MVK Maverick Tube

Maverick Tube Corporation (NYSE:MVK) announced today its results for the quarter ended June 30, 2006. The Company reported net income for the second quarter of $53.7 million, or $1.30 per diluted share, compared to net income for the same quarter last year of $38.7 million, or $0.89 per diluted share, and net income of $70.9 million, or $1.80 per diluted share, for the first quarter 2006. Net revenues were $484.0 million for the quarter ended June 30, 2006, up from net revenues of $400.6 million for the second quarter 2005. Net revenues were down from $543.1 million for the first quarter 2006 due primarily to the typical seasonal slowdown in Canada. Earnings for the second quarter of 2006 were positively impacted by an adjustment to income tax reserves and were negatively impacted by a purchase price accounting adjustment relating to the TuboCaribe acquisition and by expenses related to the proposed merger with Tenaris. These items resulted in a net benefit to earnings in the quarter of approximately $0.04 per diluted share. Earnings for the second quarter of 2005 included a gain on the sale of Maverick's hollow structural sections (HSS) business of $0.26 per diluted share partially offset by a loss from discontinued operations of $0.03 per diluted share. Second quarter 2006 energy products net revenues increased 28.4% to $410.4 million from $319.6 million in the second quarter 2005, but declined 11.9% from $465.6 million in the first quarter 2006. Drilling activity in the U.S., measured by the average Baker Hughes Incorporated active rig count, increased in the second quarter 2006 compared to the first quarter 2006 by 7.4%. Drilling activity in Canada declined by 57.6% due to typical Spring thaw and the resulting impediments to moving drilling rigs to new locations. Drilling activity increased sequentially in the rest of the world by 1.9%. The 11.9% decrease in net revenues of energy products over last quarter is attributable to a 10.2% decline in tons shipped, again due to the seasonal slowdown in Canada. Average energy products selling prices declined by 1.8% primarily due to lower levels of Canadian sales and the timing of previously announced price increases. Second quarter 2006 electrical products net revenues were $73.5 million compared to $81.1 million in the second quarter 2005 and $77.4 million in the first quarter of 2006. The 5.0% decrease in net revenues from the first quarter 2006 is attributable to a 10.9% decrease in volume, to about 55,960 tons, partially offset by higher selling prices. Maverick's operating margin was 16.1% in the second quarter 2006 compared to 11.2% in the second quarter 2005 and 20.6% in the first quarter 2006. The decline from first quarter 2006 is attributable to a higher percentage of resale products and higher steel costs, lower sales of Canadian products and additional expenses related to the proposed merger with Tenaris and the purchase price accounting adjustment related to the May 2005 TuboCaribe acquisition. Maverick's net debt to total capitalization improved to 37.7% at June 30, 2006 compared to 39.0% at March 31, 2006. Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $89.0 million in the second quarter 2006 compared to $52.8 million in the second quarter 2005 and $121.2 million in the first quarter 2006. C. Robert Bunch, the Company's Chairman, President and Chief Executive Officer, said, "Our second quarter results reflect continuing strength in the energy markets, with the annual Spring breakup affecting our Canadian business. While all of our businesses performed well, Maverick Tubular Products, our U.S. OCTG and line pipe business, reported record shipments and net revenues this quarter. Pricing has begun to improve in our electrical products segment and, except for some costs related to our proposed merger and other items, S,G&A expenses remain within our target range." Mr. Bunch continued, "We are working towards closing our proposed merger with Tenaris. We continue to believe that a closing late in the third quarter or early in the fourth quarter is realistic, but depends principally on the timing of regulatory approvals." Maverick Tube Corporation is a St. Louis, Missouri based manufacturer of tubular products in the energy industry for exploration, production, and transmission, as well as industrial tubing products (steel electrical conduit, standard pipe, pipe piling, and mechanical tubing) used in various applications. Forward-Looking Statements This news release contains forward-looking information that is based on assumptions that are subject to numerous business risks, many of which are beyond the control of Maverick. Furthermore, statements about the expected timing, completion and effects of the proposed merger and all other statements in this filing other than historical facts, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Maverick may not be able to complete the proposed merger because of a number of factors, including the failure of Maverick's stockholders to approve the merger, the failure to obtain regulatory approvals or the failure to satisfy other closing conditions. Factors that may affect the business or financial results of Maverick include those described under "Risk Factors" and elsewhere in Maverick's Form 10-K for its year ended December 31, 2005, as amended. Maverick assumes no obligation to update any forecast or forward-looking statements included in this document, except as required by law. Additional Information and Where to Find It In connection with the solicitation of proxies by Maverick with respect to the meeting of its stockholders to be called with respect to the proposed merger, Maverick filed a preliminary proxy statement with the Securities and Exchange Commission (the "SEC") on June 30, 2006. Maverick will also file a definitive proxy statement and other relevant documents with the SEC in connection with the proposed transaction, and will furnish the definitive proxy statement to stockholders of Maverick. BEFORE MAKING ANY VOTING DECISION WITH RESPECT TO THE PROPOSED MERGER, STOCKHOLDERS OF MAVERICK ARE ADVISED TO READ THE PROXY STATEMENT WHEN IT IS FINALIZED AND DISTRIBUTED TO STOCKHOLDERS BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Stockholders will be able to obtain a free-of-charge copy of the proxy statement (when available) and other relevant documents filed with the SEC from the SEC's web site at http://www.sec.gov. Stockholders will also be able to obtain a free-of-charge copy of the proxy statement and other relevant documents (when available) by directing a request by mail or telephone to Maverick Tube Corporation, 16401 Swingley Ridge Road, Suite 700, Chesterfield, Missouri 63107, Attention: Joyce M. Schuldt, Telephone: 636-733-1600, or from Maverick's website, www.mavericktube.com. Participants in the Solicitation Maverick and certain of its directors and executive officers may, under the rules of the SEC, be deemed to be "participants" in the solicitation of proxies from its stockholders in connection with the proposed merger. Information concerning the interests of the persons who may be considered "participants" in the solicitation is set forth in Maverick's proxy statement relating to the proposed merger described above. -0- *T Maverick Tube Corporation Selected Consolidated Financial Data For the Quarter and Six Months Ended June 30, 2006 (In thousands, except rig count, per share data and sales volumes) (Unaudited) Quarter Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net revenues $ 483,979 $ 400,643 $ 1,027,039 $ 811,446 Cost of goods sold 379,109 334,160 786,278 675,780 ----------- ----------- ----------- ----------- Gross profit 104,870 66,483 240,761 135,666 Selling, general and administrative 24,859 19,098 46,141 36,023 Sales commissions 1,948 2,490 4,456 5,068 ----------- ----------- ----------- ----------- Income from operations 78,063 44,895 190,164 94,575 Interest expense 5,058 3,573 9,727 5,799 ----------- ----------- ----------- ----------- Income from continuing operations before income taxes 73,005 41,322 180,437 88,776 Provision for income taxes 19,733 12,428 56,211 28,086 ----------- ----------- ----------- ----------- Income from continuing operations 53,272 28,894 124,226 60,690 Income (loss) from discontinued operations (net of tax) 379 (1,417) 432 (1,998) Gain (loss) on sale of PCD business (net of tax) 20 - (89) - Gain on sale of HSS business, net of tax expense of $6,439 - 11,201 - 11,201 ----------- ----------- ----------- ----------- Net income $ 53,671 $ 38,678 $ 124,569 $ 69,893 =========== =========== =========== =========== Diluted earnings per share: Income from continuing operations $ 1.30 $ 0.67 $ 3.09 $ 1.40 Income from discontinued operations 0.01 0.23 0.01 0.21 ----------- ----------- ----------- ----------- Net income $ 1.30 $ 0.89 $ 3.10 $ 1.61 =========== =========== =========== =========== Average shares deemed outstanding 41,155,189 43,320,078 40,238,009 43,404,479 Other Data: Depreciation and amortization $ 10,970 $ 7,858 $ 20,074 $ 14,602 Capital expenditures 10,624 16,731 30,282 29,653 Quarter Ended Six Months Ended ------------------------------------- June 30, June 30, June 30, June 30, 2006 2005 2006 2005 ------- ------- -------- -------- Reconciliation of Net Income to EBITDA Net income $53,671 $38,678 $124,569 $ 69,893 Discontinued operations (399) (9,784) (343) (9,203) Provision for income taxes 19,733 12,428 56,211 28,086 Interest expense 5,058 3,573 9,727 5,799 Depreciation and amortization 10,970 7,858 20,074 14,602 ------- ------- -------- -------- EBITDA $89,033 $52,753 $210,238 $109,177 ======= ======= ======== ======== Note: EBITDA is considered a non-GAAP financial measurement. Management uses EBITDA because it believes it is a widely accepted financial indicator used by investors and analysts to analyze and compare companies on the basis of operating performance and that this measurement may be used by investors to make informed investment decisions. June 30, December 31, June 30, 2006 2005 2005 ------------ ------------ ------------ Balance Sheet Data: Working capital $485,198 $308,011 $481,297 Cash and cash equivalents 76,496 23,071 9,436 Property, plant and equipment, net of accumulated depreciation 304,190 307,289 254,832 Goodwill and intangibles 226,104 218,647 236,095 Total assets 1,429,043 1,239,290 1,192,601 Current maturities of long- term debt (1) 179,311 187,902 44,152 Long-term revolving credit facility 70,000 25,483 151,027 Convertible debt, at 4.0%, due June 2033 (1) - - 120,000 Convertible debt, at 1.875%, due November 2025 250,000 250,000 - Other long-term debt (less current maturities) 180 1,704 2,278 Stockholders' equity 700,452 566,856 670,219 (1) In the fourth quarter of 2005, the $120 million, 4.0%, convertible debt was classified to current debt due to the ability of the holders to exercise their conversion rights. Quarter Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 -------- -------- -------- -------- Average U.S. rig count (2) 1,632 1,336 1,576 1,308 Average Canadian rig count (2) 282 241 474 381 Average U.S. & Canadian workover rigs (2) 2,159 1,755 2,196 1,893 Average Latin America rig count (2) 329 326 321 319 Average International rig count (2) 913 916 904 896 (2) Source: Baker Hughes Incorporated Net Revenues and Gross Profit by Product Segment 2006 -------------------------------------------- March 31 June 30 September 30 -------------- -------------- -------------- % of % of % of $ Total $ Total $ Total ------- ----- ------- ------ ------ ----- Energy Products Net Revenues 465,638 85.7% 410,443 84.8% - Gross Profit 124,027 91.3% 97,287 92.8% - Electrical Products Net Revenues 77,422 14.3% 73,536 15.2% - Gross Profit 11,864 8.7% 7,583 7.2% - ------- ------- ------ Total Company Net Revenues 543,060 100.0% 483,979 100.0% - Gross Profit 135,891 100.0% 104,870 100.0% - 2005 -------------------------------------------- March 31 June 30 September 30 -------------- -------------- -------------- % of % of % of $ Total $ Total $ Total ------- ----- ------- ------ ------ ----- Energy Products Net Revenues 333,588 81.2% 319,581 79.8% 399,516 81.7% Gross Profit 49,108 71.0% 50,444 75.9% 69,275 80.1% Electrical Products Net Revenues 77,215 18.8% 81,062 20.2% 89,621 18.3% Gross Profit 20,075 29.0% 16,039 24.1% 17,247 19.9% ------- ------- ------ Total Company Net Revenues 410,803 100.0% 400,643 100.0% 489,137 100.0% Gross Profit 69,183 100.0% 66,483 100.0% 86,522 100.0% 2006 ------------------------------- December 31 Year-to-Date -------------- ---------------- % of % of $ Total $ Total ------- ----- --------- ----- Energy Products Net Revenues - 876,081 85.3% Gross Profit - 221,314 91.9% Electrical Products Net Revenues - 150,958 14.7% Gross Profit - 19,447 8.1% ------- --------- Total Company Net Revenues - 1,027,039 100.0% Gross Profit - 240,761 100.0% 2005 ------------------------------- December 31 Year-to-Date -------------- ---------------- % of % of $ Total $ Total ------- ----- --------- ----- Energy Products Net Revenues 409,687 84.5% 1,462,372 81.9% Gross Profit 112,256 87.2% 281,083 80.1% Electrical Products Net Revenues 74,963 15.5% 322,861 18.1% Gross Profit 16,539 12.8% 69,900 19.9% ------- --------- Total Company Net Revenues 484,650 100.0% 1,785,233 100.0% Gross Profit 128,795 100.0% 350,983 100.0% Net Revenues by Geographic Area 2006 -------------------------------------------- March 31 June 30 September 30 -------------- -------------- -------------- % of % of % of $ Total $ Total $ Total ------- ----- ------- ------ ------ ----- United States 293,843 54.1% 335,889 69.4% - Canada 201,019 37.0% 111,697 23.1% - Latin America and Other 48,198 8.9% 36,393 7.5% - ------- ------- ------ Total Company 543,060 100.0% 483,979 100.0% - ======= ======= ====== 2005 -------------------------------------------- March 31 June 30 September 30 -------------- -------------- -------------- % of % of % of $ Total $ Total $ Total ------- ----- ------- ------ ------ ----- United States 258,954 63.0% 286,708 71.6% 291,711 59.6% Canada 137,964 33.6% 90,605 22.6% 131,505 26.9% Latin America and Other 13,885 3.4% 23,330 5.8% 65,921 13.5% ------- ------- ------- Total Company 410,803 100.0% 400,643 100.0% 489,137 100.0% ======= ======= ======= 2006 ------------------------------- December 31 Year-to-Date -------------- ---------------- % of % of $ Total $ Total ------- ----- --------- ----- United States - 629,732 61.3% Canada - 312,716 30.4% Latin America and Other - 84,591 8.2% ------- --------- Total Company - 1,027,039 100.0% ======= ========= 2005 ------------------------------- December 31 Year-to-Date -------------- ---------------- % of % of $ Total $ Total ------- ----- --------- ----- United States 278,745 57.5% 1,116,118 62.5% Canada 168,851 34.8% 528,925 29.6% Latin America and Other 37,054 7.6% 140,190 7.9% ------- --------- Total Company 484,650 100.0% 1,785,233 100.0% ======= ========= Note: Net revenue is attributable to the destination to which the product is shipped by Maverick. This attribution method differs from the Geographic Information disclosure in the Segment Information footnote of the Company's December 31, 2005 Form 10-K. Sales Volume by Product Line (Short Tons) 2006 -------------------------------------------- March 31 June 30 September 30 -------------- -------------- -------------- % of % of % of Tons Total Tons Total Tons Total ------- ------ ------- ------ ------- ------ OCTG 231,534 59.7% 211,854 60.9% - Line Pipe 87,392 22.5% 74,872 21.5% - Coiled 5,989 1.5% 4,947 1.4% - -------- -------- -------- Total - Energy Products 324,915 83.8% 291,673 83.9% - Total - Electrical Products 62,796 16.2% 55,960 16.1% - -------- -------- -------- Total Company 387,711 100.0% 347,633 100.0% - ======== ======== ======== 2005 -------------------------------------------- March 31 June 30 September 30 -------------- -------------- -------------- % of % of % of Tons Total Tons Total Tons Total ------- ----- -------- ----- -------- ----- OCTG 172,702 59.6% 174,248 61.2% 215,901 59.2% Line Pipe 61,027 21.0% 46,798 16.4% 79,167 21.7% Coiled 7,867 2.7% 7,850 2.8% 5,332 1.5% ------- ------- ------- Total - Energy Products 241,596 83.3% 228,896 80.4% 300,400 82.3% Total - Electrical Products 48,330 16.7% 55,708 19.6% 64,601 17.7% ------- ------- ------- Total Company 289,926 100.0% 284,604 100.0% 365,001 100.0% ======= ======= ======= 2006 ------------------------------- December 31 Year-to-Date -------------- ---------------- % of % of Tons Total Tons Total ------- ------ --------- ------ OCTG - 443,388 60.3% Line Pipe - 162,264 22.1% Coiled - 10,936 1.5% ------- --------- Total - Energy Products - 616,588 83.9% Total - Electrical Products - 118,756 16.1% ------- --------- Total Company - 735,344 100.0% ======= ========= 2005 ------------------------------- December 31 Year-to-Date -------------- ---------------- % of % of Tons Total Tons Total ------- ------ --------- ------ OCTG 215,364 63.0% 778,215 60.7% Line Pipe 65,464 19.1% 252,456 19.7% Coiled 5,132 1.5% 26,181 2.0% ------- --------- Total - Energy Products 285,960 83.6% 1,056,852 82.5% Total - Electrical Products 56,150 16.4% 224,789 17.5% ------- --------- Total Company 342,110 100.0% 1,281,641 100.0% ======= ========= *T