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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For The Fiscal Year Ended September 30, 1998
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 1-10651
MAVERICK TUBE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 43-1455766
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
16401 Swingley Ridge Road, Seventh Floor
Chesterfield, Missouri 63017-4800
(Address of principal executive offices) (Zip Code)
(314) 733-1600
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Share Purchase Rights
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the 15,301,072 shares of Common Stock held by
non-affiliates of the Registrant as of December 10 was $______________ based
upon the closing price as reported on the NASDAQ National Market on that date.
As of December 10, 1998, the Registrant had 15,437,474 outstanding shares of
Common Stock.
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
As provided herein, portions of the documents listed below are incorporated
herein by reference:
Document Part - Form 10-K
Annual Report to Stockholders for the Fiscal
Year Ended September 30, 1998 Parts I, II and IV
Proxy Statement for the 1999 Annual Meeting of Stockholders Part III
MAVERICK TUBE CORPORATION AND SUBSIDIARY
INDEX
PART I.
Item 1. BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
SIGNATURES
EXHIBIT INDEX
This Form 10-K contains certain forward-looking statements within the meaning of
the federal securities laws which, while reflective of management's beliefs or
expectations, involve certain risks and uncertainties, many of which are beyond
the control of the Company. Accordingly, the Company's actual results and the
timing of certain events could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, oil and gas price volatility, steel price volatility and those other
factors discussed in the Sections captioned "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
those risk factors discussed in Exhibit 99.1 hereto.
PART I
ITEM 1
BUSINESS
General
Maverick Tube Corporation, together with its subsidiaries, Maverick Investment
Corporation, Maverick Tube, L.P. and Maverick Tube International, Inc.,
("Maverick" or the "Company") manufactures electric resistance welded ("ERW")
pipe used in the energy industry for drilling and production applications ("oil
country tubular goods" or "OCTG") and line pipe for surface handling and
transportation of oil and natural gas. OCTG and line pipe products are produced
through both the ERW and seamless processes, and ERW pipe is generally a lower
priced, comparable quality alternative to seamless pipe in many applications.
The Company believes it is one of the leading domestic producers of OCTG
products.
The Company also manufactures structural tubing (shapes and rounds) and standard
pipe. Structural tubing is an ERW product used predominately in construction,
transportation, agriculture, material handling and recreational applications.
Standard pipe, as in OCTG, is produced through both the ERW and seamless
processes, with the significant majority of producers manufacturing ERW.
Standard pipe is used in various industrial applications.
In fiscal 1999, the Company will begin the production of cold drawn mechanical
tubing through its recently purchased production facility in Beaver Falls,
Pennsylvania. This product will be included in the Company's industrial product
segment.
For information with regard to total revenue, operating profit or loss and
identifiable assets attributable to each of the energy and industrial product
segments, see Note 10 to the Consolidated Financial Statements on page 27 of the
Company's 1998 Annual Report to Stockholders ("Annual Report"), portions of
which are filed as Exhibit 13, hereto.
Effective October 1, 1997, the operating assets and related liabilities of the
Company's two operating divisions (i.e., its Texas division and its Arkansas
Division), which constituted substantially all of the assets and liabilities of
the Company, were contributed to Maverick Tube, L.P., a limited partnership (the
"Operating Company"). Maverick Tube Corporation holds a five-percent equity
interest in the Operating Company as the sole general partner thereof. Maverick
Investment Corporation, a wholly-owned subsidiary of Maverick Tube Corporation,
holds the ninety-five percent equity interest in the Operating Company as the
sole limited partner thereof. This restructure was effected to more accurately
reflect the manner in which the Company conducts its business. As a result of
this restructure, Maverick now conducts substantially all of its operations
through the Operating Company. The newly purchased production facility in Beaver
Falls, Pennsylvania, is therefore held by the Operating Company.
The Energy Pipe Industry
OCTG products are used in drilling, completion and production applications in
the energy industry. The domestic consumption of OCTG products depends on
several factors, the most significant being the number of oil and natural gas
wells being drilled. In addition, OCTG production tubing may be periodically
replaced during the life of a producing well. OCTG consumption is satisfied by
domestic production, imports and draw-downs of inventories owned by
manufacturers, distributors and end users.
A significant factor affecting the market for production of OCTG products is the
level of industry inventories maintained by manufacturers, distributors and end
users. For calendar years 1996 and 1997, increasing industry inventory levels
added 4.7% and 16.0%, respectively, to OCTG demand. For the nine months ended
September 30, 1998, industry inventory levels were relatively flat. However,
because of the prior build in industry inventories coupled with the declining
rig count (down 24.4% from its fiscal 1997 level of 998 rigs to 754 at the end
of fiscal 1998), the Company believes that inventory levels at September 30,
1998 resulted in a 30% increase in inventory per rig. This increase in inventory
per rig has been reflected in the current 7.3 months of supply in inventory.
OCTG products are produced in numerous sizes, weights, grades and end finishes.
The Company believes that most OCTG products are produced to American Petroleum
Institute ("API") specifications. In addition, the Company and other producers
manufacture pipe in certain custom or proprietary grades. The grade of pipe used
in a particular application depends on technical requirements for strength,
corrosion resistance and other performance qualities. OCTG products are
generally classified into groupings of "carbon" and "alloy" grades. Carbon
grades of OCTG (yield strength levels of 75,000 pounds per square inch or less)
are generally used in oil and natural gas wells drilled to depths of
approximately 8,000 to 11,000 feet. Alloy grades of OCTG (yield strength levels
of 75,000 pounds per square inch or more) are generally used in oil and natural
gas wells drilled to depths in excess of 11,000 feet.
Carbon and alloy grades of OCTG products are available from both ERW and
seamless producers. ERW pipe is produced by processing flat rolled steel into
strips which are cold-formed, welded, heat-treated or seam-annealed and
end-finished with threads and couplings. Seamless products are produced by
individually heating and piercing solid steel billets into pipe and then end
finishing such pipe into OCTG in a manner similar to ERW. The Company believes
that the seamless manufacturing process involves higher costs than the ERW
process and that, as a result, seamless products are generally priced higher
than comparable ERW products.
Based on published industry statistics, ERW products, which did not have
significant market penetration prior to the mid-1970's, now account for
approximately forty-six percent of the tonnage of domestic OCTG products
consumed annually. The Company believes ERW products have captured a significant
majority of the carbon grade OCTG market, while seamless products retain a
significant majority of the alloy grade OCTG market. The Company believes that
further significant market penetration of ERW products will depend upon
increased market acceptance of ERW products and technological advances in the
types of raw materials and equipment utilized in the ERW manufacturing process.
Line pipe, which is principally used for surface transmission of oil, natural
gas and other fluids, is produced principally by companies with capabilities to
produce OCTG products and is produced in both ERW and seamless form. Line pipe
markets are dependent not only on the factors which influence the OCTG market,
but also on the level of pipe line construction activity, line pipe replacement
requirements, new residential construction and utility purchasing programs. The
Company shipped 21,097 tons of line pipe in fiscal 1998 as compared to 26,501
and 30,112 tons of line pipe in fiscal 1997 and 1996, respectively. The
decreased sales by the Company of line pipe in fiscal 1997 were principally due
to a shift in manufacturing capacity as it concentrated on the improving OCTG
market. The decreased sales by the Company of line pipe in fiscal 1998 were due
to competition from imported pipe.
Products
The Company produces both OCTG and line pipe products. Prior to 1994, OCTG
products constituted approximately 90% of the Company's net sales. During fiscal
1996, the percentage decreased to 65% as the Company continued to grow its
industrial products market share. During fiscal 1997, the percentage increased
to 71.8% due to strong OCTG demand and increases by the Company in the number of
products offered. During fiscal 1998, the percentage returned to 65.3% as the
high demand in the energy market experienced during the first six months
decreased significantly, while the industrial products market continued on a
stable growth pattern.
OCTG products include production tubing, which is used to convey oil and natural
gas to the surface of a well, production casing, which is used to line a newly
completed well, and surface casing, which is used to protect water-bearing
formations during the drilling of a well. Generally, deeper wells drilled to
depths greater than 15,000 feet require products that presently cannot be made
by the Company's ERW process. Line pipe products are used for surface production
flow lines, gathering systems and pipeline transportation and distribution
systems for oil, natural gas and other fluids. The Company's energy products
meet API or other proprietary standards. The Company's proprietary OCTG and line
pipe products are generally designed to be utilized in similar applications as
products meeting API standards and are engineered to provide performance
features comparable to products meeting API standards. The Company warrants its
API casing and tubing to be free of defects in material or workmanship in
accordance with applicable API specifications and warrants its proprietary grade
products against defects in accordance with the Company's standards, which are
disclosed to customers in connection with their purchase of such products. The
Company has not incurred significant costs in connection with this warranty. The
Company maintains insurance coverage against potential claims in an amount which
it believes to be adequate.
The Company manufactures finished products in both carbon and alloy steel
grades. Virtually all of the Company's products are fully completed or
"end-finished" at the Company's facilities, in contrast to certain of the
Company's competitors which do not end-finish their products or which end-finish
their products at different locations, thus adding to their freight and handling
costs. The end-finish process includes, as appropriate, upsetting, beveling,
threading, pressure testing and the application of couplings. The Company's
fully finished OCTG products are ready to be installed in oil or natural gas
wells. By end-finishing its products, the Company is better able to control
quality, cost and service to customers. Both of the Company's energy facilities
provide heat-treatment capabilities necessary for the production of alloy grade
pipe. The Company's alloy grade tubing and casing products accounted for 24%,
23% and 27% of net sales in fiscal 1998, 1997 and 1996, respectively.
Marketing
The Company sells its products primarily throughout the United States and Canada
to numerous distributors, which resell the pipe to major and independent oil and
natural gas production, gathering and pipeline companies. During the fiscal
years ended September 30, 1998, 1997 and 1996, sales by the Company to Canadian
customers constituted $17.9 million, $26.3 million and $12.9 million,
respectively. Sales to other foreign customers in fiscal 1998, 1997 and 1996
made up an additional $900,000, $400,000 and $300,000, respectively. The
Company's marketing philosophy emphasizes delivering competitively priced
quality products and providing a high level of service to its customers. The
Company maintains inventories of finished goods which are housed at both of its
production facilities and at field locations close to areas of drilling activity
which allows the Company to provide timely delivery of its products. As of
September 30, 1998, 1997 and 1996, the Company's backlog orders (including bill
and hold sales not yet shipped) were approximately $19.5 million, $62.7 million
and $57.6 million, respectively. All of the backlog orders as of September 30,
1998 are expected to be filled in fiscal 1999. The Company's backlog orders as
of any particular date may not be indicative of the Company's actual operating
results for any fiscal period. There can be no assurance that the amount of
backlog at any particular date will ultimately be realized.
In fiscal 1998, 1997 and 1996, one distributor, National Oilwell, Inc.,
accounted for 14%, 14% and 16% of the Company's net sales, respectively. In
fiscal 1997, another distributor, Master Tubulars, Inc. accounted for 11% of the
Company's net sales. The Company currently utilizes several distributors and
believes that additional qualified distributors are available to assist the
Company in meeting the end-users' needs. While the Company believes that it
could replace any one distributor of its products, including National Oilwell,
Inc. or Master Tubulars, Inc. with other qualified distributors, no assurance
can be given that the loss of National Oilwell, Inc. or Master Tubulars, Inc.
would not have an adverse effect on the Company's net sales or results of
operations.
Raw Materials
All steel purchases are made at the Company's headquarters in order to optimize
pricing, quality, availability and delivery of the Company's raw materials. The
Company consumes approximately 2.5% of the total amount of hot rolled steel
produced annually in the United States and believes it is generally considered
to be a significant purchaser by its suppliers. The Company maintains favorable
working relationships with its steel suppliers and believes that it is treated
favorably with respect to volume allocations and deliveries. The Company
presently purchases the majority of its steel from several domestic suppliers,
with approximately 75% of consolidated purchases made from Nucor Corporation.
During fiscal 1998, the Company began purchasing some of its raw materials from
foreign suppliers due to their competitive pricing. To date, the Company has not
experienced any significant disruption in its supply of raw materials.
Manufacturing
The Company manufactures OCTG and line pipe products at its facilities in
Conroe, Texas and Hickman, Arkansas. The facilities are strategically located to
serve the energy markets in the United States. The Company can currently produce
at a consolidated maximum rate of approximately 669,000 tons of pipe per year
with approximately 477,000 tons currently dedicated to energy production. The
Company was operating its facilities at a capacity utilization of approximately
55% during fiscal 1998. Substantially all of the Company's energy products are
finished on site for immediate drilling, production or line pipe applications.
In order to control its manufacturing costs, the Company attempts to maximize
production yields from purchased steel and reduce unit labor costs. Purchased
steel represents approximately 67% of the Company's cost of goods sold. Labor
costs are controlled by automation of certain activities and by optimizing
product throughput and scheduling. For fiscal 1998, direct and indirect labor
costs accounted for approximately 10% of the cost of goods sold. The Company
maintains an innovative compensation plan at both of its manufacturing
facilities, whereby employees receive quarterly bonuses for superior
productivity and cost savings. In addition, some employees are eligible to
receive annual profitability bonuses based upon the Company's consolidated
earnings. The maximum achievable incentives and bonuses range from 15% to 75% of
an employee's salary or wages.
During fiscal 1998, the Company spent $7.5 million on new capital equipment for
its energy facilities. These capital expenditures are expected to result in
manufacturing cost savings, quality improvements and expanding or maintaining
production capabilities.
Competition
The market for OCTG and line pipe products is highly competitive. The Company
believes that the principal competitive factors affecting its business are
price, quality, delivery, availability and service. The Company believes it
enjoys an excellent reputation for quality products and outstanding customer
service. The Company competes with approximately nine domestic and numerous
foreign producers of OCTG products, some of which have greater financial
resources than the Company. The Company's more significant ERW pipe OCTG
competitors are Lone Star Steel Co. and Newport Steel Co. and its more
significant seamless pipe OCTG competitors include United States Steel
Corporation, North Star Steel Co. and C F & I Limited Partnership. The Company
also competes in the line pipe market against these same competitors, and with
foreign producers of OCTG products, most of which are units of large foreign
steel makers. During calendar years 1996, 1997 and the first nine months of
1998, domestic OCTG market penetration by imports was 11.8%, 22.5% and 18.6%,
respectively, of tons consumed.
The Structural Tube and Standard Pipe Industry
Structural tubing products are used in construction, transportation,
agriculture, material handling and recreational applications. The uses for
structural tubing include handrails, building columns, walkway components,
bridge frames, recreational vehicle frameworks, boat trailers, farm implement
components, tillage equipment, storage rack systems, conveying systems support
and exercise equipment. Demand for structural tubing is believed to be
influenced primarily by the level of general economic activity in the United
States. In addition, structural tubing is an attractive alternative to other
structural steel forms, such as I-beams and H-beams, as tubing products offer
strength and other product characteristics similar to beams, but with less steel
content, resulting in lower costs to the end user in certain applications.
The Company believes that domestic consumption of structural tubing during
calendar 1997, 1996 and 1995 was 1.7 million, 1.4 million and 1.5 million and
tons, respectively. Based on published industry statistics, the Company believes
that the types of structural tubing products it is capable of manufacturing
account for more than 85% of the domestic tonnage of all types of domestic
structural tubing products consumed.
Standard pipe products are used in industrial applications such as steam, water,
air and gas lines, and plumbing and heating. Demand for standard pipe is
believed to be influenced primarily by the level of general economic activity in
the United States. In recent years, standard pipe has faced limited new
competition from plastic pipe in certain applications.
The Company believes that domestic consumption of standard pipe during calendar
1997, 1996 and 1995 was 2.7 million, 2.6 million and 2.6 million tons,
respectively. Based on published industry statistics, the Company believes that
the types of standard products it is capable of manufacturing account for
approximately 30% of the domestic tonnage of all types of domestic standard pipe
products consumed annually.
Products
The Company is currently producing structural square and rectangular shaped
tubing products on two tubing mills in its structural tube facility located in
Hickman, Arkansas. The Company is also currently producing structural round
tubing products and standard pipe at its two energy facilities in Conroe, Texas
and Hickman, Arkansas. Because of the large number of applications for
structural tubing and standard pipe, the number of different structural tubing
and standard pipe products produced for the industrial market is considerably
larger than that produced for the OCTG market. The Company produces square,
rectangular and round structural tubing at its facilities in sizes ranging from
one and one half to eight inch square (and the equivalent sizes in rectangular
and round tubing) and in thicknesses from 0.120 to 0.500 inches. The annual
capacity dedicated to industrial products is approximately 192,000 tons. The
Company was operating at approximately 85% of capacity during 1998.
Marketing
The structural tubing and standard pipe markets are somewhat regional in nature,
primarily because order sizes are smaller and lead time requirements are shorter
than for OCTG products. The Company currently sells principally to distributors,
but during fiscal 1998 and 1997 significantly increased its sales to large
end-user customers. As in the case of OCTG products, the Company's marketing
strategy emphasizes delivering competitively priced quality products and
providing a high level of service to its customers. As indicated above, the
application of structural tubing and standard pipe products is diverse, and a
short lead time is required for customer satisfaction. Consequently, the Company
maintains inventory levels comparable to those for OCTG products (in terms of
months supply), but such finished goods inventory will consist of a larger
number of items than in the case of OCTG. The Company is utilizing several
experienced agency firms in its sales efforts. As of September 30, 1998, the
Company's backlog orders were approximately $5.5 million. All of the backlog
orders as of September 30, 1998 are expected to be filled in fiscal 1999. The
Company's backlog orders as of any particular date may not be indicative of the
Company's actual operating results for any fiscal period. There can be no
assurance that the amount of backlog at any given time ultimately will be
realized.
Manufacturing
The manufacturing process for structural tubing and standard pipe products is
similar to the process of manufacturing plain-end OCTG products. The machinery
and equipment used for the manufacture of structural tubing products are similar
to equipment used for the manufacture of OCTG products. Structural tubing and
standard pipe is not, however, subject to the same degree of tolerances as are
OCTG products, which results in lower production costs relating to testing and
inspection than for OCTG products. Moreover, structural tubing does not require
end finishing, flash elimination from the welding process or seam annealing.
Because less finishing is required of structural tubing products as compared to
OCTG, the average cost per ton to convert steel into structural tubing is
significantly less than OCTG. Unlike OCTG products, all structural tubing
products are ERW.
Consistent with its manufacturing strategy for OCTG production, the Company has
become a low-cost, high-volume producer of quality structural tubing and
standard pipe products. The Company believes that the application of its
efficient manufacturing process developed for the production of OCTG products,
the labor costs at its Arkansas facility and the strategic location of the
facility provide a conversion cost advantage relative to the majority of
existing structural tubing and standard pipe manufacturers.
During fiscal 1998, the Company spent approximately $722,000 on additional
equipment needed for manufacturing.
Competition
Although a significant market for structural tubing is located within a 400 mile
radius of the structural facility, no other major structural tubing facility is
currently located within this area. Foreign competition, primarily from Canada,
represent 24%, 26% and 29% of total domestic sales of structural tubing in
calendar 1997, 1996 and 1995. The Company competes primarily against
approximately seven domestic and numerous foreign producers of structural
tubing. The Company's more significant structural tube competitors are Leavitt
Tube Company, Inc., Welded Tube Corporation of America, Copperweld, Bull Moose
Tube Corporation and Ex-L-Tube, Inc.
A significant market for standard pipe also exists. Foreign competition has had
a large presence in the standard pipe market. Foreign competition represented
approximately 24%, 25% and 29% of total domestic sales of standard pipe in
calendar 1997, 1996 and 1995. The Company's more significant domestic
competitors are Wheatland Tube Company, Armco, Inc. Sawhill Tubular Division,
Laclede Steel Company and IPSCO Tubulars, Inc.
The Cold Drawn Mechanical Tubing Industry
In fiscal 1998, the Company acquired assets that will be used in the production
of cold drawn tubular products at a production facility in Beaver Falls,
Pennsylvania from PMAC, Ltd. for $11.5 million. This facility is expected to
begin production during the first six months of fiscal 1999.
Products
The drawn tubing market is comprised of mechanical or pressure tubing utilized
for applications that require closer tolerances and/or a better surface finish
than ordinary ERW or seamless tubing. Drawn tubing applications include
hydraulic, pneumatic and gas cylinder stock, power takeoff and auger shafts,
electric motor housings, conveyor rollers and axles. There are also some
oilfield applications such as mud pumps, precision pumps, perforating gun tubes,
subsurface pump shells and coupling stock and some consumer applications such as
motorcycle forks, exercise equipment, office furniture, playground equipment,
bicycles and boat trailers.
Marketing
The drawn tubing market is driven primarily by the economy. Other factors
include grain prices and infrastructure construction due to the large quantity
of drawn mechanical tubing consumed in cylinder manufacturing. The market size
is currently about 600,000 tons per year with ERW accounting for 450,000 tons
and seamless accounting for 150,000. Imports typically satisfy less than 10% of
consumption. The five year historic growth rate for the market is 5.7%.
The market is basically broken down into three segments based upon outside
diameter and wall of the tube. Group 1 is outside diameter through 4", wall
thicknesses through .134", Group 2 is outside diameter from through 7 1/2", wall
thicknesses through .320" and Group 3 is the outside diameter above 7 1/2", all
wall thicknesses. Maverick's current business plan for the facility will be
concentrated on the Group 2 and Group 3 market segments.
Manufacturing
Drawn Tubing starts with either a plain end ERW or seamless tube. Approximately
80% of the drawn tubing facility's raw material requirements can be produced by
any of Maverick's three other production facilities. The remainder will be
purchased from outside sources and will include both smaller (less than 1 9/10")
and larger diameter pipe (greater than 10") and seamless pipe. The source tube
is then pulled through a die and over a mandrel to create precise outside
diameter, inside diameter or wall tolerance and to create a smoother finish.
The Company anticipates having approximately 100,000 tons of drawing capacity.
Competition
A significant market for drawn tubing is located within a 500 mile radius of the
Pennsylvania facility. The Company anticipates that its competitors in this
market will be Alliance Midwest, Copperweld, Lone Star Steel, LTV, Metal Matic,
Pacific Tube, Plymouth Tube, Pittsburgh Tube, Vision Metals and Webco.
Employees
As of September 30, 1998, the Company had approximately 806 employees, of whom
approximately 25% were salaried and approximately 75% were employed on an hourly
basis. None of the Company's employees are represented by a union. The Company
considers its employee relations to be excellent.
ITEM 2
PROPERTIES
The Company leases approximately 40,000 square feet of office space in
Chesterfield, Missouri, for its executive offices pursuant to a lease which
expires in 2008. The Company owns a 21,000 square foot office facility located
on a 14-acre site in Union, Missouri that is leased to an unaffiliated third
party. The Company's 160-acre site in Hickman, Arkansas includes two buildings
with approximately 315,000 square foot of OCTG manufacturing and storage space,
utilizing 55 acres. The 275,000 square foot structural tube manufacturing plant
is located adjacent to the existing OCTG facility. Approximately 120,000 square
feet of this facility is utilized for manufacturing with the remainder used for
inventory and material storage and shipping. Approximately 80 acres remain in
Hickman, Arkansas for future expansion. Both facilities are leased with purchase
options exercisable on the expiration dates of the leases. The expiration dates
are August 1, 2007 for the OCTG facility and February 1, 2004 for the structural
tube facility. The Company also owns 117 acres and a 244,000 square foot
manufacturing facility located in Conroe, Texas. Of the 117 acres, approximately
30 acres are used for manufacturing and storage and 60 acres are available for
future expansion. The Company leases a 21 acre site and a 370,000 square foot
manufacturing facility in Beaver Falls, Pennsylvania, to be utilized the
production of cold drawn mechanical tubing at this site during early fiscal
1999. Each manufacturing facility operated by the Company is served by truck,
has its own rail spur and is within proximity of barge facilities.
The Company believes the facilities are in good condition, are adequately
insured and are suitable for its planned level of operations.
ITEM 3
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. The Company believes that it is not presently a party
to any litigation in which the outcome would have a material adverse effect on
its business or operations.
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other things, wastewater disposal and air
emissions. The Company believes it is currently in compliance with all
applicable environmental regulations.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of fiscal 1998 covered
by this Report to a vote of the Company's security holders through the
solicitation of proxies or otherwise.
ITEM 4A
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title
Gregg M. Eisenberg 48 Chairman of the Board, President and
Chief Executive Officer
Barry R. Pearl 49 Vice President - Finance and Administration,
Treasurer, Secretary and Chief Financial
Officer
Sudhakar Kanthamneni 51 Vice President - Manufacturing and Technology
T. Scott Evans 51 Vice President - Commercial Operations
Set forth below are descriptions of the backgrounds of the executive officers of
the Company and their principal occupations for the last five years:
Mr. Eisenberg has served as Chairman of the Board since February 1996. He has
served as President, Chief Executive Officer and a director of the Company since
1988. He is a former director and past chairman of the Committee on Pipe and
Tube Imports.
Mr. Pearl has served as Vice President - Finance and Administration, Treasurer,
Secretary and Chief Financial Officer since June 1998. He was formerly the
Senior Vice President and Chief Financial Officer for Santa Fe Pacific Pipeline
Partners, L.P. in Orange, California from January, 1995 until March, 1998. Prior
to being named Chief Financial Officer, he was Senior Vice President, Business
Development.
Mr. Kanthamneni has served as Vice President - Manufacturing and Technology of
the Company since August 1992. From May 1991 to August 1992, Mr. Kanthamneni
served as the Company's Vice President - Manufacturing.
Mr. Evans has served as Vice President - Commercial Operations of the Company
since September 1992.
PART II
ITEM 5
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding Maverick's Common Stock included on page 32 of Maverick's
Annual Report under the captions "Market for the Company's Common Equity" and
"Related Stockholder Matters" is incorporated herein by this reference.
ITEM 6
SELECTED FINANCIAL DATA
Selected Financial Data included on page 31 of the Annual Report is incorporated
herein by this reference.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations included on pages 16 through 20 of the Annual Report is incorporated
herein by this reference.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, the notes thereto and the Report of Ernst
& Young LLP included on pages 21 through 30 of the Annual Report are
incorporated herein by this reference.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year. See also Part I, Item 4A hereof.
ITEM 11
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year. But excluding the information contained therein under the headings
"Compensation Committee Report" and "Stock Performance."
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference from the
Registrant's proxy statement which is being filed with the Securities and
Exchange Commission within 120 days of the end of the Registrant's most recent
fiscal year.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. 1. Financial Statements
The following consolidated financial statements of Maverick Tube
Corporation and Subsidiaries, included in the Annual Report of the
Registrant to its shareholders for the year ended September 30,
1998, are incorporated herein by reference in Item 8:
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 1998 and 1997.
Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements as of
September 30, 1998.
2. Financial Statement Schedule
The following consolidated financial statement schedule of
Maverick Tube Corporation and Subsidiaries is included with
the Annual Report on Form 10-K:
Schedule II Valuation and qualifying accounts for the
years ended September 30, 1998, 1997 and
1996.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
3. Exhibits:
See Exhibit Index.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this
Annual Report on Form 10-K pursuant to Item 14(c) of this Report:
Maverick Tube Corporation Amended and Restated 1990 Stock Option
Plan
Maverick Tube Corporation Savings for Retirement Plan as revised
on January 1, 1993
The Amended Maverick Tube Corporation 1994 Stock Option Plan
The Amended Maverick Tube Corporation Director Stock Option Plan
Form of Deferred Compensation Agreement with Certain Executive
Officers
Employment Agreement with Barry R. Pearl
Form of Severance Agreement with Executive Officers
b. Reports on 8-K:
Two Form 8-K's were filed during the fourth quarter of the
Registrant's fiscal year ended September 30, 1998. The Form 8-K filed
on July 28, 1998 pertained to the adoption by the Company of the
Shareholder Rights Plan. The Form 8-K filed on August 27, 1998
pertained to the acquisition by the Company of its cold drawn
production facility in Beaver Falls, Pennsylvania.
Maverick Tube Corporation and Subsidiary
Schedule II - Valuation and Qualifying Accounts
(In thousands)
Additions
-----------------------------
Balance at Charged to Charged
beginning cost and to other Deductions Balance at
Classification of year expenses accounts describe end of year
- -----------------------------------------------------------------------------------------------------------------
Year ended September 30, 1996: Deducted from asset accounts:
Accounts receivable allowances $ 306 $ 339 $ -- $ 125 (2) $ 629
Valuation allowance for deferred
taxes $2,737 $ -- $ -- $(1,590) (1) $ 1,147
Year ended September 30, 1997: Deducted from asset accounts:
Accounts receivable allowances $ 629 $ 44 $ -- $ 285 (2) $ 388
Valuation allowance for deferred
taxes $1,147 $ -- $ -- $(1,147) (1) $ --
Year ended September 30, 1998: Deducted from asset accounts:
Accounts receivable allowances $ 388 $ 3 $ -- $ -- $ 391
(1) Resulted from the utilization of net operating and alternative
minimum loss carryforwards and re-evaluation of remaining deferred
tax assets.
(2) Uncollectible accounts written off, net of recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on December 11, 1998.
Maverick Tube Corporation
(registrant)
December 11, 1998 /s/ Gregg M. Eisenberg
----------------------
Gregg M. Eisenberg, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on behalf of the Company by the following persons in the
capacities on the dates indicated.
December 11, 1998 /s/ Gregg M. Eisenberg
----------------------
Gregg M. Eisenberg, Chairman, President
and Chief Executive Officer and Director
December 11, 1998 /s/ Barry R. Pearl
------------------
Barry R. Pearl, Vice President Finance
and Administration (Principal Financial
and Accounting Officer)
December 11, 1998 /s/ William E. Macaulay
-----------------------
William E. Macaulay, Director
December 11, 1998 /s/ John M. Fox
---------------
John M. Fox, Director
December 11, 1998 /s/ C. Robert Bunch
-------------------
C. Robert Bunch, Director
December 11, 1998 /s/ C. Adams Moore
------------------
C. Adams Moore, Director
December 11, 1998 /s/ David H. Kennedy
--------------------
David H. Kennedy, Director
December 11, 1998 /s/ Wayne P. Mang
------------------
Wayne P. Mang, Director
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
3.1 Amended and Restated Certificate of Incorporation of the N/A
Registrant, incorporated herein by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1,
File No. 33-37363 (the "1991 Registration Statement").
3.2 Amended and Restated Bylaws of the Registrant as amended, filed
herewith.
4.1 Shareholder Rights Agreement dated as of July 24, 1998 between the N/A
Registrant and Harris Trust and Savings Bank as Rights Agent
incorporated herein by reference to Exhibit 1 of the Registrant's
Form 8-A filed on August 5, 1998.
4.2 Form of Stock Certificate for Common Stock, incorporated herein by N/A
reference to Exhibit 4.1 to the 1991 Registration Statement.
10.1 Lease and Agreement dated July 24, 1992, by and between the N/A
Registrant and the Arkansas Development Finance Authority
(the "Authority"), incorporated herein by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992.
10.2 Maverick Tube Corporation Amended and Restated 1990 Stock Option N/A
Plan, incorporated herein by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the year ended
September 30, 1991.
10.3 Maverick Tube Corporation Savings for Retirement Plan effective on N/A
February 15, 1988, as amended, incorporated herein by reference
to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1993
10.4 Lease Agreement dated as of March 1, 1994, between the Authority, N/A
as lessor, and the Registrant as lessee, related to the
Registrant's Arkansas Structural Facility, incorporated herein by
reference to Exhibit 10.14 to the Registrant's Registration Statement
on Form S-2, file No 33-80096.
10.5 First Supplemental Trust Indenture to Lease Agreement between the N/A
Authority, as lessor and the Registrant, as lessee relating to the
Registrant's Arkansas Structural Facility, dated July 1, 1994,
incorporated by reference to Exhibit 10.1 to the Registant's
Quarterly Report on Form 10-Q for the period ended June 30, 1994.
10.6 Supplement to the Second Term Loan Agreement dated December 15, N/A
1994 incorporated herein by reference to Exhibit 10.16 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (the "1994 Form 10-K").
10.7 The Maverick Tube Corporation 1994 Stock Option Plan, incorporated N/A
herein by reference to Exhibit 10.17 of the 1994 Form 10-K.
10.8 The Maverick Tube Corporation Director Stock Option Plan, N/A
incorporated herein by reference to Exhibit 10.18 of the 1994
Form 10-K.
10.9 Form of Deferred Compensation Agreement between the Registrant and N/A
Messrs. Gregg M. Eisenberg, T. Scott Evans and Sudhakar Kanthamneni
Dated October 1, 1995, incorporated herein by reference to
Exhibit 10.22 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996 (the "1996 Form 10-K").
10.10 Amendment #1 to The Maverick Tube Corporation's Director Stock N/A
Option Plan, incorporated herein by reference to Exhibit 10.24 of
the 1996 Form 10-K.
10.11 Amendment #1 to The Maverick Tube Corporation's 1994 Stock Option N/A
Plan, incorporated herein by reference to Exhibit 10.21 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997.
10.12 Employment Agreement of Barry R. Pearl, incorporated herein by N/A
reference to Exhibit 10 of the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1998.
10.13 Agreement of Limited Partnership between the Registrant, Maverick
Investment Corporation and Maverick Tube L.P., filed herewith
10.14 Secured Credit Agreement ("Secured Credit Agreement") dated
September 18, 1998, by and among the Registrant, Harris Trust
and Savings Bank ("Harris Trust") and Mercantile Bank of St. Louis,
N.A. ("Mercantile Bank"), filed herewith.
10.15 Note Receivable dated December 10, 1998, by and among the
Registrant, and Barry R. Pearl, Chief Financial Officer, filed
herewith.
10.16 Form of Severance Agreement dated December 10, 1998, by and
among the Registrant and Gregg M. Eisenberg, Barry R. Pearl,
Sudhakar Kanthamneni and T. Scott Evans, filed herewith.
10.17 First Amendment to Secured Credit Agreement dated as of
December 10, 1998, filed herewith.
13 Portions of Registrant's 1998 Annual Report to Shareholders,
which are incorporated by reference herein.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors.
27.1 Financial Data Schedule.
99.1 Risk Factors.