as of March 18, 2003 between JPMorgan Chase Bank and
Maverick Tube Corporation.
10.2 Interest rate swap confirmation dated March 24, 2003.
10.3 Employment contract between the Registrant and Jim Cowan dated
February 20, 2003.
15.1 Letter re: Unaudited Interim Financial Information
99.1 Certificate (Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) of
Chief Executive Officer.
99.2 Certificate (Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) of
Chief Financial Officer.
28
(b) Reports on Form 8-K.
On January 3, 2003, the Company filed a Report on Form 8-K containing the
announcement of the acquisition of substantially all of the assets, and the
assumption of certain liabilities of the tubular division of The LTV
Corporation and the completion of an amended and restated senior credit
facility.
On January 21, 2003, the Company filed a Report on Form 8-K containing the
announcement of its fourth quarter and year to date 2002 results.
On February 11, 2003, the Company filed a Report on Form 8-K/A amending the
Company's Form 8-K filed December 31, 2002 and containing the historical
and pro forma financial information in connection with the acquisition by
the Company of the tubular division of The LTV Corporation.
On February 20, 2003, the Company filed a Report on Form 8-K containing the
announcement of the Plan of Reorganization and Agreement of Merger with
SeaCAT Corporation.
On February 28, 2003, the Company filed a Report on Form 8-K containing the
announcement of a Corporate re-alignment and the hiring of Jim Cowan.
On March 3, 2003, the Company filed a Report on Form 8-K containing the
announcement of the completion of the acquisition of SeaCAT Corporation.
On March 31, 2003, the Company filed a Report on Form 8-K/A amending the
Company's Form 8-K filed December 31, 2002 and containing the updated pro
forma financial information in connection with the acquisition by the
Company of the tubular division of The LTV Corporation.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Maverick Tube Corporation
-------------------------------------------
(Registrant)
Date: May 14, 2003 /s/ Gregg M. Eisenberg
-------------------------------------------
Gregg M. Eisenberg, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2003 /s/ Pamela G. Boone
-------------------------------------------
Pamela G. Boone, Vice President - Finance
and Administration (Principal Financial and
Accounting Officer)
30
CERTIFICATIONS
I, Gregg M. Eisenberg, Chairman of the Board, President and Chief Executive
Officer of Maverick Tube Corporation (Maverick), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maverick;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Gregg M. Eisenberg
-------------------------------------------
Gregg M. Eisenberg, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
31
CERTIFICATIONS
I, Pamela G. Boone, Vice President - Finance and Administration and Chief
Financial Officer of Maverick Tube Corporation (Maverick), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maverick;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 /s/ Pamela G. Boone
-------------------------------------------
Pamela G. Boone, Vice President - Finance
and Administration and Chief Financial
Officer (Principal Financial and Accounting
Officer)
32
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
10.1 International Swap Dealers Association, Inc. Master
Agreement dated as of March 18, 2003 between JPMorgan
Chase Bank and Maverick Tube Corporation.
10.2 Interest rate swap confirmation dated March 24, 2003.
10.3 Employment contract between the Registrant and Jim
Cowan dated February 20, 2003.
15.1 Letter re: Unaudited Interim Financial Information
99.1 Certificate (Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002) of Chief Executive Officer.
99.2 Certificate (Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002) of Chief Financial Officer.
33