UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 December 31, 2002
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 001-10651
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. Employer Identification No. 43-1455766
Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par
Value $.01 Per Share
Preferred Stock
Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
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. ( )
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes XX No
As of June 28, 2002, there were 40,824,176 shares of Registrant's common stock
(including 3,113,333 shares of exchangeable shares) were outstanding. The
approximate market value of voting stock held by non-affiliates of the
Registrant (including exchangeable shares) as of June 28, 2002 was $608,095,260
(based upon the closing price for shares of the Registrant's common stock as
reported on the New York Stock Exchange on June 28, 2002).
1
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for its calendar
year ended December 31, 2002 are incorporated by reference into Part I and
Part II of this Annual Report on Form 10-K where indicated.
(2) Portions of the Registrant's Proxy Statement relating to the Registrant's
2003 Annual Meeting of Shareholders, to be held on May 5, 2003, are
incorporated by reference into Part III of this Form 10-K where indicated.
2
MAVERICK TUBE CORPORATION
INDEX
PART I.
Item 1. Business
General
Risk Factors
The Products We Produce
Our Business Strategy
The Energy Pipe Industry
Industrial Industry
Discontinued Operations
Raw Materials
Employees
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 Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
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
Item 14. Controls and Procedures
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
Signatures
Exhibit Index
3
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PART I
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ITEM 1 Business
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As used herein, Maverick Tube Corporation and its direct and indirect
wholly-owned subsidiaries are collectively referred to as "the Company," whereas
"Maverick" is the Company exclusive of its subsidiaries, Prudential Steel Ltd.
("Prudential") and Precision Tube Holding Corporation ("Precision") and the
tubular division of The LTV Corporation. Also, unless the context otherwise
requires, the terms "we," "us" or "our" refer 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 the beliefs or expectation) 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 and future import levels. 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 we have made in light of our experience and perception of historical
conditions, expected future developments and other factors we believe
appropriate under the circumstances. Further information covering issues that
could materially affect our financial performance is contained in the "Risk
Factors" section of this Form 10-K.
GENERAL
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 into coiled tubing
products with our acquisition of Precision Tube Holding Corporation. Coiled
tubing products are used primarily to maintain existing wells and also 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 products to service centers, fabricators and end users.
During calendar 2002 and 2001, energy products accounted for approximately 82%
and 84%, respectively, of our total revenues.
We were incorporated in Missouri in 1977 and reincorporated in Delaware in 1987.
Our principal executive offices are located at 16401 Swingley Ridge Road,
Seventh Floor, Chesterfield, Missouri 63017 and our phone number is (636)
733-1600.
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.
4
On December 31, 2002, we acquired the assets and certain liabilities of the
tubular division of The LTV Corporation for $120.2 million cash. The acquisition
was accounted for as a purchase business combination and the assets acquired and
the liabilities assumed of the tubular division of The LTV Corporation have been
consolidated as of the acquisition date. None of the operations of the tubular
division of The LTV Corporation have been consolidated with our financial
statements as the acquisition occurred on the same day as our year-end. In
February 2003, we announced the closure of the Youngstown facility, one of the
facilities we acquired in connection with the LTV acquisition.
On February 28, 2003, we completed the acquisition of SeaCAT Corporation, a
privately held, Houston based, coiled tubular goods manufacturer ("SeaCAT"), in
exchange for $4.0 million in cash, $5.0 million secured 11.0% subordinated note
and 733,676 shares of common stock of Maverick. The acquisition was accounted
for as a purchase business combination and the financial statements of SeaCAT
have not been consolidated into this Form 10-K as the combination occurred after
our year-end.
Segments
Our business is divided into three segments. Maverick Tube L.P. ("Maverick
L.P."), a wholly-owned subsidiary of the Company, is responsible for our
operations in Hickman, Arkansas and Conroe, Texas. Precision, a wholly-owned
subsidiary of the Company, is responsible for the Company's coiled tubing
operations in Houston, Texas. Prudential is responsible for our operations in
Calgary, Alberta. The tubular division of The LTV Corporation was acquired on
December 31, 2002, and consequently, its operations had no effect on our 2002
operating results.
For information with regard to total revenue, operating profit or loss and
identifiable assets attributable to each of our business segments, see Notes 1
and 12 to the Consolidated Financial Statements on page 32 and 39 of our Annual
Report to Stockholders for the Year Ended December 31, 2002 ("2002 Annual
Report"), portions of which are filed as Exhibit 13, hereto.
RISK FACTORS
You should carefully consider the following risk factors and other information
contained or incorporated by reference in this annual report before purchasing
shares of our common stock. Investing in our common stock involves risk. If any
of the events described in the following risk factors occur, our business and
financial condition could be seriously harmed. In addition, the trading price of
our common stock could decline due to the occurrence of any of such events, and
you may lose all or part of your investment.
Downturns in oil and natural gas prices would reduce demand for our energy
products, which could cause our sales to decrease.
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Our principal products consist of OCTG, line pipe and coiled tubing and pipe.
Sales of these products to the energy industry constitute our most significant
revenue source. In fact, revenues from the sale of OCTG and line pipe to the
energy industry accounted for approximately 82% and 84% of our revenues for the
years ended December 31, 2002 and 2001, respectively. Demand for these 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. Similar factors also affect the demand for line pipe.
The level of these activities is primarily dependent on current and anticipated
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 affect
these prices. As a result, future levels and volatility of oil and natural gas
prices are uncertain. In periods where the demand level for our OCTG products is
reduced, we would expect that our sales of these products would decrease.
5
Easing or elimination of trade relief now in place would likely increase the
level of imports of products that compete with ours, which would cause increased
competition for our products.
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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 and
o the presence or absence of antidumping and countervailing duty orders.
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
during subsequent years, as well as the duty deposit rates for future 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
application only to itself under certain circumstances. In June 2000, the U.S.
government completed sunset reviews of orders covering Canada and Taiwan, and
revoked both orders. 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 remain subject to future periodic sunset
reviews. 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. The antidumping and countervailing import duty
orders on line pipe products expired on March 1, 2003, and was not extended. The
expiration 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 this 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 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. Our standard pipe product line and HSS
product line are subject to the same tariff system of 15%, 12% and 9%. Our OCTG
and electrical conduit product lines are not protected in the trade case ruling.
In August 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 likely result of significant increased competition from the easing or
elimination of trade relief now in place would likely be decreased sales of our
energy products and overall profitability.
6
Increases in steel prices, which would increase our costs of manufacturing our
products, would likely decrease our operating profits.
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Purchased steel currently represents slightly more than 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. Some of these factors are:
o general economic conditions;
o industry capacity utilization;
o import duties and other trade restrictions and
o currency exchange rates.
Changes in steel prices can affect the pricing and gross margin levels of our
products. With respect to industrial products, we seek to recover any increase
in steel costs by attempting to increase the price of our products. However,
increases in the prices of our products often do not fully compensate for steel
price increases and generally lag several months behind increases in steel
prices. Prices of energy products move in conjunction with demand for those
products and are not necessarily related to changes in steel costs. This could
result in an inability to recover steel cost increases on those products during
poor energy market conditions. Consequently, we typically have a limited ability
to recover increases in steel costs.
In November 2001, the International Trade Commission (ITC) recommended to the
President of the United States, that a Section 201 case for steel and all steel
products, with the exception of OCTG products, be supported with a wide scale
program of quotas and duties. The President's remedy plan released on March 5,
2002, provides relief to the U.S. steel industry through a three-year program of
quotas and tariffs covering a wide range of imported steel products. Of specific
interest to our business, imported flat rolled products including hot rolled
steel coils are subject to a 30% tariff in year one, a 24% tariff in year two,
and an 18% tariff in year three. This plan resulted in an increase in the cost
of foreign imported hot rolled steel and steel products, which in turn,
significantly increased the cost of our purchased steel. For example, our major
supplier of steel increased our steel prices by $15 per ton in January 2002, by
$40 per ton in April 2002, and $60 in July 2002. This same supplier decreased
our steel prices by $15 per ton in December 2002, $10 per ton in January 2003
and $25 per ton in February 2003. However, they also announced a $30 per ton
increase to be effective April 1, 2003. We expect the replacement cost of steel
to remain volatile in 2003.
Reductions in industry inventory levels could reduce our sales and profit.
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Industry inventory levels of our products, particularly OCTG, can change
significantly from period to period. These changes can have a direct adverse
effect on the demand for new production of energy and industrial products when
customers draw from inventory rather than purchase new products. Reduced demand,
in turn, would likely result in reduced sales volume and overall profitability.
Risks generally associated with acquisitions.
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An important element of our growth strategy has been and is expected to continue
to be the pursuit of acquisitions of other businesses that either expand or
complement our existing product lines. Integrating businesses, however, involves
a number of special risks, including the possibility that management may be
distracted from regular business concerns by the need to integrate operations,
unforeseen difficulties in integrating operations and systems, problems
concerning assimilating and retaining the employees of the acquired business,
accounting issues that arise in connection with the acquisition, challenges in
retaining customers and potential adverse short-term effects on operating
results. In addition, we may incur debt to finance future acquisitions, and we
may issue securities in connection with future acquisitions that may
7
dilute the holdings of our current or future stockholders. If we are unable to
successfully complete and integrate strategic acquisitions in a timely manner,
our growth strategy could be adversely impacted.
The operations of the end-users of our products expose us to potential product
liability claims.
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Drilling for, and the transmission of, oil and natural gas involve a variety of
risks, including risks relating to well failures, line pipe leaks and fires.
Actual or claimed defects in products, including our pipes and structural tubing
and conduit, could give rise to claims, liabilities, costs and expenses,
relating to loss of life, personal injury, property damage, damage to equipment
and facilities, pollution, inefficient heat recovery, loss of production or
suspension of operations. We maintain insurance coverage against potential
product liability claims in amounts that we believe to be adequate. However, in
the future we may incur product liability claims in excess of our insurance
coverage, or that is subject to substantial deductibles, or incur uninsured
product liability costs. These liabilities and costs could have a material
adverse effect on our business, results of operations and financial condition.
Moreover, any claims made under our policies likely will cause our premiums to
increase, and we may not be able to maintain adequate insurance coverage levels
in the future.
We depend on a few suppliers for a significant portion of our steel, and a loss
of one or more significant suppliers could adversely affect our ability to
obtain our basic raw material.
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In calendar year 2002, we purchased in excess of 91% of our steel for our U.S.
operations from four suppliers, and in excess of 48% of the steel for our
Canadian operations from two Canadian suppliers. The loss of any of these
suppliers or interruption of production at one or more of the suppliers could
adversely affect our ability to obtain our basic raw material. In such case, our
cost of purchasing steel from alternate sources could be higher and could affect
our ability to produce sufficient quantities of our products.
Covenant restrictions in our senior revolving credit facility could limit our
ability to operate our business.
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Our revolving credit facility, as recently expanded in connection with our
acquisition of the tubular division of The LTV Corporation, contains certain
restrictive covenants that impose limitations (subject to certain exceptions) on
us with respect to, among other things:
o the creation or incurrence of indebtedness;
o the creation or incurrence of liens;
o investment, mergers, acquisitions or changes of existence, ownership or
business operations;
o the sale or other disposition of assets other than inventory in the
ordinary course of business;
o the declaration or payment of dividends or the purchase, redemption,
retirement or other acquisition of capital stock;
o transaction with affiliates;
o capital expenditures in excess of $30.0 million in any calendar year and
o the granting of any negative pledge in any agreement, contract or
understanding with a third party.
All of these covenants could affect our ability to operate our business and may
limit our ability to take advantage of potential business opportunities as they
arise. Moreover, our failure to comply with the financial and other covenants
could result in an event of default that, if not cured or waived, would prevent
us from borrowing under our senior revolving credit facility and could cause us
to be required to repay our borrowings before their due date. If we were unable
to make this repayment or otherwise refinance these borrowings, our lenders
could foreclose on our assets.
8
Certain of our operations are subject to collective bargaining agreements that
could subject us to additional labor costs.
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In January 2001, we renewed a collective bargaining agreement with the United
Steelworkers of America, Local Union 7226, covering approximately 73% of our
employees at our Calgary facility. This agreement, which expires on December 31,
2003, covers wages, healthcare benefits, retirement plans, seniority, job
classes and certain work rules.
In connection with our acquisition of the tubular division of The LTV
Corporation, we entered into collective bargaining agreements with the United
Steel Workers of America covering approximately 83% of the employees of our
Youngstown, Elyria, Counce and Ferndale facilities. These agreements expire on
November 15, 2005.
While we believe our present labor relations to be good, our failure to renew
these agreements on reasonable terms could result in labor disruptions and
increased labor costs, thereby increasing the costs of producing our products.
Because of the substantial amount of business we conduct in Canada, decreases in
the value of the Canadian dollar compared to the U.S. dollar would reduce the
profitability of our Canadian operations.
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Although our financial results are reported in U.S. dollars, a significant
portion of our sales and operating costs are denominated in Canadian dollars.
Consequently, in consolidating the financial results of our Canadian operations
for reporting purposes, we are exposed to cash flow and earnings volatility as a
result of fluctuations in relative currency values. A significant decrease in
the relevant value of the Canadian dollar would reduce the profitability of our
Canadian operations, which would adversely affect the results of our
consolidated operations.
Our industry is characterized by intense competition.
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Our businesses are very competitive and compete against a number of companies.
Some of our competitors are larger than us and have greater financial and
marketing resources and business diversification. These companies may be better
able than our Company to successfully endure downturns in either the energy or
industrial sectors. The OCTG, structural and electrical conduit product markets
are largely commodity-based in nature and as a result, price competition is of
particular importance. In periods of reduced demand for our products, we can
either choose to maintain market share by reducing our selling prices to meet
competition or maintain selling prices which would likely sacrifice market
share. Sales and overall profitability would be reduced under either scenario.
Compliance with and changes in environmental, health and safety laws regulating
the operation of our business could increase the costs of producing our product
and expose us to environmental claims.
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Our businesses are subject to numerous U.S. and Canadian local, state,
provincial and federal laws and regulations concerning environmental, health and
safety matters, including those relating to air emissions, wastewater discharges
and the generation, handling, storage, transportation, treatment and disposal of
hazardous wastes. Violations of such laws and regulations can lead to
substantial fines and penalties. Also, there are risks of substantial costs and
liabilities relating to the investigation and remediation of past or present
contamination, at current as well as former properties utilized by us and at
third-party disposal sites, regardless of fault or the legality of the original
activities that led to such contamination. Moreover, future developments, such
as changes in laws and regulations, more stringent enforcement or interpretation
thereof, and claims for property damage or personal injury could cause us to
incur substantial losses or expenditures. Although we believe we are in
substantial compliance with all applicable current laws and regulations, any new
or modified laws or regulations could increase the cost of producing our
products thereby reducing our profits.
9
Increased interest rates could cause our interest expense to increase.
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Interest on our new revolving credit facility accrues at a fluctuating rate.
Rising interest rates could have a substantial impact on our interest expense.
Assuming the current level of borrowings at variable rates and assuming a
two-percentage point change in the average interest rate under these borrowings,
it is estimated that our interest expense for the year ended December 31, 2002
would have increased approximately $2.7 million. Management may take actions
that would mitigate our exposure to interest rate risks; however, due to the
uncertainty of the actions that we might take and their possible effects, these
actions may not fully mitigate our exposure to interest rate risk. To that
extent, the resulting increase in interest expense would reduce our
profitability.
We have defined benefit pensions plans, which could result in charges against
our earnings.
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Our subsidiary, Prudential Steel Ltd., sponsors two pension plans and a
post-retirement benefit plan for substantially all of its Canadian employees and
a supplemental executive retirement plan. At December 31, 2002, certain of these
plans were under-funded resulting in a combined under-funding of an aggregate of
approximately $7.4 million. Moreover, if these plans do not achieve an
investment return to the extent of the estimated rate for a particular fiscal
year, such deficiency could result in a charge against earnings for that and
subsequent years.
Provisions in our corporate documents and Delaware law could delay or prevent a
change of control.
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The existence of some provisions in our corporate documents and Delaware law
could delay or prevent a change in control of the Company, even if that change
might be beneficial to our stockholders. Our certificate of incorporation and
bylaws contain provisions that may make acquiring control of Maverick difficult,
including:
o provisions limiting the rights to call special meetings of our
stockholders;
o provisions regulating the ability of our stockholders to bring matters for
action at annual meetings of our stockholders;
o a provision prohibiting action by stockholders by written consent and
o the authorization to issue and set the terms of preferred stock by our
board of directors.
In addition, we have adopted a stockholder rights plan that would cause extreme
dilution to any person or group who would attempt to acquire a significant
interest in Maverick without advance approval of our Board of Directors.
Moreover, Delaware law would impose restrictions on mergers and other business
combinations between us and any holder of 15% or more of our outstanding common
stock.
10
THE PRODUCTS WE PRODUCE
The following table summarizes our current manufacturing facilities and the
products they produce:
Facility Products Sizes (1)
-------- -------- ---------
Hickman, Arkansas Oil country tubular goods, line 1 1/2" - 16"
pipe, standard pipe, structural
shapes and rounds and piling
Houston, Texas Coiled steel pipe 1" - 4 1/2"
Conroe, Texas Oil country tubular goods and line 4 1/2" - 9 5/8"
pipe
Calgary, Alberta Oil country tubular goods, line 2 3/8" - 12 3/4"
pipe and structural shapes and rounds
Elyria, Ohio Rigid conduit and mechanical tubing 1/2" - 3"
Counce, Tennessee Oil country tubular goods, line pipe, 4 1/2" - 8 5/8"
standard pipe and rigid conduit
Ferndale, Michigan Electrical conduit and mechanical 1/2" - 4"
tubing
Cedar Springs, Georgia Electrical conduit 1/2" - 2 1/2"
Youngstown, Ohio (2) Line pipe and standard pipe 7" - 16"
(1) Represents outside diameter measurement. Structural tubing can have a
square, rectangular or round cross-section.
(2) Scheduled to be closed during the first half of 2003.
OUR BUSINESS STRATEGY
Identify And Enter New Markets
We continually seek and make acquisitions and capital expenditures to enter new
markets, as evidenced by our entry into the structural tube market in 1994, the
addition of our large diameter pipe and tube mill at our Hickman, Arkansas
facility and our acquisitions of Prudential, Precision, SeaCAT and the
electrical conduit business of the tubular division of The LTV Corporation. We
intend to seek additional opportunities to expand our business to new markets
where we believe we can compete effectively and profitably.
Increase Market Share By Expanding Our Existing Product Lines
We believe that the expansion of both our product lines in both the energy and
industrial segments of our business will allow us to increase our market share
by capitalizing on our existing customer relationships to market additional
products. The construction and equipping of our large diameter pipe and tube
mill at the Hickman, Arkansas facility, the Precision acquisition, the SeaCAT
acquisition and the acquisition of the pipe and tube business of the tubular
division of The LTV Corporation are examples of this strategy.
11
Continually Improve The Efficiency Of Our Manufacturing Process
We intend to continue to pursue our objective of being a low-cost, high-volume
producer of quality steel tubular products by seeking to:
o maintain product manufacturing cost controls;
o maximize production yields from raw materials;
o invest capital to lower costs and improve quality;
o minimize unit production costs through effective utilization of plant
capacity and
o minimize freight costs.
Deliver Quality Products And Service To Our Customers
We believe that we have achieved an excellent reputation with our existing
customers. We intend to continue to build long-term customer relationships with
new and existing customers by seeking to:
o offer broad-based product lines;
o focus on product availability;
o deliver competitively priced quality products and
o provide a high level of customer support before and after the sale.
THE ENERGY PIPE INDUSTRY
General
OCTG consists of drill pipe, production casing, surface casing and production
tubing. Drill pipe is used and may be reused to drill wells. Production casing
forms the structural wall in oil and gas wells to provide support and prevent
caving during drilling operations and is generally not removed after it has been
installed in a well. Surface casing is used to protect water-bearing formations
during the drilling of a well. Production tubing is placed within the casing and
is used to convey oil and natural gas to the surface and may be replaced during
the life of a producing well.
Manufacturers produce OCTG in numerous sizes, weights, grades and end finishes.
We believe that most OCTG is produced to American Petroleum Institute and
Canadian Standard Association specifications. The grade of pipe used in a
particular application depends on technical requirements for strength, corrosion
resistance and other performance qualities. OCTG are generally classified into
groupings of "carbon" and "alloy" grades. Carbon grades of OCTG have yield
strength levels of 75,000 pounds per square inch or less and are generally used
in oil and natural gas wells drilled to depths less than 8,000 feet. Alloy
grades of OCTG have yield strength levels of 75,000 pounds per square inch or
more and are generally used in oil and natural gas wells drilled to depths in
excess of 8,000 feet, or for high temperature wells, highly corrosive wells or
critical applications.
Carbon and alloy grades of OCTG are available from both electric resistance
welded and seamless pipe producers. Electric resistance welded 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 electric resistance welded pipe. We believe that the seamless manufacturing
process involves higher costs than the welded process and that, as a result,
seamless products are generally priced higher than comparable welded products.
Coiled tubing is manufactured in the same manner as described above with the
exception of the end-finishing process. The coiled tubing is then loaded onto
reels and shipped to our customers.
Based on published industry statistics, electric resistance welded products,
which did not have significant market penetration prior to the mid-1970's, now
account for approximately half of the tonnage of domestic
12
OCTG consumed annually. We believe electric resistance welded 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. We also
believe that further significant market penetration of welded products will
depend upon increased market acceptance of welded products and technological
advances in the types of raw materials and equipment utilized in the electric
resistance welding 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. Line pipe is produced in both welded 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.
Coiled down-hole tubing is primarily used to service existing oil and gas wells
by reestablishing well production and extending well life. Coiled line pipe is a
relatively new 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. Coiled line pipe is a more cost effective application
compared to traditional jointed line pipe as it allows for much more rapid
installation which reduces overall costs.
Factors That Affect the Energy Market
The OCTG market is affected by several factors, the most significant being the
number of oil and natural gas wells being drilled. The level of drilling
activity is largely a function of current prices for oil and natural gas and the
industry's future price expectations. The prices are determined by various
supply and demand factors, such as consumption levels, current inventory levels,
weather, import levels, production economics and future expectations. The
following chart shows the price of oil and natural gas since the fourth quarter
of 1997:
Alberta
U.S. Natural Spot Price
WTI Oil Price Gas Price Natural Gas
- --------------------------------------------------------------------------------
4Q97.................................. $20.22 $2.80 $1.92
1Q98.................................. $16.08 $2.11 $1.13
2Q98.................................. $14.77 $2.18 $1.34
3Q98.................................. $14.13 $1.96 $1.29
4Q98.................................. $13.09 $1.87 $1.53
1Q99.................................. $13.09 $1.73 $1.50
2Q99.................................. $17.68 $2.14 $1.76
3Q99.................................. $21.59 $2.49 $2.02
4Q99.................................. $24.30 $2.45 $2.03
1Q00.................................. $28.88 $2.53 $2.13
2Q00.................................. $29.04 $3.53 $2.93
3Q00.................................. $30.62 $4.44 $4.24
4Q00.................................. $32.10 $6.21 $4.87
1Q01.................................. $29.06 $6.65 $7.13
2Q01.................................. $27.99 $4.32 $4.58
3Q01.................................. $26.96 $2.65 $2.53
4Q01.................................. $20.45 $2.40 $2.09
1Q02.................................. $21.72 $2.38 $2.09
2Q02.................................. $26.18 $3.37 $2.92
3Q02.................................. $28.52 $3.03 $2.14
4Q02.................................. $28.32 $4.09 $4.09
The most commonly cited indicator of the level of drilling activity is the Baker
Hughes rig count which represents the number of active oil and natural gas rigs
currently being operated. Since July 1987, the Baker Hughes U.S. rig count hit a
high in July 2001 of 1,293 rigs and a low in
13
April 1999 of 496 rigs. Since July 1987, the Baker Hughes Canadian rig count hit
a high in February 2001 of 579 rigs and a low in April 1992 of 32 rigs. The
following charts show the U.S. and Canadian rig count since the fourth quarter
1997 and our shipments of OCTG for the same period:
Quarterly
Maverick OCTG Baker Hughes
Shipments Rig Count
- --------------------------------------------------------------------------------
4Q97................................................ 87,312 997
1Q98................................................ 63,290 965
2Q98................................................ 47,420 862
3Q98................................................ 44,124 794
4Q98................................................ 36,971 688
1Q99................................................ 25,970 550
2Q99................................................ 41,947 524
3Q99................................................ 60,346 649
4Q99................................................ 84,978 775
1Q00................................................ 75,784 770
2Q00................................................ 80,816 842
3Q00................................................ 88,411 981
4Q00................................................ 79,877 1,076
1Q01................................................ 91,289 1,142
2Q01................................................ 107,921 1,237
3Q01................................................ 99,931 1,241
4Q01................................................ 70,459 1,008
1Q02................................................ 64,818 818
2Q02................................................ 81,974 806
3Q02................................................ 73,406 853
4Q02................................................ 74,732 847
Quarterly
Prudential Baker Hughes
OCTG Shipments Rig Count
- --------------------------------------------------------------------------------
4Q97................................................ 52,207 443
1Q98................................................ 38,947 469
2Q98................................................ 13,982 177
3Q98................................................ 19,957 205
4Q98................................................ 21,562 202
1Q99................................................ 23,372 283
2Q99................................................ 17,786 102
3Q99................................................ 35,072 257
4Q99................................................ 41,923 336
1Q00................................................ 54,293 469
2Q00................................................ 39,737 216
3Q00................................................ 49,050 313
4Q00................................................ 53,926 380
1Q01................................................ 55,202 515
2Q01................................................ 36,766 252
3Q01................................................ 37,643 320
4Q01................................................ 27,663 278
1Q02................................................ 47,623 377
2Q02................................................ 27,377 144
3Q02................................................ 40,373 249
4Q02................................................ 45,437 283
The level of industry inventories maintained by manufacturers, distributors and
end-users also affects the U.S. OCTG market. When customers draw-down on
inventory rather than purchase new products, this has an adverse effect on the
demand for new production. Conversely, when distributors and end-users increase
inventory levels, this has a positive effect on the demand for new production.
Inventory levels do not materially affect the production of OCTG in Canada as
distributors do not generally hold significant
14
amounts of inventory. Inventory levels do not affect the production of coiled
tubing as this product is manufactured to the end users' specifications for a
specific project.
For calendar years 2002 and 2001, declining industry inventory levels satisfied
9.3% and 0.5%, respectively of the U.S. OCTG consumption. For calendar year
2000, increasing industry inventory levels added an estimated 18.9% to the U.S.
OCTG demand for production.
Import levels of foreign OCTG into North America also significantly affect the
North American OCTG market. High levels of imports reduce the volume sold by
North American producers and tend to suppress selling prices. We believe that
North American import levels are affected by, among other things, overall world
demand for OCTG, the trade practices of and government subsidies to foreign
producers and the presence or absence of governmentally imposed trade
restrictions in the U.S. and Canada. See "Risk Factors" for a discussion of
trade restrictions that have affected imports.
Our Energy Products
We manufacture OCTG used for production tubing, production casing and surface
casing, and we also manufacture line pipe. We do not make drill pipe. We began
selling coiled steel pipe for use in down-hole well servicing and line pipe
applications with our acquisition of Precision on March 29, 2002. We produce all
of our OCTG, line pipe and coiled tubing products using only the electric
resistance welding process.
The following table shows our energy product shipments in tons, net sales and as
a percentage of overall net sales measured in dollars:
Energy Products
Net Sales % of
Tons (000's) Net Sales
----------------------------------------
MAVERICK
Year ended December 31, 2002............ 344,690 $205,407 75.5%
Year ended December 31, 2001............ 415,741 $278,287 80.8%
Year ended December 31, 2000............ 341,610 $226,618 75.1%
PRUDENTIAL
Year ended December 31, 2002............ 205,092 $138,494 91.3%
Year ended December 31, 2001............ 264,489 $181,214 90.3%
Year ended December 31, 2000............ 325,092 $234,180 90.0%
PRECISION
Year ended December 31, 2002............ 10,677 $29,130 100.0%
Prudential provides tolling services which is the conversion of steel to tubular
products owned by our competitors. While tolling only comprised a small portion
of our business, it provides additional tons which optimizes mill operations and
improves fixed cost absorption. Prudential tolling tons for the years ended
December 31, 2002, 2001 and 2000 were 15,535, 23,919 and 26,444, respectively.
Net sales associated with tolling tons for the years ended December 31, 2002,
2001 and 2000 were $2.1 million, $5.6 million and $4.4 million, respectively.
Our energy products meet or exceed the applicable standards as required by the
American Petroleum Institute and Canadian Standards Association. In addition,
similar to other producers, we manufacture OCTG in custom or proprietary grades.
We design and engineer our custom and proprietary OCTG to be used in similar
applications as products meeting or exceeding American Petroleum Institute and
Canadian Standards Association standards and to provide performance features
comparable to products meeting those standards. We warrant our American
Petroleum Institute and Canadian Standards Association casing and tubing to be
free of defects in material or workmanship in accordance with the applicable
specifications. In addition, we warrant our proprietary grade products to be
free of defects in accordance with our published standards. We have not incurred
significant costs in connection with these warranties.
15
We manufacture finished goods in both carbon and alloy steel grades. Virtually
all of our products are fully completed or "end-finished" at our facilities. In
contrast, some of our competitors outsource the end-finishing of their products
thus adding to their freight and handling costs or do not end-finish their
products at all. The end-finish process includes, as appropriate, upsetting,
beveling, threading, pressure testing and the application of couplings. Our
fully finished OCTG are ready to be installed in oil or natural gas wells. By
end-finishing our products, we are better able to control quality, cost and
service to customers. Three of our U.S. energy facilities provide heat-treatment
capabilities necessary for the production of alloy grade pipe. Our alloy grade
tubing and casing products accounted for 21%, 16% and 16% of the tons of energy
products sold calendar 2002, 2001 and 2000, respectively. Carbon grade tubing
and casing accounted for the balance of these tons.
We manufacture OCTG and line pipe ranging in size from 1 1/2" to 16" in outside
diameter. Excluding drill pipe, which we do not manufacture, approximately 80%
of the total OCTG and line pipe tonnage produced in the western hemisphere in
calendar 2002 fell into this size range.
Marketing
We sell OCTG and line pipe primarily throughout the United States and Canada to
numerous distributors, which then resell the pipe to major and independent oil
and natural gas production, gathering and pipeline companies. Maverick sales to
Canadian customers in calendar 2002, 2001 and 2000 were $10.0 million, $16.5
million and $19.5 million, respectively. Maverick sales to other foreign
customers in calendar 2002, 2001 and 2000 made up an additional $3.1 million,
$1.1 million and $77,000, respectively. Prudential sales to U.S. customers in
calendar 2002, 2001 and 2000 were $1.9 million, $2.6 million and $8.4 million,
respectively. Precision sales to Canadian customers in calendar 2002 were $7.4
million. Precision sales to other foreign customers in calendar 2002 made up an
additional $8.8 million. Our marketing philosophy emphasizes delivering
competitively priced, quality products and providing a high level of service to
our customers. With the addition of our large diameter facility and the
acquisition of Precision, we are marketing ourselves as a broad line supplier of
OCTG and line pipe products. We maintain inventories of finished goods that are
housed at our production facilities and at field locations close to the areas of
drilling activity, which allows us to provide timely delivery of our products.
As of December 31, 2002 and 2001, our backlog orders (including bill and hold
orders not yet shipped) for energy pipe products were approximately $78.0
million and $53.7 million, respectively. All of the backlog orders as of
December 31, 2002 are expected to be filled by the end of calendar 2003. We
consider only $2.6 million and $3.8 million of our backlog orders, respectively,
to be firm as remaining orders may generally be cancelled without penalty. Our
backlog orders, as of any particular date, may not be indicative of our actual
operating results for any period. We cannot give any assurance that the amount
of backlog at any particular date will ultimately be realized.
Manufacturing
We manufacture OCTG and line pipe products at our facilities in Hickman,
Arkansas; Conroe, Texas; Counce, Tennessee and Calgary, Alberta. We began full
production of all of our products at our large diameter facility adjacent to our
Hickman, Arkansas facilities, during calendar year 2001. We manufacture coiled
down-hole tubing and coiled line pipe at our facility in Houston, Texas. The
facilities are strategically located to serve the energy markets in the United
States and Canada. We can currently produce at a consolidated maximum rate of
approximately 1,814,000 tons of finished products per year with approximately
1,279,000 tons currently dedicated to energy related products. We operated our
energy facilities at a capacity utilization of approximately 48% and 59% during
calendar 2002 and 2001, respectively.
In order to control our manufacturing costs, we attempt to maximize production
yields from purchased steel and reduce unit labor costs. We control labor costs
by automating some of our activities and by seeking to optimize product
throughput and scheduling. Generally, we maintain an innovative compensation
plan, whereby the employees of our facilities that achieve certain performance
based criteria receive quarterly
16
bonuses. In addition, some employees are eligible to receive annual
profitability bonuses based on our consolidated earnings. The maximum achievable
incentives and bonuses range from 15% to 95% of an employee's salary and wages.
During calendar 2002, 2001 and 2000, we spent $19.4 million, $9.9 million and
$10.9 million, respectively, on new capital equipment for our existing energy
facilities. Capital expenditures related to the installation of equipment
relocated from our Longview, Washington facility to our large diameter pipe and
tube facility in Hickman, Arkansas was approximately $6.1 million during
calendar 2002. Capital expenditures related to the installation of the Longview,
Washington slitter to our Calgary, Alberta facility was $3.5 million during
calendar 2002. Capital expenditures related to the large diameter pipe and
tubing facility in Hickman, Arkansas was approximately $5.0 million during
calendar 2001. Our capital budget for calendar 2003 is $11.4 million. We expect
these capital expenditures to result in manufacturing cost savings, quality
improvements and/or expanding or maintaining production capabilities and product
lines.
Competition
The suppliers of OCTG and line pipe products face a highly competitive market.
We believe that the principal competitive factors affecting our business are
price, quality, delivery, availability and service. We believe we enjoy an
excellent reputation for quality products and outstanding customer service. We
compete with several North American and numerous foreign producers of oil
country tubular goods, some of which have greater financial resources than we
do. In the OCTG market, our more significant U.S. competitors are Lone Star
Steel Company, Newport Steel Company and IPSCO Tubular, Inc., which produce
electric resistance welded pipe, and United States Steel Corporation and V&M
Tubular Corporation (formerly the North Star Steel Company), which primarily
produce seamless pipe. Our most significant Canadian competitor is IPSCO
Tubular, Inc., which produces electric resistance welded pipe. We also compete
in the line pipe market with these same competitors, and with foreign producers
of line pipe, most of which are units of large foreign steel makers. Our most
significant coiled down-hole tubing and line pipe competitor is Quality Tubing,
Inc.
During calendar years 2002, 2001 and 2000, we estimate that domestic OCTG market
penetration of tons consumed by imports into the U.S. was 21.8%, 30.2% and
31.2%, respectively. During calendar years 2002, 2001 and 2000, we estimate that
domestic OCTG market penetration of tons consumed by imports into Canada was
32.4%, 29.4% and 35.8%, respectively.
THE INDUSTRIAL INDUSTRY
General
We manufacture structural tubing products, electrical conduit, standard pipe and
piling products. On December 31, 2002, we acquired the tubular division of The
LTV Corporation and expanded our product line into electrical conduit.
Our structural tubing products are used in the following applications:
o construction, including handrails, building columns and bridge frames;
o transportation, including boat trailers;
o agricultural, including farm implement components and tillage equipment;
o material handling, including storage rack systems and conveying systems
support and
o recreational, including exercise equipment.
In addition, structural tubing is an attractive alternative to other structural
steel forms, such as I-beams and H-beams. Structural 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 many applications.
17
Structural tubing, standard pipe and electrical conduit are produced by
processing flat rolled steel into strips, which are cold-formed and welded. The
machinery and equipment used for the manufacture of structural tubing, standard
pipe and electrical conduit products are similar to that used for the
manufacture of OCTG. Structural tubing, standard pipe and electrical conduit are
not, however, subject to the same degree of tolerances as are OCTG, which
results in lower production costs related to testing and inspection than for
OCTG. Moreover, structural tubing, standard pipe and electrical conduit does not
require end-finishing, flash elimination for the welding process or
seam-annealing. Because less finishing is required of structural tubing,
standard pipe and electrical conduit products as compared to OCTG, the average
cost per ton to convert steel into industrial products is slightly less than
OCTG.
We believe that demand for structural tubing is influenced primarily by the
level of general economic activity in North America. We estimate that domestic
consumption of structural tubing during calendar years 2002, 2001 and 2000 was
2.0 million, 2.0 million and 2.2 million tons, respectively.
Electrical conduit is primarily used as sheathing for electrical and computer
wiring in industrial, commercial and institutional construction referred to as
non-residential construction. As such, electrical conduit demand is primarily
influenced by changes in non-residential construction expenditures. We estimate
that domestic consumption of electrical conduit during calendar years 2002, 2001
and 2000 was 0.6 million, 0.6 million and 0.6 million tons, respectively. In
recent years, electrical conduit has faced new competition from plastic pipe in
certain applications.
Standard pipe products are used in industrial applications such as steam, water,
air and gas lines, and plumbing and heating. We manufacture standard pipe in the
same manner as we manufacture structural tubing. As with structural tubing, we
believe that demand for standard pipe is influenced primarily by the level of
general economic activity in North America. We estimate that domestic
consumption of standard pipe during calendar years 2002, 2001 and 2000 was 2.5
million, 2.8 million and 2.8 million tons, respectively. In recent years,
standard pipe has faced limited new competition from plastic pipe in certain
applications.
Our Products
We can produce square, rectangular and round structural tubing, standard pipe
and electrical conduit at our facilities in sizes ranging from 1/2" to 16"
square and the equivalent sizes in rectangular and round tubing. Our products
range from .120 to .500 inches in thickness. Because of the large number of
applications for structural tubing, standard pipe and electrical conduit, the
number of different products produced for the industrial market is considerably
larger than that produced for the OCTG market. The annual capacity at our
structural, standard pipe and electrical conduit facilities is approximately
535,000 tons. During calendar 2002 and 2001, we were operating at approximately
56% and 60%, respectively, of our structural capacity.
The following table shows our industrial product shipments in tons, net sales
and as a percentage of overall net sales measured in dollars:
Industrial Products
Net Sales % of
Tons (000's) Net Sales
----------------------------------------
MAVERICK
Year ended December 31, 2002............ 142,827 $66,654 24.5%
Year ended December 31, 2001............ 152,139 $65,990 19.2%
Year ended December 31, 2000............ 157,080 $75,066 24.9%
PRUDENTIAL
Year ended December 31, 2002............ 22,031 $11,163 7.3%
Year ended December 31, 2001............ 30,704 $13,854 6.9%
Year ended December 31, 2000............ 41,004 $21,517 8.3%
18
Marketing
The structural tubing, standard pipe and electrical conduit markets are somewhat
regional in nature, primarily because order sizes are smaller and lead-time
requirements are shorter than for OCTG. We currently sell principally to
distributors, but since 1997, we significantly increased our sales to large
end-user customers. As in the case of OCTG, our marketing strategy emphasizes
delivering competitively priced, quality products and providing a high level of
service to our customers. In addition, we expect our marketing ability will be
enhanced by the addition of larger diameter pipe and tubing facility and the
acquisition of the tubular division of The LTV Corporation. Because the
application of structural tubing, standard pipe products and electrical conduit
is diverse, and a short lead-time is required for customer satisfaction, we
maintain inventory levels, in terms of months of supply, comparable to those for
OCTG. This finished goods inventory will consist of a larger number of items
than in the case of OCTG. We use experienced manufacturing representatives in
our sales efforts.
As of December 31, 2002 and 2001, our backlog of orders for structural tubing,
electrical conduit and standard pipe were $8.2 million and $8.5 million,
respectively. All of the backlog orders as of December 31, 2002 are expected to
be filled by the end of calendar 2003. We do not consider any of our backlog
orders to be firm as they may generally be cancelled without penalty. Our
backlog orders as of any particular date may not be indicative of our actual
operating results for any fiscal period. We cannot give any assurance that the
amount of backlog at any given time ultimately will be realized.
Manufacturing
We are currently producing structural square and rectangular shaped tubing
products in our structural tube and large diameter facilities located in
Hickman, Arkansas and in Calgary, Alberta. We are also currently producing
structural round tubing products and standard pipe at our Hickman, Arkansas and
Conroe, Texas facilities.
Based upon historical product relationships and our assumptions about the U.S.
market, we estimate that the sizes of structural tubing products we currently
are capable of manufacturing account for 97% of the domestic tonnage of all
sizes of domestic structural tubing products consumed.
We believe that the types of standard pipe products we are capable of
manufacturing account for approximately 41% of the domestic tonnage of all types
of the U.S. standard pipe products consumed.
We believe that the types of electrical conduit we are capable of manufacturing
account for approximately 100% of the domestic tonnage of all types of the U.S.
electrical conduit products consumed.
Consistent with our manufacturing strategy for OCTG production, we believe we
are a low-cost, high-volume producer of quality structural tubing, standard pipe
products and electrical conduit. We believe that the application of our
efficient manufacturing process originally developed for the production of OCTG,
the labor costs and the strategic location of our facilities provide a
conversion cost advantage relative to the majority of existing domestic
structural tubing and standard pipe manufacturers.
During calendar 2002, 2001 and 2000, we spent $0.5 million, $1.1 million and
$1.4 million, respectively, on additional equipment at our industrial facility
in Hickman, Arkansas. Our capital budget for our industrial facilities for
calendar 2003 is $5.2 million. We expect these capital expenditures to result in
manufacturing cost savings and quality improvements. Capital expenditures
related to our facility in Calgary, Alberta is included in the energy pipe
industry section. Although the Calgary, Alberta facility manufactures industrial
products, this facility is primarily energy product focused and only produces
industrial products to fill out mill capacity.
19
Competition
Although a significant market for structural tubing is located within a 400-mile
radius of our Hickman, Arkansas structural facility, no other major structural
tubing facility is currently located within this area. Non-domestic competitors,
primarily from Canada, represented 19.8%, 21.8% and 24.0% of total domestic
sales of structural tubing in calendar years 2002, 2001 and 2000, respectively.
We compete primarily against several domestic and numerous foreign producers of
structural tubing. Our more significant structural tube competitors are IPSCO
Tubular, Inc., Bull Moose Tube Corporation, Hanna Steel Corporation, Atlas Tube
Inc., Independence 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 36.3%, 35.6% and 40.0% of total domestic sales of standard pipe in
calendar years 2002, 2001 and 2000, respectively. Our more significant standard
pipe competitors are Wheatland Tube Company, Armco, Inc., Sawhill Tubular
Division, U.S. Steel Corporation, Paragon Industries and IPSCO Tubular, Inc.
We compete primarily against Allied Tube and Conduit, Wheatland Tube Company and
Western Tube and Conduit Corporation in the electrical conduit market. The
import and export markets for electrical conduit are limited by strong local
competition.
We believe that the principal competitive factors affecting our structural
tubing, standard pipe and electrical conduit businesses are price, product
availability, delivery and service.
We believe we experience seasonal fluctuations in demand for our industrial
products. However, the timing of such fluctuations may differ from fluctuations
experienced in the OCTG market.
DISCONTINUED OPERATIONS
During the first quarter of 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, including the provision for the loss on
disposal and operating losses during the phase-out period of $10.2 million (net
of $5.8 million tax benefit), have been segregated from continuing operations
and reported separately as discontinued operations in the income statements.
On March 29, 2002, pursuant to an asset purchase agreement dated March 21, 2002,
the Company completed the sale of the DOM business for $8.1 million, consisting
of cash in the amount of $1.2 million and the buyer's nine-year secured
promissory note of $6.9 million, which approximates its fair value. To
accommodate the buyer's purchase of the DOM business, the Company guaranteed the
$1.5 million buyer's line of credit. In exchange, the Company was granted liens
and appropriate subrogation rights in the assets conveyed to the buyer. The
Company recognized a $0.5 million after tax gain from discontinued operations
for the year ended December 31, 2002.
DOM revenues were $37,000, $7.9 million and $15.6 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
RAW MATERIALS
The majority of our steel purchases are completed at our headquarters in
Chesterfield, Missouri in order to optimize pricing, quality, availability and
delivery of our raw materials. During 2002, we consumed approximately 2.0% of
the total amount of hot rolled steel produced in North America. Accordingly, we
believe that we are the largest purchaser of hot rolled steel in North America.
We maintain favorable working relationships with our steel suppliers and believe
that we are treated favorably with respect to volume allocations and deliveries.
We presently purchase the majority of our steel from several suppliers, with
approximately 80% of consolidated purchases made from Nucor Corporation,
Tuscaloosa Steel Corp.,
20
International Steel Group and IPSCO Steel, Inc. Nucor's mill in Hickman,
Arkansas is directly connected by rail to our Hickman facilities, thus
eliminating our freight costs for raw materials purchased from Nucor. Unlike our
Hickman facilities, our facilities in Houston, Texas; Conroe, Texas; Elyria,
Ohio; Counce, Tennessee; Ferndale, Michigan; Cedar Springs, Georgia; Youngstown,
Ohio and Calgary, Alberta are not directly connected by rail to our primary
steel suppliers. To date, we have not experienced any significant disruption in
our supply of raw materials.
EMPLOYEES
As of December 31, 2002, we employed 2,098 persons, of whom 1,084 were Maverick
employees, 459 were Prudential employees, 144 were Precision employees and 411
were employees from our acquisition of the tubular division of The LTV
Corporation on December 31, 2002. A union represents approximately 73% of
Prudential employees and approximately 53% of all the tubular division of The
LTV Corporation employees. We consider our employee relations to be excellent.
ACCESS TO SEC FILINGS THROUGH COMPANY WEBSITE
Interested readers can access the Company's annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, through the Investor Relations
section of the Company's website at www.maverick-tube.com. These reports can be
accessed free of charge from the Company's website as soon as reasonably
practicable after the Company electronically files such materials with, or
furnishes them to, the SEC.
ITEM 2 Properties
- -----------------
We maintain manufacturing facilities and sales offices throughout North America.
We believe that our facilities are adequately insured, properly maintained and
equipped with machinery and equipment suitable for their use. All of our
operating facilities have been pledged as collateral under our senior credit
revolving facility. See Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations. Our manufacturing facilities as
of December 31, 2002 are summarized below.
Maverick
We use our entire 225 acre site in Hickman, Arkansas for three manufacturing
facilities. A 315,000 square foot energy manufacturing plant and storage space
and a 275,000 square foot structural tube manufacturing plant (with 155,000
square feet of storage and shipping space) are located adjacent to each other.
We occupy both of these facilities under separate leases, each providing us an
option to purchase, which is exercisable on the expiration dates of the leases.
The expiration dates are August 1, 2007 for the oil country tubular goods
facility and February 1, 2004 for the structural tube facility. A 300,000 square
foot large diameter manufacturing plant and storage facility (adjacent to the
oil country tubular goods and structural manufacturing plants) is owned by the
Company. This facility manufactures both energy and structural tubing products.
A 30,000 square foot facility adjacent to the large diameter facility is
utilized for the epoxy coating of Maverick's line pipe products. This facility
is under lease to an independent third party that coats the line pipe.
We own 117 acres and a 244,000 square foot facility (manufactures oil country
tubular goods and line pipe) located in Conroe, Texas. Of the 117 acres,
approximately 52 acres is used for manufacturing and storage and 65 acres is
available for future expansion.
We own 133 acres and a 64,000 square foot facility (manufactures oil country
tubular goods, line pipe, standard pipe and rigid conduit) located in Counce,
Tennessee. Of the 133 acres, approximately 25 acres is used for manufacturing
and storage and 108 acres is available for future expansion.
21
We also own approximately 37 acres in Youngstown, Ohio. This site has a 558,000
square foot manufacturing and storage facility. The Company expects to sell the
Youngstown, Ohio land and buildings during 2003 or 2004 as part of our planned
exit from the Youngstown, Ohio facility.
Each manufacturing facility operated by Maverick is served by truck, has its own
rail spur and is within close proximity of barge facilities.
We lease approximately 40,000 square feet of office space in Chesterfield,
Missouri for our executive offices under a lease that expires in 2008.
Prudential
We use our entire 93 acre site in Calgary, Alberta for three energy/industrial
production facilities and three oil country tubular goods finishing facilities.
The energy/industrial production facilities are located in approximately 197,200
square feet in two separate buildings. The oil country tubular finishing
facilities are located in three separate buildings, which utilize approximately
81,700 square feet of space. Adjacent to these buildings is a 94,500 square foot
industrial storage facility and a 29,900 square foot combination fabrication
shop, storage and security building. There is 12,000 square feet of space for
the slitter located in a separate building. These facilities (all owned by
Prudential) are served by truck and have their own rail spur.
We lease approximately 15,800 square feet of office space in Calgary, Alberta
under a lease that expires in 2008.
Precision
We use our entire 10 acre site in Houston, Texas for a coiled steel pipe
production facility. The coiled steel pipe facility is located in approximately
68,100 square feet in two separate buildings. There is 7,900 square feet of
office space located in a separate building. These facilities (all owned by
Precision) are served by truck.
Republic Conduit Division
We own 85 acres and a 130,000 square foot steel electrical conduit manufacturing
facility located in Cedar Springs, Georgia. Of the 85 acres, approximately 6
acres is used for manufacturing and storage and 79 acres is available for future
expansion.
We own 20 acres and a 212,000 square foot facility (manufactures steel
electrical conduit and mechanical tubing) located in Ferndale, Michigan. Of the
20 acres, approximately 12 acres is used for manufacturing and storage and 8
acres is available for future expansion.
We own 57 acres and a 180,000 square foot facility (manufactures rigid conduit
and mechanical tubing) located in Elyria, Ohio. Of the 57 acres, approximately
15 acres is used for manufacturing and storage and 42 acres is available for
future expansion.
These facilities are all served by truck, while Cedar Springs, Georgia also has
their own rail spur.
We own 9 acres and a 24,000 square foot office building in Youngstown, Ohio.
Property Held for Sale
We also own approximately 34 acres in Longview, Washington. This site has a
168,000 square foot manufacturing and storage facility. The Company expects to
sell the Longview, Washington land and buildings during 2003 as part of our
planned exit from the Longview, Washington facility.
22
ITEM 3 Legal Proceedings
- ------------------------
From time to time, we are involved in litigation relating to claims arising out
of our operations in the normal course of our business. We maintain insurance
coverage against potential claims in an amount, which we believe to be adequate.
We believe that we are not presently a party to any litigation in which the
outcome would have a material adverse effect on our business or operations.
Our businesses are subject to numerous U.S. and Canadian local, state,
provincial and federal laws and regulations concerning environmental, health and
safety matters, including those relating to air emissions, wastewater discharges
and the generation, handling, storage, transportation, treatment and disposal of
hazardous wastes. Violations of such laws and regulations can lead to
substantial fines and penalties. Also, there are risks of substantial costs and
liabilities relating to the investigation and remediation of past or present
contamination, at current as well as former properties utilized by us and at
third-party disposal sites, regardless of fault or the legality of the original
activities that led to such contamination. Moreover, future developments, such
as changes in laws and regulations, more stringent enforcement or interpretation
thereof, and claims for property damage or personal injury could cause us to
incur substantial losses or expenditures. Although we believe we are in
substantial compliance with all applicable laws and regulations, there can be no
assurance that any such law, regulation, enforcement or private claim will not
have a material adverse effect on our business, results of operations and
financial condition.
ITEM 4 Submission of Matters to a Vote of Security Holders
- ----------------------------------------------------------
There were no matters submitted, during the quarter ended December 31, 2002
covered by this report, to a vote of our security holders through the
solicitation of proxies or otherwise.
23
ITEM 4A Executive Officers
- --------------------------
Set forth below are descriptions of the backgrounds of our executive officers
and their principal occupations for at least the last five years:
Gregg Eisenberg (age 52) 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. Prior to joining the Company in 1983, he was employed with
Central Steel Tube Company for six years. He is the current president, a former
director and past chairman of the Committee on Pipe and Tube Imports.
James A. Cowan (age 45) has served as Executive Vice President and Chief
Operating Officer since March 2003. Prior to joining the Company, he was
employed as President of V&M Tubular Corporation (formerly the Tubular Division
of North Star Steel) based in Youngstown, Ohio since 1998.
Pamela G. Boone (age 40) has served as Vice President - Finance and
Administration, Treasurer, Secretary and Chief Financial Officer of the Company
since March 2001. From January 1997 to March 2001, Ms. Boone served as Corporate
Controller. From 1994 until she became Corporate Controller, she served as the
Company's budget and tax accounting manager. Before joining the Company in 1994,
she was employed by Ernst & Young LLP, where she was a Senior Manager.
T. Scott Evans (age 55) has served as Senior Vice President - Sales and
Marketing of the Company since February 2003. From September 1992 to February
2003, Mr. Evans served as the Company's Vice President - Commercial Operations.
Prior to joining the Company in 1988 as General Sales Manager, he was employed
with Wolverine Tube Corporation. From January 1981 to June 1986, Mr. Evans was
employed with Republic Steel Corporation.
Sudhakar Kanthamneni (age 55) has served as Senior Vice President -
Manufacturing and Technology of the Company since February 2003. From August
1992 to February 2003, Mr. Kanthamneni served as the Company's Vice President -
Manufacturing and Technology. From May 1991 to August 1992, Mr. Kanthamneni
served as the Company's Vice President - Manufacturing. Prior to joining the
Company in 1987, he was employed with Central Steel Tube Company for ten years.
Richard W. Preckel (age 43) has served as Vice President - Strategic Services of
the Company since February 2003. From November 2000 to February 2003, Mr.
Preckel was the Company's Vice President of Canadian Operations. From 1994 to
November 2000, Mr. Preckel was the Company's General Manager of Marketing
Services. Mr. Preckel joined the Company in 1987 and served as the Company's
Manager of Planning and Budgets, Controller of the Texas facility and Accounting
Manager.
24
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
ITEM 5 Market for Registrant's Common Equity and Related Stockholder Matters
- ----------------------------------------------------------------------------
The information required by Item 5 is set forth under the caption "Market For
Our Common Equity and Related Stockholder Matters" (page 45) of our 2002 Annual
Report and incorporated herein by reference.
ITEM 6 Selected Financial Data
- ------------------------------
The information required by Item 6 is set forth under the caption "Historical
Financial Information" (page 44) of our 2002 Annual Report and incorporated
herein by reference.
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The information required by Item 7 is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (pages
18 through 26) of our 2002 Annual Report and incorporated herein by reference.
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
The information required by Item 7A is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (page
26) of our 2002 Annual Report and incorporated herein by reference.
ITEM 8 Financial Statements and Supplementary Data
- --------------------------------------------------
The information required by Item 8 is set forth under the caption "Consolidated
Financial Statements," the notes thereto and the Report of Ernst & Young LLP
(pages 27 through 42) of our 2002 Annual Report and incorporated herein by
reference.
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
- --------------------------------------------------------------------------------
None.
25
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
ITEM 10 Directors and Executive Officers of the Registrant
- ----------------------------------------------------------
The information required by Item 10 is set forth under the caption "Item 1 -
Election of Directors" (pages 3-5) of our definitive proxy statement and
incorporated herein by reference. Our definitive proxy statement is being filed
with the Securities and Exchange Commission within 120 days of the end of our
most recent fiscal year.
ITEM 11 Executive Compensation
- ------------------------------
The information required by Item 11 is set forth under the caption "Executive
Compensation" (page 6) of our definitive proxy statement and incorporated herein
by reference. Our definitive proxy statement is being filed with the Securities
and Exchange Commission within 120 days of the end of our most recent fiscal
year.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
- ----------------------------------------------------------------------
The information required by Item 12 is set forth under the caption "Security
Ownership of Management" and under the caption "Securities Authorized For
Issuance Under Equity Compensation Plans," (page 3) and (page 15), respectively,
of our definitive proxy statement and incorporated herein by reference. Our
definitive proxy statement is being filed with the Securities and Exchange
Commission within 120 days of the end of our most recent fiscal year.
ITEM 13 Certain Relationships and Related Transactions
- ------------------------------------------------------
The information required by Item 13 is set forth under the caption "Certain
Relationships and Related Transactions" (page 8) of our definitive proxy
statement and incorporated herein by reference. Our definitive proxy statement
is being filed with the Securities and Exchange Commission within 120 days of
the end of our most recent fiscal year.
ITEM 14 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 Yearly 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 that the
information required to be discussed by the Company in the reports that it files
and submits under the Securities Exchange Act of 1934, as amended, and (b) is
accumulated, documented 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 evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
26
ITEM 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -----------------------------------------------------------------------
(a) 1. Financial Statements
The consolidated financial statements of the Company, including the
notes thereto, required in response to this item as set forth in
response to Part II, Item 8 of this Annual Report are incorporated
herein by reference to the Company's 2002 Annual Report and are filed
herewith as Exhibit 13.
o Report of Independent Auditors (page 27).
o Consolidated Balance Sheets as of December 31, 2002 and 2001
(page 28).
o Consolidated Income Statements for the years ended December 31,
2002, 2001 and 2000 (page 29).
o Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2002, 2001 and 2000 (page 30).
o Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000 (page 31).
o Notes to Consolidated Financial Statements (pages 32-42).
2. Financial Statement Schedule
The following consolidated financial statement schedule of the Company
is included with this Annual Report on Form 10-K:
Schedule II Valuation and Qualifying Accounts for the years ended
December 31, 2002, 2001 and 2000.
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:
The exhibits listed on the Exhibit Index of this Annual Report are
incorporated herein by reference or filed herewith as required by item
601 of Regulation S-K (each management contract or compensatory plan
or arrangement listed therein is identified).
(b) Reports on Form 8-K:
The Company filed two reports on Form 8-K during the quarter ended
December 31, 2002. Information regarding the items reported on is as
follows:
Date Item Reported On
- ---- ----------------
October 16, 2002 The Company announced its earning results for the
quarter ended September 30, 2002.
October 16, 2002 The Company announced the signing of a definitive
asset purchase agreement to acquire substantially all
of the assets of the tubular division of The LTV
Corporation.
27
Maverick Tube Corporation
and Subsidiaries
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 December 31, 2000:
Deducted from asset account:
Accounts receivable allowances........ $ 1,520 $ 979 $ -- $ 358 (1) $ 2,141
Valuation allowance for deferred
income taxes......................... $ 1,717 $ -- $ -- $ 660 (2) $ 2,377
Year ended December 31, 2001:
Deducted from asset account:
Accounts receivable allowances........ $ 2,141 $ 327 $ -- $ 56 (1) $ 2,412
Valuation allowance for deferred
income taxes......................... $ 2,377 $ -- $ -- $(1,376)(3) $ 1,001
Year ended December 31, 2002:
Deducted from asset account:
Accounts receivable allowances........ $ 2,412 $ 449 $2,327(4) $ -- $ 5,188
Valuation allowance for deferred
income taxes......................... $ 1,001 $ -- $ -- $(1,001)(5) $ --
(1) Uncollectible accounts written off, net of recoveries.
(2) Resulted from an additional net operating loss carryforward generated at
our Longview, Washington facility, which was not valued for financial
statement purposes.
(3) Resulted from generating taxable income at our Longview, Washington
facility.
(4) Acquired allowances as a result of the Precision and the tubular division
of The LTV Corporation acquisitions during 2002. (5) Resulted from
generating taxable income at our Hickman, Arkansas facility.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
March 28, 2003 /s/ Gregg Eisenberg
--------------------------------------------------------
Gregg Eisenberg, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
March 28, 2003 /s/ Gregg Eisenberg
--------------------------------------------------------
Gregg Eisenberg, Chairman, President
and Chief Executive Officer and Director
(Principal Executive Officer)
March 28, 2003 /s/ Pamela G. Boone
--------------------------------------------------------
Pamela G. Boone, Vice President - Finance and
Administration
(Principal Financial and Accounting Officer)
March 28, 2003 /s/ William E. Macaulay
--------------------------------------------------------
William E. Macaulay, Director
March 28, 2003 /s/ C. Robert Bunch
--------------------------------------------------------
C. Robert Bunch, Director
March 28, 2003 /s/ C. Adams Moore
--------------------------------------------------------
C. Adams Moore, Director
March 28, 2003 /s/ David H. Kennedy
--------------------------------------------------------
David H. Kennedy, Director
March 28, 2003 /s/ Wayne P. Mang
--------------------------------------------------------
Wayne P. Mang, Director
March 28, 2003
--------------------------------------------------------
J. Donald Wilson, Director
29
CERTIFICATIONS
I, Gregg Eisenberg, Chairman of the Board, President and Chief Executive Officer
of Maverick Tube Corporation (Maverick), certify that:
1. I have reviewed this annual report on Form 10-K of Maverick;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Maverick as of, and for, the periods presented in this annual report;
4. Maverick'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 Maverick and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Maverick, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of Maverick's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual 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. Maverick's other certifying officer and I have disclosed, based on our most
recent evaluation, to Maverick's auditors and the audit committee of
Maverick'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 Maverick's ability to record,
process, summarize and report financial data and have identified for
Maverick'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 Maverick's internal controls;
and
6. Maverick's other certifying officer and I have indicated in this annual
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: March 28, 2003 /s/ Gregg Eisenberg
------------------------------------------------
Gregg Eisenberg, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
30
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 annual report on Form 10-K of Maverick;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Maverick as of, and for, the periods presented in this annual report;
4. Maverick'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 Maverick and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Maverick, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of Maverick's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. Maverick's other certifying officer and I have disclosed, based on our most
recent evaluation, to Maverick's auditors and the audit committee of
Maverick'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 Maverick's ability to record,
process, summarize and report financial data and have identified for
Maverick'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 Maverick's internal controls;
and
6. Maverick's other certifying officer and I have indicated in this annual
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: March 28, 2003 /s/ Pamela G. Boone
------------------------------------------------
Pamela G. Boone, Vice President - Finance
and Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
31
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
2.1 Combination Agreement by and between the Registrant and Prudential
Steel Ltd. dated as of June 11, 2000, incorporated herein by reference
to Annex B to our definitive proxy statement filed on August 11, 2000
(File No. 001-10651).
2.2 Form of Plan of Arrangement involving and affecting Prudential Steel
Ltd. and the holders of its common shares and options, incorporated
herein by reference to Annex D to our definitive proxy statement filed
on August 11, 2000 (Filed No. 001-10651).
2.3 Stock Purchase Agreement dated as of February 12, 2002 by and among
the Registrant, Precision Tube Holding Corporation and the
shareholders of Precision Tube Holding Corporation, incorporated
herein by reference to Exhibit 2.1 to the Registrant's Form 8-K filed
on February 14, 2002.
2.4 Asset Purchase Agreement By and Among The LTV Corporation, the Other
Sellers Named Herein and the Registrant dated as of October 15, 2002,
incorporated herein by reference to Exhibit 2.1 to the Registrant's
Form 8-K filed on October 16, 2002.
2.5 Plan of Reorganization and Agreement of Merger dated as of February
19, 2003 by and among the Registrant, SC Acquisition, L.P., SeaCAT
Corporation and certain shareholders of SeaCAT Corporation,
incorporated herein by reference to Exhibit 2.1 to the Registrant's
Form 8-K filed on February 20, 2003.
3.1 Amended and Restated Certificate of Incorporation of the registrant,
as amended, incorporated herein by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.
3.2 Amended and Restated Bylaws of the Registrant, as amended,
incorporated herein by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1998.
3.3 Amend and Restated Bylaws of the Registrant, as amended, incorporated
herein by reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002.
4.1 Form of Amended and Restated Shareholder Rights Agreement, dated as of
September 22, 2000 between the Registrant and Harris Trust and Savings
Bank (which includes as Exhibit A thereto the Form of Preferred Stock
Rights Certificate) incorporated herein by reference to Exhibit (5) of
the Registrant's Form 8-A/A filed on September 26, 2000.
4.2 Form of Stock Certificate for Common Stock, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form S-1, (File No. 33-37363).
4.3 Form of Stock Certificate for Series II or Special Voting Preferred
Stock, incorporated herein by reference to Exhibit 4.3 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
4.4 Form of Share Capital and other Provisions to be included in the
Articles of Incorporation of Maverick Tube (Canada) Inc., incorporated
herein by reference to Annex E to our definitive proxy statement filed
on August 11, 2000 (File No. 001-10651).
4.5 Form of Support Agreement by and between the Registrant and Maverick
Tube (Canada) Inc., incorporated herein by reference to Annex F to our
definitive proxy statement filed on August 11, 2000 (File No.
001-10651).
32
4.6 Form of Voting and Exchange Trust Agreement by and between the
Registrant, Maverick Tube (Canada), Inc. and CIBC Mellon Trust
Company, incorporated herein by reference to Annex G to our definitive
proxy statement filed on August 11, 2000 (File No. 001-10651).
10.1 Lease and Agreement dated July 24, 1992, by and between the 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 Plan,
incorporated herein by reference to Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1991.
10.3* Maverick Tube Corporation Savings for Retirement Plan effective on
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
fiscal year ended September 30, 1993.
10.4 Lease Agreement dated as of March 1, 1994, between the Authority, 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 number 33-80096).
10.5 First Supplemental Trust Indenture to Lease Agreement between the
Authority, as lessor and the Registrant, as lessee relating to the
Registrant's Arkansas Structural Facility, dated July 1, 1994,
incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1994.
10.6* The Maverick Tube Corporation 1994 Stock Option Plan, incorporated
herein by reference to Exhibit 10.17 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended September 30, 1994.
10.7* The Maverick Tube Corporation Director Stock Option Plan, incorporated
herein by reference to Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended September 30, 1994.
10.8* Form of Deferred Compensation Agreement between the Registrant and
Messrs. Gregg 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.
10.9* Form of Severance Agreement dated December 10, 1998, by and among the
Registrant and Gregg Eisenberg, Sudhakar Kanthamneni and T. Scott
Evans, 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, 1998.
10.10* Amendment #1 to the Maverick Tube Corporation Director Stock Option
Plan, incorporated herein by reference to Exhibit 10.24 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
10.11* Amendment #1 to the Maverick Tube Corporation 1994 Stock Option 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 Agreement of Limited Partnership between the Registrant, Maverick
Investment Corporation and Maverick Tube L.P., incorporated herein by
reference to Exhibit 10.13 of the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1998.
33
10.13* The Registrant's Amended and Restated Prudential Steel Ltd. Stock
Option Plan incorporated herein by reference to Exhibit 99.1 of the
Registrant's Form S-8 filed on September 27, 2000, (File No.
335-46740).
10.14* Amended and Restated Prudential Steel Ltd. Pension Plan for Salaried
Employees restated effective January 1, 1992 and including amendments
to January 1, 1998, incorporated herein by reference to Exhibit 10.15
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 (In Canadian Dollars).
10.15 Amended and Restated Secured Credit Agreement among the Registrant and
Harris Trust and Savings Bank as Agent dated as of December 28, 2000,
incorporated herein by reference to Exhibit 10.16 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
2000.
10.16 Credit Facility between Prudential Steel Ltd. and Royal Bank of Canada
dated as of December 27, 2000, incorporated herein by reference to
Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (In Canadian Dollars).
10.17 Lease and Agreement dated January 10, 2001, by and between the
Registrant and Commercial Resins Company, Inc., incorporated herein by
reference to Exhibit 10.18 of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
10.18* Prudential Steel Ltd. Supplemental Employees' Retirement Plan dated as
of January 1, 1994, incorporated herein by reference to Exhibit 10.19
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.
10.19* Change of Control Agreement dated April 28, 1998 by and between
Prudential Steel Ltd. and J. D. Wilson, incorporated herein by
reference to Exhibit 10.20 of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
10.20 First Amendment to Amended and Restated Secured Credit Agreement,
incorporated herein by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 2001.
10.21* Second Amendment to the 1994 Stock Option Plan, incorporated herein by
reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 2001.
10.22* Collective Bargaining Agreement between Prudential Steel Ltd. and the
United Steelworkers of America, Local 7226, effective as of January 1,
2001 through December 31, 2003, incorporated herein by reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 2001 (In Canadian Dollars).
10.23 Amending Letter to the Letter Agreement dated December 27, 2000
between Prudential Steel Ltd. and Royal Bank of Canada, incorporated
herein by reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 2001.
10.24 Waiver Letter to the Amended and Restated Secured Credit Agreement
among the Registrant and Harris Trust and Savings Bank as Agent dated
as of December 28, 2000, incorporated herein by reference to Exhibit
10.2 of the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 2001.
10.25* Form of Secured Note Agreement among certain employees of Maverick
Tube Corporation and Maverick Tube Corporation, incorporated herein by
reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 2001.
34
10.26 Second Amendment to Amended and Restated Secured Credit Agreement,
filed herein by reference to Exhibit 10.27 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001.
10.27 Credit Agreement dated as of March 29, 2002 among Registrant and its
subsidiaries, on the one hand, and the Senior Lenders, on the other
hand, incorporated herein by reference to Exhibit 10.1 of the
Registrant's Form 8-K filed on March 29, 2002.
10.28 First Amendment to Credit Agreement dated as of July 15, 2002 among
Registrant and its subsidiaries, on the one hand, and the Senior
Lenders, on the other hand, incorporated herein by reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 2002.
10.29 Amended and Restated Credit Agreement dated as of December 31, 2002 by
and among the Registrant and its subsidiaries, on the one hand, and JP
Morgan Chase Bank, CIT Business Credit Canada Inc., General Electric
Capital Corporation, and other financial lenders now or hereinafter a
party to the agreement, on the other hand, incorporated herein by
reference to Exhibit 10.1 of the Registrant's Form 8-K filed on
January 3, 2003.
10.30* Collective Bargaining Agreement between the Registrant. and the United
Steelworkers of America, effective as of January 1, 2003 through
November 15, 2005, incorporated herein by reference to Exhibit 10.30
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
10.31* Collective Bargaining Agreement between the Registrant. and the United
Steelworkers of America, effective as of January 1, 2003 through
November 15, 2005, incorporated herein by reference to Exhibit 10.31
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
13 Portions of Registrant's 2002 Annual Report to Stockholders which are
incorporated by reference herein, filed herewith.
21 Subsidiaries of the Registrant, filed herewith.
23.1 Consent of Ernst & Young LLP, independent auditors, filed herewith.
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.
* Management contract or compensatory plan or arrangement.
35