**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, 2004**
 
 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**


(Exact
name of registrant as specified in its charter)








**Delaware**
    **43-1455766**(State
      or other jurisdiction of
    (I.R.S.
      employerincorporation
      or organization
    identification
      number)





**16401
      Swingley Ridge Road, Seventh Floor****Chesterfield,
      Missouri**
    **63017**(Address
      of principal executive offices)
    (Zip
      code)





**Registrant’s
telephone number, including area code: (636) 733-1600**





**Securities
registered pursuant to Section 12(b) of the Act:**





**Title
      of Each Class**
    
    **Name
      of Each Exchange on Which Registered**Common
      Stock, Par Value $0.01 Per Share
    
    New
      York Stock ExchangePreferred
      Stock Purchase Rights
    
    New
      York Stock Exchange





**Securities
registered pursuant to Section 12(g) of the Act:** None





Indicate
by checkmark 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 X No
_





Indicate
by checkmark 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 checkmark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes X No
_





As of
March 8, 2005, there were 42,773,639 shares of Registrant’s common stock
(including 1,606,291 shares of exchangeable shares) outstanding. The approximate
market value of voting stock held by non-affiliates of the Registrant (including
exchangeable shares) as of June 30, 2004, was $1,105,799,041 (based upon the
closing price for shares of the Registrant’s common stock as reported on the New
York Stock Exchange on June 30, 2004).





The
following documents have been incorporated by reference into the parts of this
report indicated: Portions of the Registrant’s Proxy Statement relating to the
Registrant’s 2005 Annual Meeting of Shareholders, expected to be held on May 16,
2005, are incorporated by reference into Part III of this Form 10-K where
indicated.











**MAVERICK
TUBE CORPORATION**


**INDEX**





PART I.Item 1.
    Business
    1.Item 2.
    Properties
    10.Item 3.
    Legal Proceedings
    10.Item 4.
    Submission of Matters to a Vote of
      Security Holders
    10.
 
 PART II.Item 5.
    Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
    11.Item 6
    Selected Financial
Data
    12.Item 7
    Management’s Discussion and Analysis
      of Financial Condition and Results of Operations
    13.Item 7A.
    Quantitative and Qualitative
      Disclosures About Market Risk
    25.Item 8.
    Financial Statements and
      Supplementary Data
    26.Item 9.
    Changes in and Disagreements with
      Accountants on Accounting and Financial Disclosures
    58.Item 9A.
    Controls and
Procedures
    58.Item 9B.
    Other Information
    59.
 
 PART III.Item 10.
    Directors and Executive Officers of the
      Registrant
    59.Item 11.
    Executive Compensation
    59.Item 12
    Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters
    59.Item 13.
    Certain Relationships and Related
      Transactions
    59.Item 14.
    Principal Accountant Fees and
      Services
    59.
 
 PART IV.Item 15.
    Exhibits, Financial Statement
      Schedules
    59.SignaturesExhibit Index
  **STATEMENT
REGARDING FORWARD-LOOKING INFORMATION**
 
 *The
Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934, as amended, provide a safe harbor for
forward-looking statements made by or on behalf of the Company. The Company and
its representatives may from time to time make written or oral statements that
are “forward-looking,” including statements contained in this report and other
filings with the Securities and Exchange Commission (SEC) and in our reports to
stockholders. 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 natural gas price
expectations and their effect on drilling levels and demand for our
energy-related products, the future impact of industry-wide draw-downs of
inventories, future import levels, and the value of the U.S. dollar. Uncertainty
also continues to exist as to the future replacement cost of steel (our
principal raw material, representing approximately sixty percent of cost of
goods sold).*
 
 *Although
we believe the expectations reflected in our forward-looking statements are
based upon reasonable assumptions, 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
made on the basis of management’s assumptions and analyses, as of the time the
statements are made, in light of their experience and perception of historical
conditions, expected future developments and other factors believed to be
appropriate under the circumstances. Further information concerning important
factors that could cause actual events or results to be materially different
from the forward-looking statements can be found in the “Risk Factors” section
of this Form 10-K.*
 
 *In
addition, certain market data and other statistical information used throughout
this report are based on independent industry publications, government
publications, reports by market research firms or other published independent
sources. Although we believe these sources to be reliable, we have not
independently verified the information and cannot guarantee the accuracy and
completeness of such sources.*
 
 *Except
as otherwise required by the federal securities laws, we disclaim any
obligations or undertaking to publicly release any updates or revisions to any
forward-looking statement contained in this annual report on Form 10-K and the
information incorporated by reference in this report to reflect any change in
our expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.*
 
 **PART I**
 
 **ITEM
1**  **Business**
 
 *As
used herein, Maverick Tube Corporation, its direct and indirect wholly-owned
subsidiaries and other required consolidated entities are collectively referred
to as “the Company.” Also, unless the context otherwise requires, the terms
“we,” “us,” or “our” refer to the Company.*
 
 **GENERAL**
 
 *Maverick
Tube Corporation*
 
 Maverick
Tube Corporation is a leading North American producer of welded tubular steel
products used in energy and industrial applications. Our energy products line
consists of oil country tubular goods, commonly referred to as OCTG, line pipe,
coiled tubing and couplings. We are the largest North American producer of OCTG
and line pipe products for use in newly drilled oil and natural gas wells and
for transporting oil and natural gas and of American Petroleum Institute,
sometimes referred to as API, and premium couplings. We sell our OCTG and line
pipe products throughout the U.S., Canada, and South America using multiple
sales channels including distributor agents, independent distributors, and
direct to endusers through our internal sales force. In all cases, the ultimate
endusers are major and independent oil and natural gas producers and national
oil and gas companies. Our coiled tubing products are sold exclusively on a
direct basis to service companies and major and independent oil and natural gas
producers around the world. Our couplings are sold directly to OCTG
manufacturers, processors, and distributors in North America. Our energy
products line generated approximately 66% of our net sales during
2004.
 
 We also
manufacture tubing for use in industrial applications. Our industrial product
line is comprised of steel electrical conduit, hollow structural sections, also
known as HSS, standard pipe, pipe piling, and mechanical tubing products. These
products are sold to distributors, service centers, fabricators, contractors and
endusers primarily in North America.
 
 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. Our phone number is (636)
733-1600.
  1
  *Business
Strategy*
 
 Our
business strategy encompasses the following long-term corporate
goals:
 
 ·
    generate
      profitable organic and strategic growth,
 ·
    expand
      geographic reach and portfolio of value-added oil service
      products,
 ·
    achieve
      the best safety record in the oil service industry,
and
 ·
    generate
      superior returns on capital employed in all business
  units.
 
 
 See Item
7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations -Our Business Strategy.
 
 *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.mavericktube.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.
 
 **OUR
COMPANY**
 
 Our
business is organized into two segments: Energy Products and Industrial
Products. These segments are designed to improve the alignment of strategies and
objectives among sales, marketing and production, provide for more timely and
rational allocation of resources within businesses and focus long-term planning
efforts on key objectives and initiatives.
  We
conduct our business primarily through the following five operating
units:
  ·
    Maverick
      Tube, L.P., our primary U.S. producer of energy and industrial products
      other than steel electrical conduit,
 ·
    Prudential
      Steel Ltd., our Canadian producer of energy and industrial products,
      acquired in 2000,
 ·
    Precision
      Tube Technology L.P. and SeaCAT L.P., our coiled tubing producers,
      acquired in 2002 and 2003, respectively,
 ·
    Texas
      Arai, a division of Maverick Tube, L.P., and our producer of API and
      premium couplings, acquired in 2004; and
 ·
    Republic
      Conduit, a division of Maverick C&P, Inc., our primary producer of
      steel electrical conduit, acquired in 2002.
 
 
 The
following table sets forth information about the segments, products and
facilities of each of our operating units:
  
 **Location**
    
    **Segment
      and Products**
    
    **Product
      Sizes (1)**
    
    **Acreage**
    
    **Building
      Square Footage*****Maverick
      Tube, L.P.***Hickman,
      AR
    
    *Energy:*OCTG and line pipe
      *Industrial:*HSS, standard pipe and piling products
    
    11⁄2”-16”
    
    225
    
    920,000Conroe,
      TX
    
    *Energy:*OCTG and line pipe
    
    41⁄2”-85⁄8”
    
    117
    
    244,000Counce,
      TN
    
    *Energy:*OCTG and line pipe
      *Industrial:*Rigid conduit and standard pipe
    
    41⁄2”-8”
    
    133
    
    64,000***Prudential
      Steel Ltd.***Calgary,
      AB
    
    *Energy:*OCTG and line pipe
      *Industrial:*HSS
    
    23⁄8”-123⁄4”
    
    93
    
    415,300***Precision
      Tube Technology L.P. and SeaCAT L.P.***Houston,
      TX
    
    *Energy:*Coiled steel tubing and coiled umbilicals
    
    3⁄4”-5”
      1⁄2”
      -2”
    
    61
      15
    
    68,100
      79,300
  
 2
  **Location**
    
    **Segment
      and Products**
    
    **Product
      Sizes (1)**
    
    **Acreage**
    
    **Building
      Square Footage*****Texas
      Arai***Houston,
      TX
    
    *Energy:*API and premium couplings
    
    23⁄8”-20”
    
    22
    
    244,137***Republic
      Conduit***Cedar
      Springs, GA
    
    *Industrial:*Steel electrical conduit
    
    1⁄2”-21⁄2”
    
    85
    
    130,000Ferndale,
      MI
    
    *Industrial:*Steel electrical conduit and mechanical tubing
    
    1⁄2”-4”
    
    20
    
    212,000Elyria,
      OH
    
    *Industrial:*Steel electrical conduit, rigid conduit, and mechanical
    tubing
    
    3⁄4”-31⁄2”
    
    57
    
    180,000
 *(1)*
    *Represents
      outside diameter measurement.*
 
 For
information with regard to (a) net sales, income from operations and
identifiable assets attributable to each of our business segments and (b) net
sales and long-lived asset information for the geographic areas in which we
operate, see Note 13 to the Consolidated Financial Statements.
 
 **OUR
ENERGY PRODUCTS BUSINESS**
 
 *The
Energy Products Industry*
 
 Manufacturers
in the energy industry produce a wide variety of products used in the
exploration, production and transmission of oil and natural gas. We produce four
principal classes of energy products:
 
 ·
    OCTG,
 ·
    line
      pipe,
 ·
    coiled
      tubing, and
 ·
    couplings.
 
 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 liner in oil and natural gas wells to provide support and prevent
collapse during drilling operations and is 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 many
times during the life of a producing well.
 
 Manufacturers
produce OCTG in numerous sizes, weights, grades and end finishes. We believe
most OCTG is produced to API 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 is generally classified into groupings of “carbon” and “alloy” grades.
Carbon grades of OCTG have yield strength levels of 80,000 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
80,000 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 other more critical applications.
 
 Manufacturers
employ either an electric resistance welded or seamless process to produce OCTG.
Electric resistance welded pipe, sometimes referred to as welded pipe, is
produced by processing flat rolled steel into strips that are then cold-formed
into a cylindrical form and welded, heat-treated or seam-annealed. Seamless
products are produced by individually heating and piercing solid steel billets
into pipe. Both types of pipe are end-finished with threads and
couplings.
 
 Based on
published industry statistics, electric resistance welded products account for
approximately half of the tonnage of North American 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 majority of
the alloy grade OCTG market. We also believe further significant market
penetration of welded products will depend upon increased market acceptance of
welded products, particularly outside of North America.
 
 Line pipe
products are used for surface production flow lines, gathering systems, pipeline
transportation and distribution systems for oil, natural gas, and other fluids.
Although line pipe is produced in both welded and seamless forms, welded product
represents approximately 73% of the North American line pipe consumed annually.
The abundance of natural gas drilling in 2004 and the federally mandated
inspection of the 160,000 mile national pipeline network should cause demand to
be strong in 2005 and beyond.
 
 
 3
 
 Coiled
pipe products consist of down-hole tubing, line pipe, and umbilicals. Coiled
down-hole tubing is used as production tubing, particularly in shallow gas wells
in Canada and to service existing oil and natural gas wells by reestablishing
well production and extending well life. Coiled line pipe is a relatively new
technology used in subsea applications where continuous lengths of premium
coated steel pipe are used as flow lines. Coiled line pipe is a low-cost
alternative in offshore applications as it allows for much more rapid
installation. Coiled umbilicals form the piping system to actuate subsea
wellheads and provide monitoring and other controls of these wellheads. Coiled
tubing is manufactured in the same manner as OCTG with the exception of the
end-finishing process. Coiled tubing does not require the same end-finishing as
traditional OCTG products due to its continuous length. The coiled tubing is
then loaded onto reels and shipped to our customers.
 
 Couplings
are made from seamless pipe and used to connect joints of OCTG products in the
exploration and production of oil and natural gas.
 
 *Our
Energy Products*
 
 We
manufacture OCTG used for production tubing, production casing, and surface
casing. We do not manufacture drill pipe. We also manufacture line pipe and
coiled pipe. In 2004, we expanded our energy products line to include API and
premium couplings by acquiring Texas Arai. All of our products are produced
using the electric resistance welded process, with the exception of a portion of
the coiled tubing produced by SeaCAT and our couplings produced by Texas Arai.
 
 Our
energy products are designed to meet or exceed the applicable standards required
by API and Canadian Standards Association. In addition, similar to other
producers, we manufacture our OCTG products in custom or proprietary grades. We
design and engineer our custom and proprietary grades for similar applications
as products meeting or exceeding API and Canadian Standards Association
standards and to provide performance features comparable to products meeting
those standards. We warrant our API and Canadian Standards Association casing
and tubing to be materially free of defects in material or workmanship in
accordance with the applicable specifications. In addition, we warrant our
proprietary grade products to be materially free of defects in accordance with
our published standards. We have not incurred significant costs in connection
with these warranties.
 
 We
manufacture finished goods in both carbon and alloy steel grades. Virtually all
of our products are 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 end-finished OCTG
products 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 our
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 approximately 26%, 21% and 24% of the
tons of OCTG products we sold in 2004, 2003 and 2002, respectively. Carbon grade
tubing and casing accounted for the balance of these tons.
 
 *Marketing*
 
 We sell
OCTG and line pipe throughout North America using multiple sales channels
including distributors and directly to endusers. Distributors resell our product
to endusers who are major and independent oil and natural gas production,
gathering and pipeline companies. We sell coiled pipe typically to oilfield
service companies throughout the world and sell premium couplings directly to
North American manufacturers, processors, and distributors of OCTG products. Our
marketing philosophy emphasizes delivering competitively priced, quality
products while providing a high level of service to our customers. We market
ourselves as a broad-line supplier of OCTG, line pipe, coiled pipe and premium
coupling products. We maintain finished goods inventories at our production
facilities and at outside yard locations near prime drilling areas. This allows
for prompt delivery of our products.
  *Manufacturing*
 
 In order
to control our manufacturing costs, we attempt to maximize production yields
from purchased steel and reduce unit labor costs. During 2004, 2003 and 2002, we
spent $19.2 million, $7.3 million and $15.3 million, respectively, on new
capital equipment for our existing energy facilities. In 2004, we used $4.9
million for an upgrade of an existing mill at Prudential Steel and $14.3 million
on various smaller projects throughout our energy facilities. In 2003, we used
$3.9 million for the installation of a new slitter in Arkansas. In 2002, we used
$6.1 million for the installation of equipment relocated from our Longview,
Washington, facility to our large diameter pipe and tubing facility in Hickman,
Arkansas, and $3.5 million for the installation of the Longview slitter in our
Calgary, Alberta facility. Our capital budget for our energy facilities for 2005
is $21.5 million. We expect these capital expenditures to result in
manufacturing cost savings, quality improvements, expansion and maintenance of
our production capabilities and product lines. Included in the 2005 capital
budget for our energy facilities is a $12 million expansion of our Precision
coiled tubing facility.
 
 4
 
 We
control labor costs by automating certain activities and by seeking to optimize
product throughput and scheduling. Generally, we maintain an innovative
compensation plan, whereby the employees of our facilities who achieve certain
performance-based criteria receive gain-sharing quarterly bonuses. In addition,
some employees are eligible to receive annual profitability bonuses.
 
 The
annual capacity at our energy facilities is approximately 1.4 million tons. We
operated our energy facilities at a capacity utilization of approximately 60%
and 63% during 2004 and 2003, respectively.
 
 *Seasonality*
 
 Seasonal
fluctuations impact our customers and the demand for our products to some
extent. For instance, weather conditions during the first half of the year make
drilling more difficult in the U.S., while the second and third quarters are
more difficult in western Canada. Consequently, drilling activity and the
corresponding demand for our products are lower at these times in these
respective regions.
 
 *Competition*
 
 The
suppliers of OCTG and line pipe products face a highly competitive market. We
understand the principal competitive factors affecting our business to be price,
quality, delivery, availability and service. We believe we enjoy an excellent
reputation for quality products, availability and outstanding customer service.
We compete with several North American and numerous foreign producers of OCTG,
some of which have greater financial resources than we do. In the North American
OCTG market during 2004, our more significant competitors were Lone Star Steel,
a subsidiary of Lone Star Technologies, Inc., Newport Steel Company, a
subsidiary of NS Group and IPSCO Inc., each of which primarily produce electric
resistance welded pipe; and U.S. Steel Corporation, and V&M Star, a
subsidiary of Vallourec & Mannesmann Tubes, each of which primarily produce
seamless pipe. We also compete in the line pipe market with these same companies
and with foreign producers of line pipe, most of which are affiliates of large
foreign steel producers. Our most significant coiled tubing competitors during
2004 were Quality Tubing, Inc., a subsidiary of Varco International, Inc. and
Gibson Tube. In the coupling market during 2004, our more significant
competitors were Wheeling Machine Products, a subsidiary of Lone Star
Technologies, Inc., Lincoln Manufacturing, Inc. and Amtex Machine Products, Inc.
 
 During
2004, 2003 and 2002, we estimate U.S. OCTG tons consumed by imports was 35.3%,
28.2% and 21.7%, respectively. During 2004, 2003 and 2002, we estimate Canadian
OCTG tons consumed by imports was 44.4%, 48.8% and 32.4%, respectively. Our
share of these Canadian imports was 6.1%, 10.8% and 14.5%,
respectively.
 
 **OUR
INDUSTRIAL PRODUCTS BUSINESS**
 
 *The
Industrial Products Industry*
 
 Industrial
products encompass a wide variety of tubing and pipe products used for a number
of applications. We manufacture steel electrical conduit, hollow structural
sections, or HSS, standard pipe, pipe piling and mechanical tubing
products.
 
 Steel
electrical conduit is primarily used as sheathing for electrical and
communications wiring in industrial, commercial, and institutional construction
referred to as nonresidential construction. Our HSS products are primarily used
for construction, transportation, agricultural, material handling and
recreational applications. Standard pipe products are used in industrial
applications such as steam, water, air, plumbing and heating. Pipe piling
products are used in construction to stabilize groundwork and foundations.
Mechanical tubing products are used for a variety of original equipment
manufacturing needs such as axles, furniture, scaffolding and sports
equipment.
 
 Like
OCTG, steel electrical conduit, HSS, standard pipe, pipe piling, and mechanical
tubing products are produced by processing flat rolled steel into strips, which
are cold-formed and then welded. The machinery and equipment used to manufacture
our industrial products are similar to that used to manufacture our energy
products. Our industrial products are not, however, subject to the same degree
of testing and inspection as our energy products, therefore, these products cost
less to manufacture. In addition, these products do not require end-finishing,
further reducing the production costs of our industrial products as compared to
our energy products.
 
 *Our
Industrial Products*
 
 We
produce steel electrical conduit, HSS, standard pipe, pipe piling, and
mechanical tubing at our facilities in sizes ranging from 1/2” to 12” square,
rectangular and round tubing. Our products range from 0.063 to 0.500 inch in
thickness.
  5
  *Marketing*
 
 HSS,
standard pipe, pipe piling, and mechanical tubing markets are typically
regional, primarily because order sizes are smaller and lead-time requirements
are shorter than for OCTG. We sell to distributors, contractors and, to a lesser
extent, endusers primarily through both company sales personnel and experienced
manufacturing representatives. Our marketing strategy emphasizes delivering
competitively priced, quality products while providing a high level of service
to our customers.
 
 The
annual capacity at our steel electrical conduit, HSS, standard pipe, pipe piling
and mechanical tubing products facilities is approximately 0.6 million tons.
During 2004 and 2003, our industrial product group operated at a combined
capacity of 69% and 75%, respectively.
 
 *Seasonality*
 
 Seasonal
fluctuations also impact the demand for our industrial products to some extent.
As demand is driven by nonresidential construction, the fourth quarter is
typically a quarter of weaker demand.
 
 *Manufacturing*
 
 During
2004, 2003 and 2002, we spent $3.4 million, $6.4 million and $3.8 million,
respectively, on additional equipment at our industrial facilities, excluding
$6.5 million in 2004 for deposits relating to the new conduit facility. Our 2005
capital budget for our industrial facilities is $2 million. We have also
committed $63 million on the construction of the new conduit facility. By
consolidating our steel electrical conduit business into one location, we expect
to eliminate our current outsourcing needs, which should decrease our
manufacturing costs and improve our efficiency. In addition, we have chosen a
location that is:
 
 ·
    close
      to steel sources and on the inland waterway, which should result in lower
      inbound freight costs,
 ·
    centrally
      located, which should reduce outbound freight costs,
and
 ·
    in
      an area of the country with cost-effective
labor.
 
 *Competition*
 
 We
believe the principal competitive factors affecting our steel electrical
conduit, HSS, standard pipe, pipe piling and mechanical tube businesses are
price, product availability, delivery and service.
 
 During
2004, our primary steel electrical conduit competitors were Allied Tube &
Conduit, A Division of Tyco International, Wheatland Tube Company, a John
Maneely Company, and Western Tube & Conduit Corporation. The broad
distribution network and service component of this business creates a
significant barrier for entrance into this market. Our products also compete
with PVC conduit, cable tray, and flexible metallic conduit which we do not
manufacture. These products can be substituted for the types of products we
manufacture in certain situations; thereby impacting our market
share.
 
 The HSS
competitive market varies from that of steel electrical conduit. We compete
primarily against several North American and numerous producers of structural
tubing from the rest of the world. Foreign competitors, primarily from Canada,
represented 25.4%, 21.0% and 22.5% of total U.S. sales of structural tubing in
2004, 2003 and 2002, respectively. During 2004, our more significant North
American structural tube competitors were Bull Moose Tube Company, a subsidiary
of the Caparo Group, Hanna Steel Corporation, Atlas Tube Inc., Independence Tube
Corporation, Leavitt Tube Company, LLC, IPSCO Inc., Southland Tube, Inc. and
Copperweld Corporation.
 
 A
significant market for standard pipe exists; however, we have chosen to reduce
our sales in this market to focus on more profitable product lines. We compete
with competitors from around the world. Foreign competition represented
approximately 39.2%, 33.3% and 37.4% of total domestic sales of standard pipe in
2004, 2003 and 2002, respectively. During 2004, our more significant domestic
standard pipe competitors were Wheatland Tube Company, United States Steel
Corporation and IPSCO Inc.
 
 **RAW
MATERIALS**
 
 Given
steel comprises sixty percent of our production costs, in order to gain
economies of scale with respect to pricing, quality, availability and delivery,
we maintain, negotiate and execute our steel purchase agreements at the
corporate level. During 2004, we consumed approximately 4.5% of all hot rolled
steel produced in North America and as such, we believe we were the largest
purchaser of hot rolled steel in this region. During 2004, 72% of our steel for
our operations was purchased from Nucor Corporation and International Steel
Group. We have aimed to strategically locate our facilities near steel sources
to reduce transportation costs and working capital requirements. For example,
our Hickman, Arkansas facility is located adjacent to a Nucor facility, which
allows us to transport via rail at reduced expense. Further, its location near
the river provides another transportation option in sourcing raw materials. To
date, we have not experienced any significant disruption in our supply of raw
materials.
 
 
 6
 
 **EMPLOYEES**
 
 At
December 31, 2004, we employed 2,830 people. The majority of our employees are
not represented by a union. However, five locations operate under collective
bargaining agreements with, or have employees who are members of, the United
Steelworkers of America.
 
 Prudential
Steel Ltd., located in Calgary, Alberta, operates under a collective bargaining
agreement that covers approximately 77% of its employees. The agreement is due
to expire on December 31, 2006. The Elyria and Ferndale facilities of Republic
Conduit also operate under collective bargaining agreements that in the
aggregate cover 43% of the employees of Maverick C&P, Inc. The agreements
are due to expire on November 15, 2005.
 
 In
addition, our Counce, Tennessee facility of Maverick Tube, L.P., operates under
a collective bargaining agreement that covers approximately 82% of the employees
at that location. The agreement is also due to expire on November 15, 2005.
Furthermore, approximately 86% of the employees of Texas Arai, a division of
Maverick Tube, L.P., are union members, however, the union at Texas Arai was
decertified on January 12, 2005. In total, considering both Counce and Texas
Arai locations, as of December 31, 2004, approximately 15% of the employees of
Maverick Tube, L.P. are affiliated with a union.
 
 **RISK
FACTORS**
 
 You
should carefully consider the following risk factors and other information
contained or incorporated by reference in this annual report on Form 10-K when
evaluating our business and financial condition. Additional risks not presently
known to us and risks that we currently deem immaterial may also impair our
business operations.
 
 *A
material decline in oil and natural gas prices should reduce demand for our
energy products, which would cause our sales to decrease.* Our
principal products consist of OCTG, line pipe, coiled tubing and couplings.
Sales of these products to the energy industry constitute our most significant
revenue source. Demand for these products depends primarily on the number of oil
and natural gas wells being drilled, completed and worked over in North America
and the depth and drilling conditions of these wells. 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, global weather patterns, and global conflicts,
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
energy products is reduced, we would expect our sales of these products to
decrease.
 
 *The
level of imports of OCTG into North America, which has varied significantly over
time, affects the North American OCTG market.* We
believe import levels of OCTG are affected by North American and overall world
demand for OCTG and the relative value of the U.S. and Canadian dollars. The
likely result of significant increases in imports would be decreased sales of
our energy products and our overall profitability.
 
 *Increases
in steel prices, which would increase the costs of manufacturing our products,
could likely decrease our operating profits. S* teel
represents approximately sixty percent of our cost of goods sold. As a result,
the steel industry 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:
 
 ·
    general
      economic conditions,
 ·
    industry
      capacity utilization,
 ·
    import
      duties, and
 ·
    other
      trade restrictions and currency exchange
rates.
 
 If steel
prices increase and we are unable to increase our selling prices by a similar
amount, our operating profit would decrease.
 
 *We
depend on a few suppliers for a significant portion of our steel, and the loss
of one or more significant suppliers could adversely affect our ability to
obtain our most important raw material.* Historically, we have purchased a significant portion of our steel from a small
number of 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 most important raw material. In such a case, our cost of purchasing
steel from alternate sources could be higher and could temporarily affect our
ability to produce sufficient quantities of our products necessary to sustain
our market share, thus impacting our results of operations.
 
 *Reductions
in base industry inventory levels could reduce our sales and
profit.* **** 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.
 
 
 7
 
 *Our
plans to consolidate our conduit operations into one facility may not be
successful.* We are in
the process of consolidating our conduit operations into a state-of-the-art
facility to be located in Louisville, Kentucky. In connection with the
consolidation, we expect to spend approximately $63 million, which will include
the purchase of land, building, new equipment and upgrades to existing equipment
to improve the efficiency and productivity of our conduit manufacturing
operations. The consolidation of our conduit operations may expose us to certain
risks such as severance and plant abandonment costs, potential unforeseen or
higher-than-expected costs, and risk associated with operating difficulties. Any
of these risks could adversely affect or prevent the success of our efforts to
consolidate our conduit operations.
 
 *If we
are unable to successfully complete and integrate strategic acquisitions in a
timely manner, our growth strategy could be adversely impacted.* An
important element of our growth strategy has been and continues to be the
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 management may be distracted from regular business concerns by
      the need to integrate operations,
 ·
    unforeseen
      difficulties in integrating operations and
systems,
 ·
    problems
      relating to 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 issue securities
in connection with future acquisitions that may 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 endusers of our products expose us to potential product
liability claims.* **** Drilling
for and the transmission of oil and natural gas involve a variety of risks,
including risks relating to failures, leaks and fires. Actual or claimed defects
in our products could give rise to claims, liabilities, costs and expenses,
including but not limited to:
 
 ·
    loss
      of life,
 ·
    personal
      injury,
 ·
    property
      damage,
 ·
    damage
      to equipment and facilities,
 ·
    pollution,
      and
 ·
    loss
      of production or suspension of operations.
 
 Product
liability claims occur infrequently in our business, but when they happen, they
can be material. We maintain insurance coverage against potential product
liability claims, other than pollution, with a deductible of $0.6 million per
occurrence and a total claim limit of $52 million per year. However, in the
future we may incur product liability claims in excess of our insurance coverage
or that are subject to substantial deductibles or results in uninsured product
liability costs. These liabilities and costs could have a material adverse
effect on our business, result of operations and financial condition. Moreover,
any claims made under our policies will likely cause our premiums to increase,
and we may not be able to maintain adequate insurance coverage levels in the
future.
 
 *Our
level of indebtedness could make us vulnerable to down-turns in the energy
market.* Because
our energy business is highly cyclical, our historical financial results have
been, and our future financial results are expected to be, subject to
fluctuations. While management believes our current level of indebtedness is
reasonable relative to our current capitalization and working capital positions,
our level of indebtedness could increase our vulnerability to cyclical declines
in the energy markets. More specifically, our level of indebtedness could affect
our operations and expose us to greater risks during a cyclical decline in
several ways, including, but not limited to:
 
 ·
    a
      greater percentage of our cash flow would be required to be used to
      service our indebtedness,
 ·
    we
      may not be able to generate sufficient cash flow from operations to enable
      us to meet our debt service and other fixed-charge
      requirements,
 ·
    we
      may not be able to obtain additional financing for working capital,
      capital expenditures, acquisitions or general corporate and other
      purposes,
 ·
    our
      flexibility in planning for, or reacting to changes in, our businesses and
      the industries in which we compete may be limited,
and
 ·
    we
      may be put at a possible competitive disadvantage with respect to our
      competitors that have relatively less
indebtedness.
   8
 **
 *Covenant
restrictions in our senior revolving credit facility could limit our ability to
operate our business.* **** Our
senior revolving credit facility contains certain restrictive covenants that
prohibit or impose limitations (subject to certain exceptions) on us, with
respect to, among other things:
 
 ·
    the
      creation or incurrence of additional
indebtedness,
 ·
    the
      creation or incurrence of liens,
 ·
    investments,
 ·
    mergers,
      acquisitions or changes of existence, ownership or business
      operations,
 ·
    the
      sale or other disposition of assets other than inventory in the ordinary
      course of business,
 ·
    the
      declaration or payment of dividends or the purchase, redemption,
      retirement or other acquisition of capital
stock,
 ·
    transactions
      with affiliates,
 ·
    capital
      expenditures in excess of $30 million in any calendar year,
      and
 ·
    granting
      of any negative pledge in any agreement, contract or understanding with a
      third party.
 
 Any one
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 require
us 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.
 
 *Because
of the amount of business we conduct in Canada, decreases in the value of the
Canadian dollar compared to the U.S. dollar reduce the profitability of our
Canadian operations.* Although
our financial results are reported in U.S. dollars, a portion of our sales and
operating costs is 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.* We
compete against a number of companies in each of our principal business lines.
Some of our competitors are larger than we are and have greater financial and
marketing resources and business diversification. These companies may be better
able than us to successfully endure down-turns in either the energy or
industrial products sector. The structural, steel electrical conduit and
portions of our energy products 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 likely would 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.* 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 costs associated with
compliance with these laws and regulations and risks of additional 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 materially
compliant 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.
 
 *Certain
of our operations are subject to collective bargaining agreements that could
subject us to additional labor costs.* Three of
our subsidiaries operate under collective bargaining agreements with the United
Steelworkers of America. The agreements cover approximately 29% of our total
workforce. Three of these agreements expire in 2005 and one expires in 2006. Our
failure to renew or negotiate new collective bargaining agreements with
substantially similar terms could result in labor disruptions and increased
labor costs, thereby increasing the costs of producing our
products.
 
 *We
have defined benefit pensions plans, which could result in charges against our
earnings.* Our
subsidiary, Prudential Steel Ltd., sponsors two pension plans and a
postretirement benefit plan for substantially all of its Canadian employees and
a supplemental executive retirement plan for certain former key Prudential
executives. At December 31, 2004, certain of these plans were underfunded in the
aggregate by approximately $14.6 million. In addition, if these plans fail
   9
 **
 to
achieve an investment return equal to the estimated rate for a particular fiscal
year, such deficiency could result in a charge against earnings for that and
subsequent years.

*Effective
internal controls over financial reporting provide only a reasonable assurance
as to the preparation and fair presentation of financial
statements.*Effective internal controls are necessary for us to provide reasonable assurance
with respect to our financial reports and to prevent fraud. However, because of
the inherent limitations with any system of controls, including the possibility
of human error, the circumvention or overriding of controls, or fraud, internal
control over financial reporting may not prevent or detect misstatements.
Therefore, even effective internal controls can provide only reasonable
assurance with respect to the preparation and fair presentation of financial
statements. Moreover, projections of the effectiveness of internal control over
financial reporting in future periods are subject to the risk that the control
may become inadequate because of changes in condition or that the degree of
compliance with the policies or procedures may deteriorate. If we fail to
maintain the adequacy of our controls, fail to implement new or improved
controls, or if we experience difficulties in implementing these controls, our
business and operating results could be affected, we could fail to meet our
reporting obligations and there could be a material adverse effect on our stock
price.
 
 **ITEM
2**  **Properties**
 
 *Operating
Properties*
 
 We own
and operate 9 manufacturing facilities located in the U.S. and Canada and lease
one building at our Hickman, Arkansas, facility. Please see the table under the
caption “Our Company” in Item 1 Business for a summary of information concerning
these facilities. In addition, we lease 66,500 square feet of office space in
Chesterfield, Missouri, and 15,816 square feet of office space in Calgary,
Alberta, which we use as our headquarters for our U.S. and Canadian business,
respectively. These leases expire in 2008. We also maintain leased sales offices
throughout the world.
 
 We
believe 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 revolving credit
facility. See “Liquidity and Capital Resources” in Item 7 Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
 
 *Property
Held for Sale*
 
 We own
four acres in Youngstown, Ohio. This site has a 44,000 square-foot office
building. The Company expects to sell the Youngstown, Ohio land and office
building during 2005 as part of its relocation of the administrative functions
of Republic Conduit.
 
 **ITEM
3**  **Legal Proceedings**
 
 We
periodically have claims arising in the normal course of business that proceed
to litigation. We maintain insurance coverage against these claims whether or
not such claims give rise to litigation in an amount we believe to be adequate.
We are not aware of any litigation to which we are a party where the outcome
would have a material adverse effect on our business or operations.
 
 **ITEM
4**  **Submission of Matters to a Vote of Security
Holders**
 
 During
the quarter ended December 31, 2004, covered by this report, no matters were
submitted to a vote of our stockholders through the solicitation of proxies or
otherwise.
 
 
  10
  **PART II**
 
 **ITEM
      5**
    **Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities**
 
 Our
common stock, par value $0.01 per share, is traded on the New York Stock
Exchange under the symbol “MVK.” Our exchangeable shares are traded on the
Toronto Stock Exchange under the symbol “MAV.”
 
 The high
and low closing sales prices of our common stock during the first, second, third
and fourth quarters for the years ended December 31, 2004 and 2003,
respectively, were as follows:
 
 **2004**
    **2003****Quarter**
    
    
    **High**
    
    
    **Low**
    
    
    **High**
    
    
    **Low**First
    
    $
    23.97
    
    $
    17.00
    
    $
    18.71
    
    $
    12.17Second
    
    $
    27.65
    
    $
    20.11
    
    $
    21.53
    
    $
    16.88Third
    
    $
    31.82
    
    $
    26.08
    
    $
    19.36
    
    $
    14.29Fourth
    
    $
    31.75
    
    $
    25.75
    
    $
    20.99
    
    $
    15.76
 
 The high
and low closing sales prices in Canadian dollars on the Toronto Stock Exchange
of our exchangeable shares during the first, second, third and fourth quarters
for the years ended December 31, 2004 and 2003, respectively, were as
follows:
 
 **2004**
    **2003****Quarter**
    
    
    **High**
    
    
    **Low**
    
    
    **High**
    
    
    **Low**First
    
    
    C$32.03
    
    
    C$22.00
    
    
    C$27.61
    
    
    C$19.25Second
    
    
    C$36.75
    
    
    C$28.00
    
    
    C$28.96
    
    
    C$24.28Third
    
    
    C$41.36
    
    
    C$34.36
    
    
    C$25.12
    
    
    C$19.60Fourth
    
    
    C$40.00
    
    
    C$32.11
    
    
    C$28.30
    
    
    C$20.50
 
 There
were 103 holders of record of our common stock as of February 28, 2005. There
were 6 holders of record of our exchangeable shares as of February 28,
2005.
 
 We have
not declared or paid cash dividends on our common stock since incorporation. We
currently intend to retain earnings to finance the growth and development of our
business and do not anticipate paying cash dividends in the near future. Any
payment of cash dividends in the future will depend upon our financial
condition, capital requirements and earnings as well as other factors the Board
of Directors may deem relevant. Our revolving credit facility with commercial
lenders restricts the payment of dividends to our stockholders without the
approval of our lenders.
 
  11
  **ITEM
6**  **Selected Financial Data**
 
 The
selected financial data for the Company set forth below for each of the five
years ended December 31, 2004, should be read in conjunction with “Management’s
Discussion and Analysis on Financial Results of Operations,” the consolidated
financial statements, related notes and other financial information included
herein.
 
 *(in
      thousands, except per share data)*
    
    **Year
      Ended December 31,****2004**
    
    
    **2003**
    
    
    **2002**
    
    
    **2001**
    
    
    **2000****Statement
      of Income Data:**Net
      sales
    
    $
    1,456,264
    
    $
    884,317
    
    $
    452,913
    
    $
    544,933
    
    $
    562,023Cost
      of goods sold
    
    
    1,047,777
    
    
    783,353
    
    
    409,916
    
    
    441,843
    
    
    488,397Gross
      profit
    
    
    408,487
    
    
    100,964
    
    
    42,997
    
    
    103,090
    
    
    73,626Selling,
      general and administrative
    
    
    88,058
    
    
    56,142
    
    
    34,032
    
    
    30,372
    
    
    25,466Restructuring
      charges(1)
    
    
    -
    
    
    584
    
    
    1,186
    
    
    8,061
    
    
    -Trade
      case relief
    
    
    (3,633
    )
    
    (1,104
    )
    
    (2,709
    )
    
    -
    
    
    -Start-up
      costs(2)
    
    
    -
    
    
    -
    
    
    -
    
    
    1,101
    
    
    267Income
      from operations
    
    
    324,062
    
    
    45,342
    
    
    10,488
    
    
    63,556
    
    
    47,893Transaction
      costs(3)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    11,253Interest
      expense
    
    
    10,374
    
    
    9,637
    
    
    4,325
    
    
    3,090
    
    
    3,177Income
      from continuing operations before income taxes and cumulative effect of
      accounting change
    
    
    313,688
    
    
    35,705
    
    
    6,163
    
    
    60,466
    
    
    33,463Provision
      for income taxes
    
    
    118,308
    
    
    12,748
    
    
    3,277
    
    
    21,228
    
    
    14,736Income
      from continuing operations before cumulative effect of accounting
      change
    
    
    195,380
    
    
    22,957
    
    
    2,886
    
    
    39,238
    
    
    18,727Loss
      from operations of discontinued DOM facility, less applicable income tax
      benefit(4)
    
    
    -
    
    
    -
    
    
    -
    
    
    (957
    )
    
    (2,162
    )Gain
      (loss) on disposal of DOM facility(4)
    
    
    -
    
    
    -
    
    
    518
    
    
    (10,240
    )
    
    -Income
      before cumulative effect of accounting change
    
    
    195,380
    
    
    22,957
    
    
    3,404
    
    
    28,041
    
    
    16,565Cumulative
      effect of accounting change
    
    
    (1,584
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Net
      income
    
    $
    193,796
    
    $
    22,957
    
    $
    3,404
    
    $
    28,041
    
    $
    16,565Diluted
      earnings per share from continuing operations
    
    $
    4.57
    
    $
    0.55
    
    $
    0.08
    
    $
    1.15
    
    $
    0.54Diluted
      earnings per share
    
    $
    4.54
    
    $
    0.55
    
    $
    0.09
    
    $
    0.82
    
    $
    0.48Average
      shares deemed outstanding(5)
    
    
    42,751
    
    
    42,196
    
    
    38,492
    
    
    34,117
    
    
    34,525**Other
      Data:**Depreciation
      and amortization
    
    $
    27,698
    
    $
    22,411
    
    $
    19,954
    
    $
    14,841
    
    $
    12,602Capital
      expenditures
    
    
    34,820
    
    
    20,902
    
    
    22,809
    
    
    25,784
    
    
    51,780**Balance
      Sheet Data:***(End
      of period)*Working
      capital
    
    $
    471,083
    
    $
    253,663
    
    $
    201,195
    
    $
    142,316
    
    $
    118,828Total
      assets
    
    
    1,002,437
    
    
    670,726
    
    
    595,883
    
    
    357,447
    
    
    390,818Current
      maturities of long-term debt
    
    
    3,298
    
    
    3,533
    
    
    2,977
    
    
    938
    
    
    866Short-term
      revolving credit facility
    
    
    -
    
    
    -
    
    
    -
    
    
    3,219
    
    
    20,766Long-term
      revolving credit facility
    
    
    54,660
    
    
    50,213
    
    
    132,927
    
    
    62,000
    
    
    62,038Other
      long-term debt (less current maturities)
    
    
    122,981
    
    
    124,209
    
    
    2,742
    
    
    5,991
    
    
    6,929Stockholders’
      equity
    
    
    595,664
    
    
    384,798
    
    
    338,286
    
    
    225,383
    
    
    213,256
 
 (1)
    The
      Company recorded a restructuring charge for the write-down of property and
      equipment and accrual of other cash obligations of $584, $1,186 and $8,061
      for the years ended December 31, 2003, 2002, and 2001, respectively,
      resulting from the closing of the Longview facility and the relocation of
      most of that facility’s production equipment to Hickman, Arkansas.
 (2)
    Represents
      the operating loss of the Company’s large diameter pipe and tubing
      facility, which began operations in October 2000, and the Longview
      facility, which began operations in December
1998.
 (3)
    In
      connection with the Prudential combination, the Company recorded
      transaction costs of $11,253 for the year ended December 31, 2000.
      Transaction costs include investment banking, legal, accounting, printing,
      severance pay, and other costs directly related to the
      combination.
 (4)
    The
      Company decided to discontinue its DOM business during
    2001.
 (5)
    The
      Company adopted EITF 04-8 during 2004 and has included the diluted effect
      of the convertible notes and the new notes in diluted earnings per share
      for all periods presented.
  12
  **ITEM
7**  **Management’s Discussion and Analysis of
Financial Condition and Results of Operations**
 
 **OVERVIEW**
 
 The
following “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”, commonly referred to as MD&A, is intended to help
the reader understand Maverick Tube Corporation, our operations, and our
business environment. MD&A is provided as a supplement to, and should be
read in conjunction with, our consolidated financial statements and the
accompanying notes. This overview summarizes the MD&A, which includes the
following sections:
  ·
    *Our
      Business*—
      a general description of the key drivers that affect our business and the
      industries in which we operate.
 ·
    *Our
      Business Strategy*— a
      description of the strategic initiatives on which we focus and the goals
      we seek to achieve.
 ·
    *Results
      of Operations*—
      an analysis of our Company’s results of operations for the three years
      presented in our financial statements.
 ·
    *Liquidity
      and Capital Resources*—
      an analysis of cash flows, sources and uses of cash, off-balance sheet
      arrangements and contractual obligations, the potential impact of currency
      exchange, and an overview of financial position.
 ·
    *Critical
      Accounting Estimates*—
      a description of accounting estimates that require critical judgments and
      estimates.
 
 **OUR
BUSINESS**
 
 We
believe there are certain key drivers and industry factors that are critical to
understanding our business. For instance, the general driver of demand for our
energy products is the level of enduser exploration, drilling, development and
production of oil and natural gas. The general driver of demand for our
industrial products is the general level of economic activity in North America.
For both our energy and industrial products, the cost of steel is one of the
primary factors that can affect our profitability in any given year. In order to
gain a deeper understanding of our business, however, we are providing an
analysis of drivers and factors that are directly linked to the primary products
we produce.
 
 *Demand-Related
Drivers and Factors*
 
 OCTG
 
 We
manufacture production casing, surface casing, and production tubing. These OCTG
products are used in new oil and natural gas wells. Accordingly, the primary
driver for our OCTG business is the level of oil and natural gas drilling
activity in North America. The indicator we use to measure drilling activity is
the number of oil and natural gas drilling rigs that are active, commonly known
as rig count, prepared by Baker Hughes Incorporated. We believe the Baker Hughes
rig count is widely accepted within the energy industry as a reliable indicator
of drilling activity levels.
 
 The level
of drilling activity is largely a function of current prices for oil and natural
gas and the industry’s future price expectations. Changes in prices drive the
amount of resources our endusers commit to the exploration and production of oil
and natural gas. Accordingly, increases and decreases in prices have a direct
effect on the demand for our OCTG products.
 
 The
amount of imports from foreign competitors also significantly affects 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 import levels
of OCTG are affected by North American and overall world demand for OCTG and the
relative value of the U.S. and Canadian dollars.
 
 Another
item which reflects demand for our energy products in the U.S. is inventory
levels maintained by manufacturers, distributors and endusers and whether these
inventory levels are being increased, reduced, or maintained. Inventory levels
in Canada are less meaningful because Canadian endusers and distributors do not
generally hold significant amounts of inventory.
  13
  The
following table illustrates these demand-related drivers and factors for the
last three years:
 ****
    
    **Year
      Ended December 31,****2004**
    
    
    **2003**
    
    
    **2002****U.S.
      Market Activity:**Average
      rig count
    
    
    1,190
    
    
    1,031
    
    
    831Average
      U.S. energy prices:Oil
      per barrel (West TexasIntermediate)
    
    $
    41.42
    
    $
    31.26
    
    $
    26.18Natural
      gas per MCF
    
    $
    5.67
    
    $
    5.50
    
    $
    3.29**U.S.
      OCTG Consumption:**(in
      thousands of tons)U.S.
      producer shipments
    
    
    2,090
    
    
    1,871
    
    
    1,465Imports
    
    
    1,105
    
    
    758
    
    
    490Inventory
      (increase)/decrease
    
    
    (122
    )
    
    (1
    )
    
    209Used
      pipe
    
    
    55
    
    
    62
    
    
    93Total U.S. consumption
    
    
    3,128
    
    
    2,690
    
    
    2,257**Canadian
      Market Activity:**Average
      rig count
    
    
    369
    
    
    372
    
    
    262Average
      Canadian energy prices:Natural
      gas per U.S. $ per MCF
    
    $
    5.20
    
    $
    4.92
    
    $
    2.68**Canadian
      OCTG Consumption:**(in
      thousands of tons)Canadian
      producer shipments
    
    
    567
    
    
    539
    
    
    405Imports
    
    
    379
    
    
    403
    
    
    195Inventory
      (increase)/decrease
    
    
    (93
    )
    
    (116
    )
    
    2Total Canadian consumption
    
    
    853
    
    
    826
    
    
    602
 **
 *The
U.S. rig count in the table is based on weekly rig count reporting from Baker
Hughes, Incorporated. Energy prices in the table are monthly average period
prices as reported by Spears and Associates for West Texas Intermediate grade
crude oil and the average U.S. monthly natural gas cash price as reported by
Natural Gas Week. Imports are as reported by Duane Murphy and Associates in “The
OCTG Situation Report.” Inventory (increase)/decrease is our estimate based upon
independent research by Duane Murphy and Associates. Used pipe quantities are
calculated by multiplying 8.3 recoverable tubing and casing tons by the number
of abandoned oil and natural gas wells. U.S. consumption of OCTG is our estimate
based on estimated per rig consumption of OCTG multiplied by the Baker Hughes
rig count. U.S. producer shipments are our estimates calculated based on the
components listed above.*
 
 *The
Canadian rig count in the table is based on weekly rig count reporting from
Baker Hughes, Incorporated. Energy prices in the table are the average Alberta
natural gas spot price as reported by Nickles Energy Group. Imports are as
reported by Statistics Canada. Inventory (increase)/decrease is our estimate
based upon data reported by Statistics Canada. Canadian producer shipments are
reported by Statistics Canada Steel Pipe and Tube Report.*
 
 Oil and
natural gas prices were higher on average throughout 2004 compared to 2003 and
2002 as higher energy demand, relatively low supply, and geopolitical
instability maintained upward pressure on pricing. These factors prompted an
increase in North American drilling during 2004 compared to 2003 and 2002. As a
result, we experienced additional demand for our products in 2004 compared to
2003 and 2002. We expect demand for our energy products to continue to remain
strong throughout 2005 as both oil and natural gas prices are expected to
sustain the number of active drilling rigs.
 
 Line
Pipe
 
 Line Pipe
is used to transport the oil and natural gas from the wellsite to the refining
or storage facilities. Accordingly, as with OCTG, drilling activity is a key
driver of our line pipe business. However, because line pipe is used later in
the energy cycle, the impact to our line pipe business lags 6 to 12 months
behind drilling activity changes.
 
 Similar
to OCTG, we analyze the demand for our line pipe products by focusing on the
Baker Hughes rig count, the impact of changes in the price of oil and natural
gas, the effect of imports, and industry inventory levels. In addition to the
OCTG drivers and factors, our line pipe sales are also influenced by the level
of pipe line construction activity, line pipe replacement requirements, new
residential construction and utility purchasing programs.
 
  14
 
 As we
mention in our OCTG discussion, the North American rig count increased as prices
for oil and natural gas increased from 2003 to 2004. As a result, in analyzing
the Baker Hughes rig count, it appears that U.S. and Canadian demand for line
pipe (under 16”) increased during 2004 by an estimated 13.5% and 1.2%,
respectively, from 2003. For U.S. sales, domestic shipments increased by 9.5% in
2004 even though market share of domestic sales decreased by 2.2% to 61.8% due
to aggressive import activity. For Canadian sales, domestic shipments decreased
by 9.6% in 2004 primarily because of a large seamless line pipe project that
used product from Argentina and Mexico, which resulted in a decrease of 7.7% in
market share of domestic sales to 64.0%.
 
 Coiled
Tubing and Coiled Line Pipe
 
 Coiled
tubing is used down-hole as production tubing and to “workover” wells, which
means to service existing oil and natural gas wells by reestablishing well
production and extending well life. Accordingly, the primary driver for our
coiled tubing business is the number of wells being worked over. We believe the
Baker Hughes workover rig count is a reliable indicator for this type of
activity. The factors that impact the Baker Hughes workover rig count are
similar to those that affect the rig count that drives OCTG. North American
workover rigs averaged 1,850 in 2004, a 25.1% increase compared to
2003.
 
 Coiled
line pipe is used in subsea flow line applications where the use of continuous
reels of our premium coated steel line pipe reduces both mobilization and
installation costs. Demand for this product has been further enhanced by the
role liquefied natural gas is expected to play in natural gas supply in the
future. Umbilical tubing is used in subsea control systems that connect the
wellhead on the sea floor with surface production installations. The primary
driver of coiled line pipe demand and umbilical tubing demand is offshore
spending, both in the Gulf of Mexico and international offshore drilling. In
2004, U.S. offshore drilling spending decreased 1.9% to $10.5 billion from 2003,
while international spending was up 3.4% to $27.5 billion. According to Spears
and Associates, global offshore spending for 2005 is forecast to reach $42.6
billion, an increase of 12.1% over 2004.
 
 Couplings
 
 We
manufacture couplings in both carbon and alloy steel grades and we have the
capabilities to provide a full range of API couplings from 2 3/8” to 20” in
nominal sizes.  Our API couplings are manufactured, inspected and tested to
ensure that they meet or exceed API specifications.  We also manufacture a
full range of premium couplings through various licensing agreements. 
Premium couplings are made to customer specification and offer superior
performance for a wide range of complex applications.
 
 Industrial
Products
 
 Our
industrial products are used in numerous applications. Consequently, the sources
of demand for these products are diverse. However, we believe the primary demand
driver for our industrial products is the general level of economic activity in
the construction, transportation, agricultural, material handling and
recreational market segments. Our significant industrial product types are steel
electrical conduit, hollow structural sections, or HSS, standard pipe, pipe
piling and mechanical tubing.
 
 Steel
Electrical Conduit
 
 The
primary application for steel electrical conduit is sheathing for electrical and
communications wiring in industrial, commercial and institutional construction,
which is classified in general as nonresidential construction. As such, steel
electrical conduit demand is primarily influenced by changes in spending on
nonresidential construction. Estimated domestic consumption of steel electrical
conduit during 2004, 2003 and 2002 was 0.5 million, 0.5 million and 0.6 million
tons, respectively. We estimate that U.S. demand for steel electrical conduit of
the types we produce decreased seasonally by approximately 25.6% during the
fourth quarter of 2004 as compared to the prior year period as previously built
inventory levels declined. Published forecasts for U.S. nonresidential
construction activity in 2005 predict a 2.7% increase in construction starts,
compared to a modest increase of 0.9% experienced in 2004.
 
 We are
one of four producers that account for most of the steel electrical conduit
consumed in the U.S. We estimate our domestic market share increased from 35.4%
to 36.2%, due to our ability to produce product in a tight steel market during
the second quarter of 2004.
 
 HSS
 
 We
estimate domestic consumption of HSS during 2004, 2003 and 2002 was 2.1 million,
1.9 million and 1.7 million tons, respectively. In addition, we estimate the
U.S. demand for HSS of the type we produce increased by 11.1% in 2004 as
compared to 2003, and total U.S. producer shipments increased by 4.9%, although
imports captured 4.4% more market share, bringing the import market share to
25.4%. We estimate our domestic market share decreased from 8.8% to 8.4%. We
believe this is due to our focus on increasing our selling prices throughout the
year.
 
  15
 
 In 2003,
the Canadian International Trade Tribunal ruled that imports from the Republic
of South Korea, the Republic of Turkey, and the Republic of South Africa were
dumped in Canada at significant margins. As a result, imports from these
countries are subject to an administrative process of determining normal values
or import prices are advanced by a 67% duty. These administrative procedures
will apply to all imports of HSS from these countries through August
2008.
 
 Standard
Pipe
 
 Standard
pipe is primarily used in construction applications for transporting gases and
fluids. The most significant drivers of demand for standard pipe are general
economic activity and nonresidential construction expenditures. We estimate
domestic consumption of standard pipe during 2004, 2003 and 2002 was 2.9
million, 2.4 million and 2.5 million tons, respectively. According to published
reports and management estimates, preliminary numbers indicate U.S. standard
pipe demand for 2004 increased over 2003 by 20.2%. While domestic shipments
increased 9.5%, the import market share increased to 39.2% in 2004 from 33.3% in
2003.
 
 *Selling
Prices of Our Products*
 
 Our
average annual selling price for OCTG, line pipe, steel electrical conduit, HSS
and standard pipe in 2004 increased by 68.0%, 66.9%, 73.6%, 90.5% and 65.5% over
the average selling price in 2003, respectively. Similarly, our average selling
price for our Canadian energy products and industrial products from 2003 to 2004
increased by 39.5% and 70.2%, respectively. Our Canadian pricing in 2004 was
further impacted by a 7.5% increase in the exchange rate. These selling price
increases were driven by additional demand for our products and steel price
increases.
 
 *Steel
Costs of Our Products*
 
 The steel
component of our costs of goods sold represents approximately sixty percent of
our total costs of good sold. Accordingly, we believe another key driver of our
profitability is the cost of steel and our ability to pass that cost onto our
customers. The following table illustrates the price of steel over the last six
years:
 
 The
significant increase in our cost of steel experienced in 2004 resulted primarily
from steel suppliers imposing unprecedented scrap surcharges upon us based upon
the *American
Metal Market’s* Consumer
Buying Price for No. 1 Busheling. The amount of the surcharge fluctuated monthly
throughout 2004 and reached an all-time high in September at $225 per ton.
 
 Because
we value our inventory using an average cost methodology, our steel component of
our cost of goods sold lags steel price changes by approximately 4 to 6 months.
Therefore, our average steel component of cost of goods sold reached $496 per
ton for 2004 which represents an increase of 45% over the average cost of steel
per ton in 2003. Our
 
 16
 
 replacement
cost of steel peaked in November at 56% higher than the 2004 average cost of
goods sold for 2004. These higher replacement costs will flow into cost of goods
sold during the first and second quarters of 2005.

We
believe the cost of steel is trending downward, and as such, we expect our first
quarter 2005 replacement cost of steel to be equal to our fourth quarter 2004
cost of goods sold which was approximately 40% higher than the average cost of
steel per ton in 2003.
 
 As a
result of these steel cost changes and our ability to raise our selling prices
throughout 2004, we experienced high profit margins during the first three
quarters of 2004. By fourth quarter, our profit margins were reduced as the
higher cost of steel flowed into cost of goods sold and partially offset the
selling price changes described above.
 
 **OUR
BUSINESS STRATEGY**
 
 We have
developed a business strategy that is focused on the following strategic
initiatives:
 
 *Generate
Profitable Organic and Strategic Growth* - We are
committed to being a growth company. Since 2001, our net sales and earnings per
share have grown at a compound annual growth rates of 37.4% and 76.9%,
respectively. Our growth has positioned us, we believe, as the North American
market share leader in oilfield tubing and casing, coiled tubing, line pipe,
coiled line pipe, couplings, and other custom-engineered pipe products used in
oil and natural gas exploration, production, and transmission. In 2004, we
completed the acquisition of Texas Arai, the North American market share leader
in API and premium couplings. Our $63 million investment to consolidate our
Republic Conduit facilities in Louisville, Kentucky to be completed in early
2006 represents our commitment to organic growth in 2005. In addition, we are
investing approximately $12 million to increase the manufacturing capacity of
Precision Tube, our coiled tubing business, by 50%. This facility is operating
near capacity and, based on anticipated demand, this expansion will allow us to
continue to grow net sales and increase market share.
 
 *Expand
Geographic Reach and Portfolio of Value-Added Oil Service
Products* - With
our strong financial position, broadening our geographic reach and adding
complementary products to our portfolio is a major focus. We continually seek
opportunities for strategic growth through acquisitions as we did with the
expansion into coiled tubing and subsea umbilicals in 2002 and 2003,
respectively. While the nature and timing of such activities cannot be
predicted, we are confident in our ability to continue to identify, acquire and
assimilate attractive investment opportunities that satisfy our return on
investment criteria.
 
 *Achieve
the Best Safety Record in the Oil Service Industry* - The
Company has made solid strides in our safety performance. By implementing
training programs, engineering safer work stations and rewarding safe practices,
we have reduced our safety index by 60% in 2003 and another 27% in 2004. Effects
by all employees, at all levels, have been critical to produce these spectacular
improvements.
 
 *Generate
Superior Returns on Capital Employed in All Business Units* - The
ultimate measure of our success is, of course, the creation of shareholder
value. We remain committed to generating superior returns on capital employed in
each of our business units. In early 2005, we restructured the Company along
business unit lines to provide a management structure conducive to future
growth, as well as allowing us to better focus our attention and energies on our
increasingly diverse products and constituencies. Further, it provides the
mechanism to monitor return on net assets to ascertain which business units
continue to provide shareholder value.
 
 **RESULTS
OF OPERATIONS**
 
 We
experienced strong market conditions in 2004 that drove our overall operations.
We also aggressively priced most of our products based upon market demand and to
absorb the unusually high steel costs we incurred throughout 2004. Because a
significant portion of the products we sold at the higher prices were made using
lower cost steel, we achieved record levels of gross profit and net income in
2004.
  17
  The
following table illustrates the operating results and tons shipped for the
periods presented (in millions, except per share data and tons
shipped):
  ****
    
    
    
    
    
    
    
    **2004
      vs. 2003****2004**
    
    
    **2003**
    
    
    **Change**
    
    
    **%
      Change**Energy
      tons shipped
    
    
    861,484
    
    
    882,109
    
    
    (20,625
    )
    
    (2.3
    %)Industrial
      tons shipped
    
    
    392,423
    
    
    399,535
    
    
    (7,112
    )
    
    (1.8
    %)Total
      tons shipped
    
    
    1,253,907
    
    
    1,281,644
    
    
    (27,737
    )
    
    (2.2
    %)Net
      sales
    
    $
    1,456.3
    
    $
    884.3
    
    $
    572.0
    
    
    64.7
    %Cost
      of goods sold
    
    
    1,047.8
    
    
    783.3
    
    
    264.5
    
    
    33.8
    %Gross
      profit
    
    
    408.5
    
    
    101.0
    
    
    307.5
    
    
    304.5
    %Income
      from operations
    
    
    324.1
    
    
    45.3
    
    
    278.8
    
    
    615.5
    %Income
      from continuing operations before income taxes and cumulative effect of
      accounting change
    
    
    313.7
    
    
    35.7
    
    
    278.0
    
    
    778.7
    %Income
      before cumulative effect of accounting change
    
    
    195.4
    
    
    23.0
    
    
    172.4
    
    
    749.6
    %Net
      income
    
    
    193.8
    
    
    23.0
    
    
    170.8
    
    
    742.6
    %Diluted
      earnings per share before cumulative effect of accounting
      change
    
    
    4.57
    
    
    0.55
    
    
    4.02
    
    
    730.9
    %Diluted
      earnings per share
    
    
    4.54
    
    
    0.55
    
    
    3.99
    
    
    725.5
    %****
    
    
    
    
    
    
    
    **2003
      vs. 2002****2003**
    
    
    **2002**
    
    
    **Change**
    
    
    **%
      Change**Energy
      tons shipped
    
    
    882,109
    
    
    575,994
    
    
    306,115
    
    
    53.1
    %Industrial
      tons shipped
    
    
    399,535
    
    
    164,858
    
    
    234,677
    
    
    142.4
    %Total
      tons shipped
    
    
    1,281,644
    
    
    740,852
    
    
    540,792
    
    
    73.0
    %Net
      sales
    
    $
    884.3
    
    $
    452.9
    
    $
    431.4
    
    
    95.3
    %Cost
      of goods sold
    
    
    783.3
    
    
    409.9
    
    
    373.4
    
    
    91.1
    %Gross
      profit
    
    
    101.0
    
    
    43.0
    
    
    58.0
    
    
    134.9
    %Income
      from operations
    
    
    45.3
    
    
    10.5
    
    
    34.8
    
    
    331.4
    %Income
      from continuing operations before income taxes
    
    
    35.7
    
    
    6.2
    
    
    29.5
    
    
    475.8
    %Income
      from continuing operations
    
    
    23.0
    
    
    2.9
    
    
    20.1
    
    
    693.1
    %Net
      income
    
    
    23.0
    
    
    3.4
    
    
    19.6
    
    
    576.5
    %Diluted
      earnings per share from continuing operations
    
    
    0.55
    
    
    0.08
    
    
    0.47
    
    
    587.5
    %Diluted
      earnings per share
    
    
    0.55
    
    
    0.09
    
    
    0.46
    
    
    511.1
    %
 *Year
Ended December 31, 2004, Compared to Year Ended December 31,
2003*
 
 Overall
Company
 
 2004 net
sales of $1,456.3 million increased $572.0 million, or 64.7%, compared to 2003.
These results were primarily attributable to a 68.3% increase in overall average
net selling prices up from an average of $690 per ton to $1,161 per ton. We
increased our prices based upon additional product demand and to offset
increases in the cost of steel implemented by our major steel suppliers. Because
of our aggressive price increases, we experienced a 2.2% decrease in total
product shipments, from 1,281,644 tons for 2003 to 1,253,907 tons for 2004.
 
 2004 cost
of goods sold of $1,047.8 million increased $264.5 million, or 33.8%, compared
to 2003. Overall average unit cost per ton of products sold increased 36.8% in
2004 over the prior year, from an average of $611 per ton to $836 per ton. Costs
increased primarily due to an increase in the cost of steel experienced for 2004
compared to the prior year.
 
 We earned
gross profit of $408.5 million during 2004, compared to $101.0 million in 2003.
Gross profit per ton for 2004 was $326 per ton as compared to $79 per ton for
2003. Gross profit as a percentage of net sales was 28.1% for 2004, as compared
to 11.4% for 2003. Gross profit per ton increased primarily due to strengthening
market conditions in both our energy and industrial products lines and the sale
of generally lower cost inventory at higher selling prices during the first
three quarters of 2004. We began to experience the impact of the higher cost of
steel during the fourth
 
 
 18
 
 quarter
of 2004, and we expect these higher costs to be expensed during the first and
second quarters of 2005. As a result, we expect our gross profit margins to
decrease in 2005 from the historic highs experienced in 2004.

Selling,
general and administrative expenses increased $31.9 million, or 56.8%, to $88.1
million during 2004 from $56.2 million during 2003. The increase resulted
primarily from additional commission expense on our industrial product line,
additional reserves in our allowance for doubtful accounts, incentive
compensation, write-downs on our joint venture and variable interest entity
investments and charges related to business development activities. Selling,
general and administrative expenses as a percentage of net sales in 2004 were
6.0% compared to 6.4% for the prior year. The decrease resulted primarily from
the increase in net sales.
 
 The
Company recognized $3.6 million in income during 2004 as recoupment of lost
profits related to trade cases outstanding with the Department of Commerce.
Payments went to various companies, including ours, under the Continued Dumping
& Subsidy Offset Act of 2000, commonly referred to as CDSOA, and were made
to cover certain expenses including investment in manufacturing facilities and
acquisition of technology incurred after the imposition of antidumping and
anti-subsidy measures. We cannot predict the amounts or the certainty of any
future recoveries associated with this Act. Because these expenses were included
in operating income in previous years, we recorded the recovery as a separate
line item included in operating income to consistently reflect the effect of
this payment on operations.
 
 Interest
expense increased $0.8 million, or 8.3%, to $10.4 million in 2004 from $9.6
million for 2003. This increase was due to higher average borrowings and higher
average interest rates during 2004 as compared to the prior year.
 
 The
provision for income taxes on continuing operations was $118.3 million for 2004,
compared to the prior year provision of $12.7 million. This change is
attributable to the generation of pretax income of $313.7 million in 2004,
compared to pretax income in 2003 of $35.7 million. The effective tax rate for
2004 was impacted by the generation of more pretax income and a greater
proportion of that income being derived from U.S. operations.
 
 The
Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No.
46, “Consolidation of Variable Interest Entities,” on March 31, 2004, which
resulted in the consolidation of Pennsylvania Cold Drawn (“PCD”) as of that
date. As a result, we recorded a $1.6 million noncash cumulative charge net of
income tax benefit of $1.0 million to recognize the prior losses of PCD during
the first quarter of 2004.
 
 As a
result of the increased gross profit and the other factors described above, we
generated net income of $193.8 million, or $4.54 diluted income per share in
2004, an increase of $170.8 million from the $23.0 million, or $0.55 diluted
income per share reported for 2003. As with our gross profit, we expect our net
income will decrease in 2005 from the historic highs experienced in
2004.
 
 Energy
Products Segment
 
 2004
energy products sales of $954.5 million increased $332.6 million, or 53.5%,
compared to 2003. Energy product shipments decreased 20,625 tons, or 2.3%, to
861,484 tons from 882,109 tons over the same period. While average U.S. rig
counts increased to 1,190 in 2004 from 1,031 in 2003, our energy products
shipments primarily decreased as we raised our prices more aggressively than our
competitors. Average Canadian rig count decreased slightly from 372 active rigs
for 2003 to 369 active rigs for 2004. Overall average net selling prices for
energy products increased 57.2% for 2004 from the prior year, from an average of
$705 per ton to $1,108 per ton. The increase in energy product sales was
primarily due to selling price increases, which were driven by additional demand
and higher steel costs.
 
 2004
energy products cost of goods sold of $730.9 million increased $188.5 million,
or 34.8%, compared to 2003. The increase was primarily due to increased steel
surcharges implemented by our suppliers. Gross profit for energy products was
$223.6 million for 2004 compared to $79.5 million for the prior year. Gross
profit per ton primarily increased due to higher selling prices. Gross profit
was $260 per ton for 2004 as compared to $90 per ton in the prior year,
reflecting stronger selling prices. Energy product gross profit margin
percentage was 23.4% for 2004, compared to a gross profit margin percentage of
12.8% for the prior year. Gross profit per ton primarily increased due to the
sale of lower cost inventory at higher selling prices. We expect the higher
costs of steel will continue to flow through cost of goods sold through the
first and second quarters of 2005. Depending on the energy market and the extent
that higher costs of steel cannot be absorbed through increased selling prices,
these higher costs of steel could impact our gross profit margins in
2005.
 
 Industrial
Products Segment
 
 2004
industrial products sales of $501.8 million increased $239.4 million, or 91.2%,
compared to 2003. Industrial product shipments decreased 7,112 tons, or 1.8%, to
392,423 tons from 399,535 tons over the same periods. Overall average net
selling price for industrial products increased 94.7% for 2004 from the prior
year from an average of $657 per ton to $1,279 per ton. This increase in
industrial products sales resulted from higher selling prices, which were driven
by tight steel availability and higher steel costs.
 
 
 19
 
 2004
industrial products cost of goods sold of $316.9 million increased $76.0
million, or 31.5%, compared to 2003. The increase was primarily due to higher
costs of steel. Gross profit for industrial products was $184.9 million for 2004
compared to $21.5 million for the prior year. Gross profit per ton primarily
increased due to higher selling prices, partially offset by higher steel costs.
Gross profit was $471 per ton for 2004 as compared to $54 per ton in the prior
year, primarily reflecting increased selling prices. Industrial products gross
profit margin percentage was 36.8% for 2004 compared to 8.2% for the prior year.
Gross profit per ton increased primarily due to the sale of lower cost inventory
at higher selling prices. During the fourth quarter of 2004, we saw an increase
in the cost of steel flowing through cost of goods sold. We expect the higher
costs of steel will continue to be expensed in the first and second quarters of
2005. Depending on the conditions in our industrial products markets and the
extent that higher costs of steel cannot be absorbed through increased selling
prices, these higher costs of steel could impact our gross profit margins in
2005.
 
 *Year
Ended December 31, 2003, Compared to Year Ended December 31,
2002*
 
 Overall
Company
 
 2003 net
sales of $884.3 million increased $431.4 million, or 95.3%, compared with 2002.
These results were attributable primarily to an increase of 73.0% in total
product shipments, to 1,281,644 tons in 2003 from 740,852 tons in 2002 and a
12.9% increase in the overall average net selling price of our products during
2003 from an average of $611 per ton to $690 per ton. Total product shipments
increased 282,593 and 10,677 during 2003 and 2002, respectively, due to our
acquisitions of Republic Conduit, Precision and SeaCAT. Net sales associated
with these acquisitions were $253.2 million and $29.1 million for 2003 and 2002,
respectively.
 
 2003 cost
of goods sold of $783.3 million increased $373.4 million, or 91.1%, compared
with 2002. Overall unit cost per ton of products sold increased 10.5% to an
average of $611 per ton in 2003 from $553 per ton in 2002. Costs increased as a
result of our recent acquisitions of Precision, Republic Conduit and SeaCAT.
These acquisitions have value-added product lines and, thus, have higher steel
and conversion costs associated with their products. Costs also increased due to
a 73.0% increase in total product shipments and an increase in steel costs of
$31 per ton or 10.0%.
 
 We earned
gross profit of $101.0 million during 2003, compared to $43.0 million in 2002.
Gross profit per ton for 2003 was $79 per ton as compared to $58 per ton for
2002. Gross profit per ton increased as a result of higher selling prices,
partially offset by higher steel costs. Gross profit as a percentage of net
sales was 11.4% for 2003, as compared to 9.5% for 2002.
 
 Selling,
general and administrative expenses increased $22.2 million, or 65.3%, to $56.2
million in 2003 from $34.0 million in 2002. This increase resulted primarily
from the additional expenses associated with Republic Conduit sales and
administrative personnel and additional incentive compensation. Selling, general
and administrative expenses as a percentage of net sales decreased to 6.4% in
2003 from 7.5% in 2002. The decrease was due to the higher shipment levels and
cost increases during 2003 compared to 2002.
 
 During
December 2001, we announced our plan to exit the Longview, Washington, facility
and move the production equipment to Hickman, Arkansas. In connection with the
exit plan, we recorded a restructuring charge in 2001 of $8.1 million related to
the write-down of property, plant and equipment, severance and closure costs. In
2003, we recorded an additional charge of $0.6 million for the write-down of
property to reflect the most recent market data and other cash charges. We
closed the transaction during the third quarter of 2004.
 
 The
Company recognized a $1.1 million recovery for the trade cases outstanding with
the Department of Commerce during 2003 under CDSOA.
 
 Interest
expense increased $5.3 million, or 123.3%, to $9.6 million in 2003 from $4.3
million in 2002 as a result of higher average borrowings resulting primarily
from acquisition debt, the issuance of contingent convertible, senior
subordinated notes (the “Convertible Notes”) offset in part by lower average
interest rates during 2003 compared to 2002.
 
 The
provision for income taxes on continuing operations was $12.7 million for 2003,
compared to the prior year provision of $3.3 million. This change is
attributable to the generation of pretax income of $35.7 million in 2003,
compared to pretax income in 2002 of $6.2 million.
 
 As a
result of the increased gross profit and the other factors discussed above, we
generated net income of $23.0 million, or $0.55 diluted income per share in
2003, an increase of $19.6 million from the $3.4 million, or $0.09 diluted
income per share reported for 2002.
 
  20
  Energy
Products Segment
 
 2003
energy products sales of $621.9 million increased $246.8 million, or 65.8%,
compared to 2002. Energy products shipments increased 306,115 tons, or 53.1%, to
882,109 tons in 2003 from 575,994 tons in 2002. Energy products shipments
primarily increased due to the U.S. and Canadian rig counts increasing to 1,031
and 372 active rigs, respectively, in 2003 from 831 and 262 active rigs,
respectively, in 2002. Overall average net selling prices for energy products
increased 8.3% from the prior year, from an average of $651 per ton to $705 per
ton. The increase in energy products sales was primarily due to strengthening
market conditions and the additional sales attributable to the energy products
sold by our Precision, SeaCAT, and Republic Conduit businesses. Energy products
sales attributable to these recent acquisitions were $74.5 million and $29.1
million for 2003 and 2002, respectively.
 
 2003
energy products cost of goods sold of $542.4 million increased $205.7 million,
or 61.1%, compared to 2002. Overall unit cost per ton of products sold increased
5.1% to an average of $615 per ton in 2003 from $585 per ton in 2002. The
increase in cost of goods sold is primarily due to a 53.1% increase in total
product shipments and an increase in steel costs of $31 or 10.0% per ton. Gross
profit for energy products was $79.5 million for 2003 compared to $38.4 million
for 2002. Gross profit was $90 per ton for 2003 compared to $67 per ton for
2002. Energy products gross profit margin percentage was 12.8% for 2003,
compared to a gross profit margin percentage of 10.2% for 2002. The changes in
the gross profit are due to the factors discussed above.
 
 Industrial
Products Segment
 
 2003
industrial products sales of $262.4 million increased $184.6 million, or 237.3%,
compared to 2002. Industrial products shipments increased 234,677 tons, or
142.4%, to 399,535 tons in 2003 from 164,858 tons in 2002. This increase in
industrial product sales and shipments resulted from the additional $178.7
million in sales and 227,861 tons attributable to the industrial products sold
by Republic Conduit. Overall average net selling price for industrial products
increased 39.2% to an average of $657 per ton in 2003 from an average of $472
per ton in 2002. Republic Conduit with its value added steel electrical conduit
and mechanical tubing resulted in an increased average selling price of 39.1%.
 
 2003
industrial products cost of goods sold of $240.9 million increased $167.7
million, or 229.1%, compared to 2002. Overall unit cost per ton of products sold
increased 35.8% to an average of $603 per ton in 2003 from an average of $444
per ton in 2002. The increase in cost of goods sold is primarily due to a 142.4%
increase in total product shipments and an increase in steel costs of $31 or
10.0% per ton. Gross profit for industrial products was $21.5 million for 2003
compared to $4.6 million for 2002. The increase in gross profit was primarily
attributable to the addition of value-added industrial products lines. Gross
profit was $54 per ton as compared to $28 per ton in the prior year, reflecting
stronger selling prices, partially offset by higher steel prices. Industrial
product gross profit margin percentage was 8.2% for 2003, compared to 5.9% gross
profit margin during the prior year.
 
 **LIQUIDITY
AND CAPITAL RESOURCES**
 
 *General*
 
 We
operate in a capital intensive business and access to various financing
resources is vital to our continued financial strength. In the past, we have
been successful in obtaining financing from a variety of sources on terms we
consider attractive. We expect to continue to maintain access to capital sources
in the future, because we exhibit certain characteristics we believe are
considered important by credit rating agencies and financial markets in
determining our access to attractive financing alternatives. These
characteristics include the essential nature of the services we provide, our
large and diverse customer base, our liquidity profile, our asset base, and our
commitment to maintaining a moderate financial profile and disciplined capital
allocation.
 
 We
continually monitor our actual and forecasted cash flows, our liquidity, and our
capital resources, enabling us to plan for our present needs and fund unbudgeted
business activities that may arise during the year as a result of changing
business conditions or new opportunities. In addition to our working capital
needs, we have committed cash requirements for the construction and expansion of
our operating facilities.
 
 Consistent
with our business strategy, we currently intend to retain earnings to finance
the growth and development of our business and do not anticipate paying cash
dividends in the near future. Any payment of cash dividends in the future will
depend upon our financial condition, capital requirements, and earnings as well
as other factors we may deem relevant. In addition, our long-term revolving
credit facility with commercial lenders restricts the amount of dividends we can
pay to our stockholders.
 
 *Debt*
 
 We have a
senior credit facility providing for up to $185 million of revolving credit. The
amount we can borrow is based on a percentage of eligible accounts receivable,
eligible inventory and property, plant and equipment reduced by outstanding
letters of credit. At December 31, 2004, we had an outstanding balance of $54.7
million and outstanding
  21
 
 letters
of credit under this agreement of $5 million. Interest is payable monthly at the
LIBOR rate adjusted by an interest margin, depending upon certain financial
measurements. The additional available borrowing under the senior credit
facility was approximately $110 million as of December 31, 2004. The senior
credit facility includes a financial covenant relating to maintaining a minimum
fixed charge coverage ratio if availability falls below $30 million. Also, the
senior credit facility is structured to give our senior lenders dominion over
our cash if availability falls below $50 million. If this occurs, the full
amount outstanding would be classified as a current liability. The senior credit
facility also limits capital expenditures to $30 million per year (excluding the
new Republic Conduit facility in Louisville, Kentucky) and limits our ability to
pay dividends, create liens, sell assets or enter into transactions with
affiliates without the consent of the lenders.
 We have
$120 million outstanding of Convertible Notes due June 15, 2033. The Company
pays interest semiannually on the Convertible Notes at the rate of 4.0% per
annum. Beginning with the six-month interest period commencing on June 15, 2008,
the Company will pay contingent interest during a six-month interest period if
the average trading price of the Convertible Notes equals or exceeds 130.0% of
the principal amount of the Convertible Notes during a specified period prior to
such six-month interest period. The Convertible Notes are general unsecured
obligations and are subordinated to our senior indebtedness referred to
above.
 
 Our net
debt to capitalization ratio (the sum of our current and long-term debt, net of
cash and cash equivalents compared to the sum of our stockholders’ equity and
our current and long-term debt, net of cash, cash equivalents and short-term
investments) decreased from 27.9% at December 31, 2003, to 19.7% at December 31,
2004. This ratio is a measure of our long-term liquidity and is an indicator of
financial flexibility.
 
 We have
entered into an interest rate swap agreement with a notional amount of $50
million that fixes the LIBOR-based variable rate in our senior credit facility
at 2.24% (before the applicable margin). The swap is being accounted for as a
cash flow hedge. Accordingly, the difference between the interest received and
interest paid is reflected as an adjustment to interest expense. At December 31,
2004, the swap agreement is reflected in the accompanying consolidated balance
sheet in other long-term assets at its fair value of $35,000. The unrealized
gain on the fair value of the swap agreement is reflected, net of taxes, in
other comprehensive income. The swap agreement terminates on March 21, 2005, and
will not be renewed due to the minimal amount of debt we expect to have
outstanding.
 
 We have
entered into a foreign currency hedge agreement with a notional amount of $30
million that fixed the purchase of U.S. dollars on January 18, 2005, at an
exchange rate of 1.327. Prudential Steel currently borrows funds denominated in
U.S. dollars. This hedge agreement is designed to protect the variability of
foreign currency risk when the debt matures. The settlement date for the hedge
agreement was January 18, 2005. The hedge agreement was accounted for as a cash
flow hedge. Accordingly, the difference between the spot rate at the inception
of the contract and the forward rate was reflected as an adjustment to interest
expense during the duration of the contract. At December 31, 2004, the hedge
agreement was reflected in the accompanying consolidated balance sheet in other
accrued liabilities at its fair value of $3.1 million. The unrealized loss on
the fair value of the hedge agreement is reflected, net of taxes, in other
comprehensive income.
 
 *Summary
of Cash Flow Activity*
 
 The
following is a summary of our cash flows for the year ended December 31 for each
respective period (in thousands):
 
 **2004**
    
    
    **2003**
    
    
    **2002**Net
      cash provided by continuing operating activities
    
    $
    47,060
    
    $
    26,892
    
    $
    31,723Net
      cash used by investing activities
    
    $
    (71,073
    )
    $
    (24,838
    )
    $
    (199,800
    )Net
      cash provided by financing activities
    
    $
    7,270
    
    $
    23,520
    
    $
    168,295
 
 Net
Cash Provided by Continuing Operating Activities ** - During
2004, cash generated from operations was negatively impacted primarily by a
$239.2 million increase in inventories. As tons of inventory increased by only
17.9%, the remaining increase is directly attributable to the increase in steel
prices we experienced in 2004 compared to 2003. During 2003, cash generated from
operations was negatively impacted by a $40.9 million increase in accounts
receivable and a $36.2 million decrease in accrued expenses and liabilities.
During 2002, cash generated from continuing operations was positively impacted
by an increase in accounts payable in the amount of $46.6 million, offset by a
decrease in inventories in the amount of $21.4 million and a decrease in accrued
expenses and other liabilities in the amount of $10.0 million.
  Net
Cash Used by Investing Activities *-* The
primary purpose for the net cash used by investing activities during 2004 was
the net purchase of $20.0 million in short-term investments, cash used in the
acquisition of Texas Arai in the amount of $20.2 million and capital
expenditures in the amount of $34.8 million. The primary purpose for the net
cash used by investing activities during 2003 was the cash used in the
acquisition of SeaCAT in the amount of $4.0 million and capital expenditures in
the amount of $20.9 million. The primary purpose for the net cash used by
investing
 22
 
 activities
during 2002 was the cash used in the acquisitions of Precision and Republic
Conduit in the amount of $177.1 million and capital expenditures in the amount
of $22.8 million.
 Net
Cash Provided by Financing Activities *-* The
primary source for the net cash provided by financing activities during 2004 was
the proceeds from the exercise of stock options. The primary source for the net
cash provided by financing activities during 2003 was the $120.0 million
Convertible Notes issued in June 2003, partially offset by an $89.5 million
decrease in our long-term revolving credit facility, a $4.6 million increase in
deferred debt costs and $3.0 million of regularly scheduled long-term debt
payments. The primary source for the net cash provided by financing activities
during 2002 was the $66.4 million increase in our long-term revolving credit
facility, $90.4 million from the issuance of 6.5 million shares of common stock
and the sale of 1.2 million shares of treasury stock in the amount of $15.9
million. The principal use of the 2002 cash flows was the acquisitions of
Republic Conduit and Precision.
 
 *Contractual
Obligations*
 
 In the
table below, we set forth our enforceable and legally binding obligations as of
December 31, 2004 (in thousands). Some of the figures we include in this table
are based on our estimates and assumptions about these obligations, including
their durations, anticipated actions by third parties and other factors. The
enforceable and legally binding obligations we will actually pay in future
periods may vary from those reflected in the table because the estimates and
assumptions are subjective.
 
 ****
    
    **Payments
      Due by Period****Less
      Than**
    
    
    **1-3**
    
    
    **3-5**
    
    
    **More
      than****Contractual
      Obligations**
    
    
    **Total**
    
    
    **1
      Year**
    
    
    **Years**
    
    
    **Years**
    
    
    **5
      Years**Total
      debt (1)
    
    $
    178,868
    
    $
    57,759
    
    $
    1,109
    
    $
    --
    
    $
    120,000Estimated
      interest payments (2)
    
    
    136,994
    
    
    4,915
    
    
    9,679
    
    
    9,600
    
    
    112,800Operating
      leases (3)
    
    
    17,767
    
    
    5,278
    
    
    8,117
    
    
    3,657
    
    
    715Purchase
      obligations (4)
    
    
    24,748
    
    
    24,748
    
    
    --
    
    
    --
    
    
    --Other
      liabilities (5)
    
    
    5,061
    
    
    5,061
    
    
    --
    
    
    --
    
    
    --Total
      contractual cash obligations
    
    $
    363,438
    
    $
    97,761
    
    $
    18,905
    
    $
    13,257
    
    $
    233,515
  (1)
    Amounts
      represent the expected cash payment for our total debt and do not include
      deferred issuance costs and the fair market valuation of our current
      interest rate swap agreement.
 (2)
    Amounts
      represent the expected cash payment for interest on our fixed rate
      long-term debt.
 (3)
    We
      entered into operating leases in the normal course of business. Some lease
      agreements provide us with the option to renew the lease. Our future
      operating lease payments would change if we exercised these renewal
      options and if we entered into additional operating lease
      agreements.
 (4)
    Purchase
      obligations include agreements to purchase goods or services that are
      enforceable and legally binding and that specify all significant terms,
      including fixed or minimum quantities to be purchased, fixed, minimum or
      variable price provisions, and the approximate timing of the transactions.
      Purchase obligations exclude agreements that are cancelable at any time
      without penalty.
 (5)
    Amounts
      represent other liabilities, where both the timing and amount of payments
      streams are known. Amounts do not include payments for pension payments
      for various postretirement benefit plans and payments for deferred taxes
      and other tax liabilities, as such amounts have not been determined beyond
      2005 but include expected employer contributions for the year ended
      December 31, 2005. Pension assumptions are as follows: 6.0% discount, 7.0%
      expected return on plan assets, and a 4.5% rate of compensation
      increase.
 
 Our
capital expenditure budget for 2005 is approximately $92.8 million. Our capital
expenditure budget will be primarily used to construct the new state-of-the-art
Republic Conduit facility for $63 million, expand our existing facility at
Precision for $12 million and acquire new equipment for our other existing
manufacturing facilities. In addition, our capital expenditure for enhancing our
information technology systems and to complete integration efforts with recent
acquisitions is approximately $6.3 million for 2005. We expect to meet ongoing
working capital and the capital expenditure requirements from a combination of
cash flow from operating activities and available borrowings under our revolving
credit facility. However, this budget could be reduced to help manage liquidity
needs. As of December 31, 2004, we have made several deposits totaling $6.5
million for equipment to be used in the manufacturing process at our new
state-of-the-art Republic Conduit facility.
 
 **CRITICAL
ACCOUNTING ESTIMATES**
 
 Certain
accounting issues require management estimates and judgments for the preparation
of financial statements. We believe that the estimates, assumptions and
judgments involved in the accounting policies described below have the greatest
potential impact on our financial statements. Therefore, we consider these to be
our critical accounting estimates. Our management has discussed the development
and selection of these critical accounting estimates with the Audit Committee of
our Board of Directors, and the Audit Committee has reviewed the disclosure
relating to these estimates in the MD&A. Our most significant estimates and
judgments are listed below.
  23
 
 *Goodwill
and Other Intangible Assets*
 
 Our
acquisitions of Precision, Republic Conduit and SeaCAT have resulted in goodwill
of $86.0 million and other acquired intangibles, net of accumulated
amortization, of $34.5 million. We conducted the required impairment test of our
goodwill and other intangible assets in the fourth quarter of 2004 and
determined that no impairment had occurred. We are required to conduct an
impairment test of goodwill and other intangible assets on an annual basis and
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
value.
 
 Management
analyzed the valuation of our recent acquisitions by utilizing a discounted cash
flow method and a market multiple method. Both of these techniques required us
to estimate future sales prices and volumes. We used our internal budgets, which
are based on recent sales data and market information as well as current cost of
production, to estimate future cash flows. Based on these estimates, we believe
the enterprise value of our acquisition continues to be greater than our
investment. While the annual impairment tests did not indicate goodwill
impairment, we would be subject to future impairment if the operating results
and cash flows of our recent acquisitions would not support the fair value of
the reporting unit’s net assets including goodwill.
 
 *Accounts
Receivable Collectibility*
 
 We
evaluate the collectibility of our accounts receivable for each of our segments
based on a combination of factors. In circumstances where we are aware of a
specific customer’s inability to meet its financial obligations to us (e.g.,
bankruptcy filing or substantial downgrading of credit), we record a specific
reserve for bad debts against the amounts due reducing the net recognized
receivable to the amount we estimate will be collected. For all other customers,
we estimate reserves for bad debts based on the length of time receivables have
been past due and our experience with receivable collection. If circumstances
change, such as further deterioration in a customer’s ability to meet its
financial obligations to us, our estimate of the recovery could be reduced by a
material amount. Our bad debt expense on accounts receivables was $1.4 million
for 2004 and $0.2 million for 2003.
 
 *Notes
Receivable Collectibility*
 
 We
evaluate the collectibility of our notes receivable based on a combination of
factors. In circumstances where we are aware of a note holder’s inability to
meet its financial obligations to us (e.g., bankruptcy filing, substantial
downgrading of credit), we record a specific reserve for bad debts against the
amounts due reducing the net recognized receivable to the amount we estimate
will be collected. If circumstances change, such as further deterioration in a
customer’s ability to meet its financial obligations to us, our estimate of the
recovery could be reduced by a material amount.
 
 *Income
Tax Matters*
 
 The
liability method is used for determining our income taxes, under which current
and deferred tax assets and liabilities are recorded in accordance with enacted
tax laws and regulations. Under this method, the amounts of deferred tax assets
and liabilities are determined using the tax rate based on the provisions of
enacted tax law.
 
 We are
subject to the jurisdiction of numerous tax authorities. Our operations in these
different jurisdictions are generally taxed on income before taxes adjusted for
various differences between tax law and GAAP accounting. Determination of
taxable income in any jurisdiction requires the interpretation of the related
tax laws and regulations and the use of estimates and assumptions regarding
significant future events such as the amount, timing and character of
deductions, permissible revenue recognition methods under the tax law and the
sources and character of income and tax credits. Changes in tax laws,
regulations, agreements and treaties, foreign currency exchange restrictions or
our level of operations or profitability in each taxing jurisdiction could have
an impact on the amount of income taxes that we provide during any given year.
 
 Our tax
filings for various periods are subject to audit by the tax authorities in the
jurisdictions in which we conduct business. These audits may result in
assessments of additional taxes. Resolutions of these situations inevitably
include some degree of uncertainty. The resulting change to our tax liability,
if any, is dependent on numerous factors which are difficult to estimate. These
include, but are not limited to, the amount and nature of additional taxes
potentially asserted by tax authorities; the willingness of tax authorities to
negotiate a fair settlement through an administrative process; the impartiality
of the courts; and the potential for changes in the tax paid in Canada that
either produce, or fail to produce, an offsetting tax change in the U.S. Our
experience has been that the estimates and assumptions we have used to provide
for future tax assessments have proven to be appropriate. However, experience is
only a guide, and the potential exists, however limited, that the tax resulting
from the resolution of current and potential future tax controversies may differ
materially from the amount accrued. We have provided for taxes and interest that
we believe may ultimately be payable.
 
 
 24
 
 All
alternative minimum tax credit carryforwards were used in 2004. Net operating
loss carryforwards with a tax value of $7.3 million were available at December
31, 2004. Management believes that the character and nature of estimated future
taxable income will allow for full realization of the associated tax benefits
from the net operating loss carryforwards before they expire between 2005 and
2023, excepting $109,000 for which a valuation allowance has been
established.
 
 Foreign
earnings are intended to be permanently reinvested outside the U.S. As a result,
no income tax provision has been recorded for U.S. taxes on the cumulative
undistributed foreign earnings. At December 31, 2004, $6.9 million of foreign
tax credit carryforwards were available. A full valuation allowance has been
recorded against the foreign tax credit carryforwards.
 
 *Pension
Plans*
 
 Prudential
sponsors two pension plans, the Hourly Plan and the Salary Plan, and a
supplemental executive retirement plan, or SERP. The most significant estimates
related to these plans involve the expected long-term rate of return on plan
assets and discount rate. At December 31, 2004, we have estimated the expected
long-term rate of return to be 7.0% and the discount rate, which reflects the
current rate at which pension liabilities could be effectively settled, to be
6.0%. In determining the expected long-term and discount rate, we analyze rates
of return on high-quality, fixed income investments whose portfolio is balanced
between equity and fixed income investments. We monitor the performance of these
funds semiannually against asset return benchmarks mandated by Prudential’s
board. Based upon these benchmarks, we believe our pension assumptions are
appropriate.
 
 **ITEM
7A**  **Quantitative and Qualitative Disclosures About
Market Risk**
 
 **INTEREST
RATE RISK**
 
 We are
subject to interest rate risk to the extent we borrow against our revolving
credit facility which has variable interest rates. However, we utilize an
interest rate swap agreement to mitigate a portion of our exposure. We do not
use derivative financial instruments for trading or other speculative purposes.
Assuming the current level of borrowings at variable rates and a
two-percentage-point change in the average interest rate under these borrowings
and taking into account the swap agreement in place, it is estimated our
interest expense for the year ended December 31, 2004, would not have changed by
a material amount. In the event of an adverse change in interest rates, we would
likely take actions, in addition to the swap agreement currently in place that
would mitigate our exposure to interest rate risk; however, due to the
uncertainty of the actions that would be taken and their possible effects, no
such actions have been considered. Further, no consideration has been given to
the effects of the change in the level of overall economic activity that could
exist in such an environment.
 
 **STEEL
COMMODITY RISK**
 
 We are
also subject to commodity price risk with respect to purchases of steel. Steel
represents approximately sixty percent of our cost of goods sold. As a result,
the steel industry, which is highly volatile and cyclical in nature,
significantly affects our business. We expect our current replacement cost of
steel to flow through our cost of goods sold over the next two quarters. In
addition, we depend on a few suppliers for a significant portion of our steel.
The loss of one of our significant steel suppliers or the inability to obtain
the necessary amount of steel could have a temporary adverse effect on our
ability to produce the quantity of products necessary to sustain our market
share, thus impacting our results of operations.
 
 **FOREIGN
CURRENCY RISK**
 
 The
Company’s reported cash flows related to its Canadian operations are based on
cash flows measured in Canadian dollars translated to the U.S. dollar equivalent
based on published exchange rates for the period reported. The Company believes
its current risk exposure to the exchange rate movements, based on net cash
flows, to be immaterial.
  25
  **ITEM
8**  **Financial Statements and Supplementary
Data**





**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





The Board
of Directors and Stockholders of Maverick Tube Corporation





We have
audited the accompanying consolidated balance sheets of Maverick Tube
Corporation and Subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2004. Our audits also
included the financial statement schedule listed in the index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Maverick Tube
Corporation and Subsidiaries at December 31, 2004 and 2003, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.





As
described in Notes 3 and 7 to the consolidated financial statements, in 2004 the
Company adopted the provisions of Financial Accounting Standards Board
Interpretation Number 46 (revised December 2003), “Consolidation of Variable
Interest Entities,” and Emerging Issues Task Force Issue 04-8, “The Effect of
Contingently Convertible Debt on Diluted Earnings per Share.”





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Maverick Tube Corporation
and Subsidiaries’ internal control over financial reporting as of December 31,
2004, based on the criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 2, 2005, expressed an unqualified opinion
thereon.




/S/ ERNST
& YOUNG LLP
   St.
Louis, Missouri


March 2,
2005





26





**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








The Board
of Directors and Stockholders of Maverick Tube Corporation





We have
audited management’s assessment, included in the accompanying *Management’s
Report on Internal Control Over Financial Reporting* included
in Item 9A, that Maverick Tube Corporation and Subsidiaries (Maverick Tube
Corporation) maintained effective internal control over financial reporting as
of December 31, 2004, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Maverick Tube Corporation’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk controls may become
inadequate because of changes in conditions or the degree of compliance with the
policies or procedures may deteriorate.





In our
opinion, management’s assessment that Maverick Tube Corporation and Subsidiaries
maintained effective internal control over financial reporting as of December
31, 2004, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, Maverick Tube Corporation and Subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on **** the COSO
criteria **.**





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Maverick
Tube Corporation and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2004, of Maverick
Tube Corporation and Subsidiaries, and our report dated March 2, 2005, expressed
an unqualified opinion thereon.




/S/ ERNST
& YOUNG LLP


St.
Louis, Missouri


March 2,
2005





27





**MANAGEMENT'S
RESPONSIBILITY FOR FINANCIAL STATEMENTS**








The
management of Maverick is responsible for the information contained in the
financial statements. The financial statements have been prepared by us in
accordance with accounting principles generally accepted in the United States
appropriate in the circumstances and necessarily include certain amounts based
on management's best estimates and judgments.





We
maintain a system of internal accounting control that we believe is sufficient
to provide reasonable assurance that, in all material respects, transactions are
properly authorized and recorded, financial reporting responsibilities are met,
and accountability for assets is maintained. In establishing and maintaining any
system of internal control, judgment is required to assess and balance the
relative costs and expected benefits. Management believes that through the
careful selection of employees, the division of responsibilities, and the
application of formal policies and procedures, Maverick has an effective and
responsive system of internal accounting controls. The system is monitored by
our staff of controllers and our internal auditor, who evaluate and report to
management on its effectiveness. In addition, our code of conduct requires and
our employees have agreed to maintain a high level of ethical standards in the
conduct of the Company's business.





The Audit
Committee of the Board of Directors is comprised of three independent directors
who meet regularly with the independent auditors, the internal auditor, and
management to ensure that each is meeting its responsibilities regarding the
objectivity and integrity of the Company's financial statements. Both the
independent auditors and internal auditor have full and free access to the Audit
Committee without the presence of management to discuss, among other things,
their evaluation of the adequacy of the internal controls and the quality of our
financial reporting.




/s/
      C. Robert BunchC.
      Robert BunchChairman
      of the Board and
      Chief
      Executive Officer
 
 /s/
      Pamela G. BoonePamela
      G. BoonePrincipal
      Financial Officer














28





**MAVERICK
TUBE CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
BALANCE SHEETS**


**(In
thousands, except share data)**


****
    
    December
      31,**ASSETS**
    
    
    **2004**
    
    
    **2003****Current
      assets:**Cash
      and cash equivalents
    
    $
    14,721
    
    $
    29,202Short-term
      investments
    
    
    19,965
    
    
    -Accounts
      receivable, less allowances of $6,641 and $5,414 in 2004 and 2003,
      respectively
    
    
    160,240
    
    
    117,115Inventories
    
    
    447,080
    
    
    184,025Deferred
      income taxes
    
    
    9,488
    
    
    5,534Income
      taxes refundable
    
    
    -
    
    
    590Prepaid
      expenses and other current assets
    
    
    8,404
    
    
    6,267Total
      current assets
    
    
    659,898
    
    
    342,733Property,
      plant and equipment, net of accumulated depreciation
    
    
    211,534
    
    
    189,434Goodwill
    
    
    85,984
    
    
    82,982Other
      acquired intangibles, net of accumulated amortization
    
    
    34,522
    
    
    35,304Notes
      receivable
    
    
    -
    
    
    9,500Other
      assets
    
    
    10,499
    
    
    10,773$
    1,002,437
    
    $
    670,726**LIABILITIES
      AND STOCKHOLDERS' EQUITY****Current
      liabilities:**Accounts
      payable
    
    $
    98,957
    
    $
    47,557Accrued
      expenses and other liabilities
    
    
    42,809
    
    
    34,391Deferred
      revenue
    
    
    14,387
    
    
    3,386Income
      taxes payable
    
    
    29,364
    
    
    203Current
      maturities of long-term debt
    
    
    3,298
    
    
    3,533Total
      current liabilities
    
    
    188,815
    
    
    89,070Long-term
      debt, less current maturities
    
    
    2,981
    
    
    4,209Convertible
      senior subordinated notes
    
    
    120,000
    
    
    120,000Revolving
      credit facility
    
    
    54,660
    
    
    50,213Other
      liabilities
    
    
    21,387
    
    
    16,436Deferred
      income taxes
    
    
    18,930
    
    
    6,000**STOCKHOLDERS'
      EQUITY**Preferred
      stock, $0.01 par value; 5,000,000 authorized shares;1
      share issued and outstanding
    
    
    -
    
    
    -Common
      stock, $0.01 par value; 80,000,000 authorized shares;
      42,645,309and
      42,001,662 shares issued and outstanding in 2004 and 2003,
      respectively
    
    
    426
    
    
    420Additional
      paid-in capital
    
    
    238,895
    
    
    227,048Unamortized
      value of restricted stock
    
    
    (1,416
    )
    
    -Treasury
      stock, 12,864 shares
    
    
    (222
    )
    
    -Retained
      earnings
    
    
    355,988
    
    
    162,192Accumulated
      other comprehensive income (loss)
    
    
    1,993
    
    
    (4,862
    )595,664
    
    
    384,798*See
      accompanying notes.*
    
    $
    1,002,437
    
    $
    670,726








29





**MAVERICK
TUBE CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
STATEMENTS OF INCOME**


**(In
thousands, except per share data)**




****
    
    Year
      Ended December 31,**2004**
    
    
    **2003**
    
    
    **2002**Net
      sales
    
    $
    1,456,264
    
    $
    884,317
    
    $
    452,913Cost
      of goods sold
    
    
    1,047,777
    
    
    783,353
    
    
    409,916Gross
      profit
    
    
    408,487
    
    
    100,964
    
    
    42,997Selling,
      general and administrative
    
    
    88,058
    
    
    56,142
    
    
    34,032Restructuring
      charges
    
    
    -
    
    
    584
    
    
    1,186Trade
      case relief
    
    
    (3,633
    )
    
    (1,104
    )
    
    (2,709
    )Income
      from operations
    
    
    324,062
    
    
    45,342
    
    
    10,488Interest
      expense
    
    
    10,374
    
    
    9,637
    
    
    4,325Income
      from continuing operations before income taxes and cumulative effect of
      accounting change
    
    
    313,688
    
    
    35,705
    
    
    6,163Provision
      for income taxes
    
    
    118,308
    
    
    12,748
    
    
    3,277Income
      from continuing operations before cumulative effect of accounting
      change
    
    
    195,380
    
    
    22,957
    
    
    2,886Gain
      on disposal of DOM facility (net of income tax provision of
      $250)
    
    
    -
    
    
    -
    
    
    518Income
      before cumulative effect of accounting change
    
    
    195,380
    
    
    22,957
    
    
    3,404Cumulative
      effect of accounting change (net of income tax benefit of
      $951)
    
    
    (1,584
    )
    
    -
    
    
    -Net
      income
    
    $
    193,796
    
    $
    22,957
    
    $
    3,404Basic
      earnings (loss) per shareIncome
      from continuing operations
    
    $
    4.61
    
    $
    0.55
    
    $
    0.08Income
      from discontinued operations
    
    
    -
    
    
    -
    
    
    0.01Loss
      from cumulative effect of accounting change
    
    
    (0.04
    )
    
    -
    
    
    -Net
      income
    
    $
    4.58
    
    $
    0.55
    
    $
    0.09Diluted
      earnings (loss) per shareIncome
      from continuing operations
    
    $
    4.57
    
    $
    0.55
    
    $
    0.08Income
      from discontinued operations
    
    
    -
    
    
    -
    
    
    0.01Loss
      from cumulative effect of accounting change
    
    
    (0.04
    )
    
    -
    
    
    -Net
      income
    
    $
    4.54
    
    $
    0.55
    
    $
    0.09Pro
      forma income and earnings per share assuming accounting change described
      in Note 3 is applied retroactively:Income
      before cumulative effect of accounting change
    
    $
    195,292
    
    $
    20,899
    
    $
    2,209Basic
      earnings per share before cumulative effect of accounting
      change
    
    $
    4.61
    
    $
    0.50
    
    $
    0.06Diluted
      earnings per share before cumulative effect of accounting
      change
    
    $
    4.57
    
    $
    0.50
    
    $
    0.06*See
      accompanying notes.*


30





**MAVERICK
TUBE CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY**


**(In
thousands, except share data)**





Unamortized
    
    
    
    
    
    
    
    
    **Accumulated**Additional
    
    
    **Value
      of**
    
    
    
    
    
    
    
    
    **Other******
    
    Common
      Stock
    
    **Paid-In**
    
    
    **Restricted**
    
    
    **Treasury**
    
    
    **Retained**
    
    
    **Comprehensive**
    
    
    **Stockholders’**Shares
    
    
    **Amount**
    
    
    **Capital**
    
    
    **Stock**
    
    
    **Stock**
    
    
    **Earnings**
    
    
    Income
      (Loss
    )
    
    **Equity****Balance
      at December 31, 2001**
    
    
    32,812,036
    
    $
    340
    
    $
    114,307
    
    $
    -
    
    $
    (11,525
    )
    $
    135,831
    
    $
    (13,570
    )
    $
    225,383Net
      income
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    3,404
    
    
    -
    
    
    3,404Minimum
      pension liability (net of $528 tax benefit)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,001
    )
    
    (1,001
    )Foreign
      currency translation
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    852
    
    
    852Comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,255Sale
      of treasury stock
    
    
    1,201,000
    
    
    -
    
    
    4,328
    
    
    -
    
    
    11,525
    
    
    -
    
    
    -
    
    
    15,853Exercise
      of stock options - directors and employees
    
    
    180,940
    
    
    2
    
    
    1,072
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,074Issuance
      of common stock
    
    
    6,749,000
    
    
    67
    
    
    92,593
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    92,660Tax
      benefit associated with the exercise of non-qualifiedstock
      options
    
    
    -
    
    
    -
    
    
    61
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    61**Balance
      at December 31, 2002**
    
    
    40,942,976
    
    
    409
    
    
    212,361
    
    
    -
    
    
    -
    
    
    139,235
    
    
    (13,719
    )
    
    338,286Net
      income
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    22,957
    
    
    -
    
    
    22,957Minimum
      pension liability (net of $177 tax expense)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    338
    
    
    338Cash
      flow hedges (net of $137 tax benefit)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (254
    )
    
    (254
    )Foreign
      currency translation
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    8,773
    
    
    8,773Comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,814Exercise
      of stock options - directors and employees
    
    
    325,010
    
    
    4
    
    
    2,306
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,310Issuance
      of common stock
    
    
    733,676
    
    
    7
    
    
    12,097
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    12,104Tax
      benefit associated with the exercise of non-qualifiedstock
      options
    
    
    -
    
    
    -
    
    
    284
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    284**Balance
      at December 31, 2003**
    
    
    42,001,662
    
    
    420
    
    
    227,048
    
    
    -
    
    
    -
    
    
    162,192
    
    
    (4,862
    )
    
    384,798Net
      income
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    193,796
    
    
    -
    
    
    193,796Minimum
      pension liability (net of $854 tax benefit)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,648
    )
    
    (1,648
    )Cash
      flow hedges (net of $7 tax benefit)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    241
    
    
    241Foreign
      currency translation
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    8,262
    
    
    8,262Comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,651Exercise
      of stock options - directors and employees
    
    
    550,407
    
    
    5
    
    
    6,917
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    6,922Stock
      issued under restricted stock plan, net of forfeitures
    
    
    80,376
    
    
    1
    
    
    1,875
    
    
    (1,654
    )
    
    (222
    )
    
    -
    
    
    -
    
    
    -Share-based
      compensation
    
    
    -
    
    
    -
    
    
    450
    
    
    238
    
    
    -
    
    
    -
    
    
    -
    
    
    688Tax
      benefit associated with the exercise of non-qualifiedstock
      options
    
    
    -
    
    
    -
    
    
    2,605
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,605**Balance
      at December 31, 2004**
    
    
    42,632,445
    
    $
    426
    
    $
    238,895
    
    $
    (1,416
    )
    $
    (222
    )
    $
    355,988
    
    $
    1,993
    
    $
    595,664*See
      accompanying notes.*








31








**MAVERICK
TUBE CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
STATEMENTS OF CASH FLOWS**


**(In
thousands)**




****
    
    Year
      Ended December 31,**2004**
    
    
    **2003**
    
    
    **2002****OPERATING
      ACTIVITIES**Income
      from continuing operations
    
    $
    193,796
    
    $
    22,957
    
    $
    2,886Adjustments
      to reconcile income from continuing operationsto
      net cash provided by operating activities:Cumulative
      effect of accounting change
    
    
    1,584
    
    
    -
    
    
    -Depreciation
    
    
    24,883
    
    
    20,550
    
    
    18,843Amortization
    
    
    2,815
    
    
    1,861
    
    
    1,111Income
      tax benefit associated with the exercise of non-qualified stock
      options
    
    
    2,605
    
    
    284
    
    
    61Share-based
      compensation expense
    
    
    688
    
    
    -
    
    
    -Deferred
      income taxes
    
    
    6,683
    
    
    4,141
    
    
    (5,375
    )Provision
      for losses on accounts receivable
    
    
    1,203
    
    
    298
    
    
    444Loss
      on sale of equipment
    
    
    274
    
    
    376
    
    
    39Noncash
      impairment charge
    
    
    3,767
    
    
    -
    
    
    -Noncash
      portion of restructuring charges
    
    
    -
    
    
    150
    
    
    861Changes
      in operating assets and liabilities, net of effect of acquisitions:Accounts
      receivable
    
    
    (34,615
    )
    
    (40,943
    )
    
    1,033Inventories
    
    
    (239,174
    )
    
    40,298
    
    
    (21,430
    )Prepaid
      expenses and other current assets
    
    
    (1,265
    )
    
    3,075
    
    
    (7,335
    )Other
      assets
    
    
    (5,027
    )
    
    1,678
    
    
    5,144Accounts
      payable
    
    
    42,876
    
    
    (36,202
    )
    
    46,622Accrued
      expenses and other liabilities
    
    
    34,966
    
    
    7,591
    
    
    (10,030
    )Deferred
      revenue
    
    
    11,001
    
    
    778
    
    
    (1,151
    )Cash
      provided by continuing operating activities
    
    
    47,060
    
    
    26,892
    
    
    31,723**INVESTING
      ACTIVITIES**Cash
      paid for acquisitions, net of cash received
    
    
    (22,133
    )
    
    (4,000
    )
    
    (177,064
    )Purchase
      of investments
    
    
    (50,065
    )
    
    -
    
    
    -Proceeds
      from sale of investments
    
    
    30,100
    
    
    -
    
    
    -Expenditures
      for property, plant and equipment
    
    
    (34,820
    )
    
    (20,902
    )
    
    (22,809
    )Proceeds
      from disposal of equipment
    
    
    5,845
    
    
    64
    
    
    73Cash
      used by investing activities
    
    
    (71,073
    )
    
    (24,838
    )
    
    (199,800
    )




32




****
    
    Year
      Ended December 31,**2004**
    
    
    **2003**
    
    
    **2002****FINANCING
      ACTIVITIES**Net
      borrowings (repayments) on credit facility
    
    
    4,660
    
    
    (89,514
    )
    
    66,388Proceeds
      from convertible senior subordinated notes
    
    
    -
    
    
    120,000
    
    
    -Principal
      payments on long-term borrowings and notes
    
    
    (3,740
    )
    
    (2,977
    )
    
    (938
    )Net
      principal payments (borrowings) on long-term note
    receivable
    
    
    239
    
    
    (1,669
    )
    
    -Deferred
      debt costs
    
    
    (811
    )
    
    (4,630
    )
    
    (4,452
    )Proceeds
      from sale of treasury stock
    
    
    -
    
    
    -
    
    
    15,853Proceeds
      from exercise of stock options
    
    
    6,922
    
    
    2,310
    
    
    1,074Proceeds
      from sale of common stock
    
    
    -
    
    
    -
    
    
    90,370Cash
      provided by financing activities
    
    
    7,270
    
    
    23,520
    
    
    168,295**DISCONTINUED
      OPERATIONS**Gain
      from discontinued operations
    
    
    -
    
    
    -
    
    
    518Adjustments
      to reconcile gain from discontinued operationsto
      net cash provided by discontinued operations:Depreciation
    
    
    -
    
    
    -
    
    
    376Gain
      on disposal
    
    
    -
    
    
    -
    
    
    (518
    )Change
      in operating assets and liabilities of discontinued
    operations
    
    
    -
    
    
    -
    
    
    (742
    )Proceeds
      from sale of discontinued operations
    
    
    -
    
    
    -
    
    
    1,238Net
      cash provided by discontinued operations
    
    
    -
    
    
    -
    
    
    872Effect
      of exchange rate changes on cash
    
    
    2,262
    
    
    1,077
    
    
    (479
    )Increase
      (decrease) in cash and cash equivalents
    
    
    (14,481
    )
    
    26,651
    
    
    611Cash
      and cash equivalents at beginning of year
    
    
    29,202
    
    
    2,551
    
    
    1,940Cash
      and cash equivalents at end of year
    
    $
    14,721
    
    $
    29,202
    
    $
    2,551Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
    
    $
    8,647
    
    $
    7,520
    
    $
    3,154Income
      taxes
    
    $
    76,742
    
    $
    7,964
    
    $
    11,964Noncash
      investing and financing activities:Note
      receivable for sale of discontinued operations
    
    $
    -
    
    $
    954
    
    $
    6,877Stock
      issued for acquisitions
    
    $
    -
    
    $
    12,104
    
    $
    2,290*See
      accompanying notes.*










33


**Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


**1.
Summary of Significant Accounting Policies**





**Principles
of Consolidation**





Maverick
Tube Corporation (“Maverick”) is a leading producer of welded tubular steel
products used in energy and industrial applications throughout the world.
Maverick is the largest North American producer of oil country tubular goods and
line pipe products for use in newly drilled oil and natural gas wells and for
transporting oil and natural gas. Maverick goes to market on both a direct and
distribution basis. The consolidated financial statements include the accounts
of Maverick and its wholly-owned subsidiaries, a joint venture under the control
of Maverick, and a variable interest entity, all of which are separate legal
entities (collectively referred to as “the Company”). All significant
intercompany accounts and transactions have been eliminated.





**Functional
Currency**





Financial
statements of Prudential Steel Ltd.’s (“Prudential”) Calgary, Alberta
operations, where the local currency is the functional currency, are translated
into U.S. dollars using period-end exchange rates for assets and liabilities and
weighted average exchange rates during the period for revenues and expenses.
Cumulative translation adjustments associated with net assets are reported as a
separate component of other comprehensive income or loss within stockholders’
equity.





Exchange
rate gains or losses related to foreign currency transactions are recognized in
the income statement as incurred.





**Revenue
Recognition**





The
Company records revenue from product sales when the revenue is realizable and
the product is shipped from its facilities or its outside yards. This includes
satisfying the following criteria: the arrangement with the customer is evident,
usually through the receipt of a purchase order; the sales price is fixed or
determinable; delivery has occurred; and collectibility is reasonably ensured.
Freight and shipping billed to customers are included in net sales, and the cost
of shipping is included in cost of sales.





**Cash
Equivalents**





The
Company's policy is to consider demand deposits and short-term investments with
a maturity of three months or less when purchased as cash
equivalents.





**Short-Term
Investments**





Substantially
all short-term investments are comprised of investment-grade variable rate debt
obligations, issued by various state governments and categorized as
available-for-sale. Accordingly, investments in these securities are recorded at
cost, which approximates fair value due to their variable interest rates, which
typically reset every 35 days. Despite the long-term nature of their stated
contractual maturities, the Company has the ability to quickly liquidate these
securities. As a result of the resetting variable rates, no cumulative gross
unrealized or realized holding gains or losses were recognized from these
investments. All income generated from these investments is recorded as interest
income.





**Accounts
Receivable**





Accounts
receivable are recorded at net realizable value. In circumstances where the
Company is aware of a specific customer’s inability to meet its financial
obligations (e.g., bankruptcy filing, substantial downgrading of credit), the
Company records a specific reserve for bad debts against the amounts due,
reducing the net recognized receivable to the estimate of what will be
collected. For all other customers, the Company estimates reserves for bad debts
based on the length of time receivables have been past due and its experience
with receivable collection.





Credit
risk on trade receivables arising from the Company's net sales is minimized as a
result of the large and diversified nature of the Company's customer base. The
Company controls its exposure to credit risk through credit approvals, credit
limits, and monitoring procedures. Collateral is generally not required for the
Company's trade receivables.





34


**Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**




**Inventories**





Inventories
are principally valued at the lower of average cost or market.





**Property,
Plant and Equipment**





Property,
plant and equipment are stated on the basis of cost. Depreciation is computed
under the straight-line method over the respective assets’ useful lives. Useful
lives of the Company’s assets are as follows:





Land
      and leasehold improvements
    10
      to 20 yearsBuildings
    20
      to 40 yearsMachinery
      and equipment
    2
      to 12 yearsFurniture
      and fixtures
    2
      to 10 yearsComputer
      software
    3
      to 7 years





Repair
and maintenance costs that do not extend the life of property and equipment are
expensed as incurred.





**Internal-Use
Software Costs**





The
Company capitalizes direct costs incurred during the application, development,
and implementation stages for developing, purchasing, or otherwise acquiring
software for internal use. These software costs are included in property, plant
and equipment on the consolidated balance sheet and are depreciated over the
estimated useful life of the software. All costs incurred during the preliminary
project stage are expensed as incurred.





**Goodwill
and Intangible Assets**





Goodwill
is the excess of the purchase price over the fair value of identifiable net
assets acquired in business combinations accounted for as purchases. Goodwill is
not amortizable, but is tested for impairment annually or more frequently if
events and circumstances indicate an impairment may exist. Intangible assets
with finite lives are amortized over their estimated useful lives. The annual
impairment test performed in the fourth quarter did not indicate an impairment
of the fair value of any reporting unit below its carrying value.





**Deferred
Debt Issuance Costs**





Deferred
debt issuance costs included in other assets are amortized over the terms of the
respective debt obligations using the interest method.





**Product
Liability Accrual**





The
Company’s policy is to accrue for costs associated with the product failure when
it is probable that the claim results from a manufacturing defect and the loss
is reasonably estimable. This accrual is included in accrued expenses and other
liabilities.





**Environmental
Obligations**





The
Company’s policy is to accrue for remediation of contaminated sites in the
accounting period in which the obligation becomes probable and the cost is
reasonably estimable. The Company’s estimates of the environmental remediation
reserve requirements are generally within a range of estimates. If the Company
believes no best estimate exists by location within a range of possible
outcomes, in accordance with accounting guidance, the minimum loss within the
range is accrued. As the future amounts and dates of payments are unknown,
environmental liabilities are not discounted, and they have not been reduced for
any claims for recoveries from insurance or third parties.





**Earnings
per Common Share**





In June
2003, the Company issued $120,000,000 of contingently convertible senior
subordinated notes (“the Old Notes”). In December 2004, the Company completed an
offer to exchange new senior subordinated notes (“the New Notes”) with different
terms for the Old Notes. See Note 7 for additional information.





35
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**








The
reconciliation of the numerator and denominator used to calculate basic and
diluted earnings per share of common stock (“EPS”) is as follows (in
thousands):




**2004**
    
    
    **2003**
    
    
    **2002****Numerator
      for Basic and Diluted EPS**Income
      from continuing operations before cumulative effect of accounting
      change
    
    $
    195,380
    
    $
    22,957
    
    $
    2,886Gain
      on disposal of DOM facility, net of taxes
    
    
    -
    
    
    -
    
    
    518Cumulative
      effect of accounting change, net of benefit for income
    taxes
    
    
    (1,584
    )
    
    -
    
    
    -Numerator
      for basic EPS
    
    
    193,796
    
    
    22,957
    
    
    3,404Interest
      on the Old Notes
    
    
    111
    
    
    62
    
    
    -Numerator
      for diluted EPS
    
    $
    193,907
    
    $
    23,019
    
    $
    3,404


The
reconciliation for diluted earnings per share is as follows (in
thousands):





**2004**
    
    
    **2003**
    
    
    **2002****Denominator
      for Basic EPS**Average
      shares outstanding - basic
    
    
    42,349
    
    
    41,747
    
    
    38,144**Denominator
      for Diluted EPS**
    
    
    42,349
    
    
    41,747
    
    
    38,144Dilutive
      effect of unvested restricted stock and outstanding stock
      options
    
    
    244
    
    
    363
    
    
    348Dilutive
      effect of the Old Notes
    
    
    156
    
    
    86
    
    
    -Dilutive
      effect of the New Notes
    
    
    2
    
    
    -
    
    
    -Average
      shares deemed outstanding - diluted
    
    
    42,751
    
    
    42,196
    
    
    38,492


Basic
earnings per share include the exchangeable shares (as further described in Note
17) from the business combination with Prudential on an as-if exchanged
basis.





**Stock-Based
Compensation**





The
Company has three employee stock option plans and three stock option plans for
eligible directors allowing for incentive and non-qualified stock options, which
are described more fully in Note 16. The Company also has an Omnibus Incentive
Plan in which restricted stock and stock options have been granted to certain
employees of the Company. Effective January 1, 2003, the Company adopted
Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for
Stock-Based Compensation,” which allows the Company to continue to account for
stock option plans under the intrinsic value method in accordance with
Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
to Employees,” and related interpretations. Accordingly, no stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. Compensation expense is recognized in net earnings
for restricted stock grants.








36
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**








Pursuant
to the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based
Compensation,” as amended by SFAS No. 148, pro forma net income and earnings per
share are presented in the table below as if compensation cost for stock options
was determined as of the grant date under the fair value method (in thousands,
except per share information):




**2004**
    
    
    **2003**
    
    
    **2002**Net
      income, as reported
    
    $
    193,796
    
    $
    22,957
    
    $
    3,404Add:
      total stock-based employee compensation expense included in reported net
      earnings, net of related tax effects
    
    
    421
    
    
    -
    
    
    -Deduct:
      total stock-based employee compensation expense determined under fair
      value-based method for all awards, net of related tax
    effects
    
    
    (1,459
    )
    
    (2,012
    )
    
    (1,120
    )Pro
      forma net income
    
    $
    192,758
    
    $
    20,945
    
    $
    2,284Basic
      earnings per shareNet
      income - as reported
    
    $
    4.58
    
    $
    0.55
    
    $
    0.09Net
      income - pro forma
    
    $
    4.55
    
    $
    0.50
    
    $
    0.06Diluted
      earnings per shareNet
      income - as reported
    
    $
    4.54
    
    $
    0.55
    
    $
    0.09Net
      income - pro forma
    
    $
    4.51
    
    $
    0.50
    
    $
    0.06





SFAS No.
123 requires the use of option pricing models that were not developed for use in
valuing employee stock options. Further, option pricing models require the input
of highly subjective assumptions, including the options’ expected life and price
volatility of the underlying stock. Thus, in the opinion of management, existing
option pricing models do not necessarily provide a reliable measure of the fair
value of employee stock options.





The
compensation expense associated with the fair value of the options calculated
for the years ended December 31, 2004, 2003 and 2002, is not necessarily
representative of the potential effects on reported net income in future years.
The fair value of each option grant is estimated on the date of the grant by use
of the Black-Scholes option pricing model.





**Accumulated
Other Comprehensive Income (Loss)**





Accumulated
other comprehensive income (loss) is as follows (in thousands):





**Accumulated******
    
    
    **Foreign**
    
    
    **Minimum**
    
    
    **Cash**
    
    
    **Other****Currency**
    
    
    **Pension**
    
    
    **Flow**
    
    
    **Comprehensive******
    
    
    **Translation**
    
    
    **Liability**
    
    
    **Hedges**
    
    
    **Income
      (Loss**
    **)**Balance
      at December 31, 2001
    
    $
    (12,904
    )
    $
    (666
    )
    $
    -
    
    $
    (13,570
    )Unrealized
      gains (losses)
    
    
    852
    
    
    (1,001
    )
    
    -
    
    
    (149
    )Balance
      at December 31, 2002
    
    
    (12,052
    )
    
    (1,667
    )
    
    -
    
    
    (13,719
    )Unrealized
      gains (losses)
    
    
    8,773
    
    
    338
    
    
    (254
    )
    
    8,857Balance
      at December 31, 2003
    
    
    (3,279
    )
    
    (1,329
    )
    
    (254
    )
    
    (4,862
    )Unrealized
      gains (losses)
    
    
    8,262
    
    
    (1,648
    )
    
    241
    
    
    6,855Balance
      at December 31, 2004
    
    $
    4,983
    
    $
    (2,977
    )
    $
    (13
    )
    $
    1,993





**Business
Segments**





The
Energy Products segment includes revenue and operating expenses associated with
those products sold to the energy industry, such as oil country tubular goods
(“OCTG”), line pipe, coiled steel pipe, and API and premium couplings. The
Industrial Products segment includes revenue and operating expenses associated
with those products sold to the industrial sector, such as electrical conduit,
rigid conduit, structural shapes and rounds, standard pipe, mechanical tubing,
and pipe piling.








37
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**








**Income
Taxes**





Deferred
taxes are provided on an asset and liability method whereby deferred tax assets
are recognized for taxable temporary differences, and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for deductible
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.





**Use
of Estimates**





The
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to periodically make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.





**Derivatives**





As part
of managing the exposure to changes in market interest and currency exchange
rates, the Company, as an enduser, enters into various interest rate and foreign
currency contracts in over-the-counter markets, with financial institutions
acting as principal counterparties. The Company uses derivatives for hedging
purposes only and does not enter into derivative financial instruments for
trading or speculative purposes.





All
derivatives held by the Company are designated as hedges at inception, with the
expectation the derivatives will be highly effective in offsetting the
associated underlying exposures.





All
derivatives are carried on the Company’s balance sheet at fair value. Fair
values for the Company's derivative financial instruments are based on quoted
market prices of comparable instruments or, if none are available, on pricing
models or formulas using current assumptions. Changes in fair value are
recognized either in the income statement or deferred in equity, depending on
the nature of the underlying exposure being hedged and how effective the
derivative is at offsetting movements in the underlying exposure. The
ineffective portion of a derivative’s change in fair value is immediately
recognized in earnings. See Note 8 for additional information on derivative
values, hedge categories, and gains and losses from hedging
activity.





**Reclassifications**





Certain
reclassifications have been made to prior year balances to conform to the
current year presentation.








**2.
Business Acquisitions**





***Precision
Tube Holding Corporation (“Precision”)***





On March
29, 2002, the Company completed its purchase of all the common stock of
Precision, a then privately-held, Houston-based, coiled tubular goods
manufacturer, in exchange for $60,678,000 cash and 200,000 shares of the
Company’s common stock. The acquisition was accounted for as a purchase business
combination, and the financial statements of Precision have been consolidated
from the acquisition date. The cost to acquire Precision was allocated to the
assets acquired and liabilities assumed according to their estimated fair
values. The final allocation resulted in acquired goodwill of $43,131,000 which
is not deductible for tax purposes. Pro forma information has not been included
herein because Precision is not considered a significant subsidiary. The Company
acquired Precision to add premium coiled tubing and coiled line pipe to its
product lines.





***Republic
Conduit***





On
December 31, 2002, the Company acquired the assets and certain liabilities of
Republic Conduit for $119,863,000 cash (which included a $9,863,000 working
capital adjustment). The acquisition was accounted for as a purchase business
combination, and the financial statements of Republic Conduit have been
consolidated from the acquisition date. The cost to acquire Republic Conduit was
allocated to the assets acquired and liabilities assumed according to their
estimated fair values. The final allocation resulted in acquired goodwill of
$32,653,000 and intangible assets of $27,400,000, both of which are fully
deductible for tax purposes. The Company acquired Republic Conduit to add steel
electrical conduit to its industrial product line and to expand its line pipe
sales.





The unaudited pro forma results, assuming the
acquisition of Republic Conduit occurred at the beginning of 2002, would have
yielded net sales of $678,630,000, net income of $16,515,000, basic earnings per
share of $0.43, and





38
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**
 diluted
earnings per share of $0.43 for the year ended December 31, 2002. These pro
forma results include adjustments to give effect to interest expense on
acquisition-related debt and other purchase price adjustments. The pro forma
results are not necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of the beginning of 2002, nor
are they necessarily indicative of future operating results.




***Exit
Costs***





During
February 2003, the Company announced its plans to exit its Youngstown, Ohio,
operating facility and the divisional headquarters of Republic Conduit also
located in Youngstown, Ohio. As a result, the employment of 118 individuals at
these facilities was terminated as of December 31, 2004. Following is a summary
of the exit cost recorded in the allocation of the purchase price of Republic
Conduit in 2003 (in thousands):





Cash
      costs:Employee
      severance cost - including medical
    
    $
    2,742Other
    
    
    100Total
      restructuring costs
    
    $
    2,842





Following
is a summary of the accrued restructuring liabilities and activity through
December 31, 2004 (in thousands):





****
    
    
    Employee****
    
    
    Severance
    
    
    **Other**
    
    
    **Total**Balance,
      December 31, 2002
    
    $
    -
    
    $
    -
    
    $
    -New
      charges
    
    
    2,742
    
    
    100
    
    
    2,842Cash
      payments
    
    
    (1,052
    )
    
    -
    
    
    (1,052
    )Balance,
      December 31, 2003
    
    
    1,690
    
    
    100
    
    
    1,790Adjustment
    
    
    73
    
    
    (73
    )
    
    -Cash
      payments
    
    
    (1,326
    )
    
    (27
    )
    
    (1,353
    )Balance,
      December 31, 2004
    
    $
    437
    
    $
    -
    
    $
    437


The
remaining $437,000 cash costs above are expected to be paid in
2005.





***Environmental
Obligations***





The
Company accrued environmental remediation liabilities on properties associated
with Republic Conduit during 2003 in the amount of $6,885,000. The accrual was
based on an independent third-party analysis of these properties and management
estimates. The accrual was not discounted, as the aggregate amount of the
obligation and the amount and timing of cash payments are not yet fixed and
determinable. The accrual was recorded in the allocation of the purchase price
of Republic Conduit and is classified as other liabilities in the accompanying
consolidated balance sheets.





The
environmental reserves may materially differ from the ultimate actual
liabilities if the Company’s estimates prove to be inaccurate, which could
materially affect net income of a future period. Uncertainties related to
recorded environmental liabilities include changing governmental policy and
regulations, judicial proceedings, the method and extent of remediation, and
future changes in technology. Because of these uncertainties, the range of
possible outcomes could exceed the amounts reserved. Furthermore, as a detailed
site-specific plan for clean up or remediation has not yet been completed, a
reasonable range of potential losses in excess of the amount accrued cannot be
determined at this time.





***SeaCAT
Corporation (“SeaCAT”)***





On
February 28, 2003, the Company completed its acquisition of SeaCAT, a then
privately-held, Houston-based, coiled tubular goods manufacturer, in exchange
for $4,000,000 cash, a $5,000,000 subordinated note, and 733,676 shares of the
Company’s common stock. The purchase price could be further increased by up to
an additional $250,000 if SeaCAT achieves certain performance targets through
2005. The acquisition was accounted for as a purchase business combination, and
the financial statements of SeaCAT have been consolidated from the acquisition
date. The cost to acquire SeaCAT has been allocated to the assets acquired and
liabilities assumed according to their estimated fair values. The final
allocation resulted in acquired goodwill of $10,200,000 and intangible assets of
$8,100,000, none of which are deductible for tax purposes. Pro forma information
has not been included herein because SeaCAT is not considered a significant
subsidiary. The Company acquired SeaCAT to expand its premium coiled tubing
operations.


39
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


***Texas
Arai, Inc. (“Texas Arai”)***





On April
23, 2004, Maverick acquired substantially all of the assets and certain
liabilities of Texas Arai, a subsidiary of Grant Prideco, Inc., a publicly-held,
Houston-based oilfield service manufacturer, for a purchase price of
$20,188,000. The acquisition was accounted for as a purchase business
combination, and the financial statements of Texas Arai have been consolidated
from the acquisition date. The cost to acquire Texas Arai has been allocated to
the assets acquired and liabilities assumed according to their estimated fair
values. The final allocation did not result in any acquired goodwill or
intangible assets. Pro forma information has not been included herein because
Texas Arai is not considered a significant subsidiary. Texas Arai is the largest
North American provider of American Petroleum Institute and premium couplings
used to connect tubing and casing in oil and natural gas wells. The Company
acquired Texas Arai to add premium couplings to its product line.








**3.
Variable Interest Entity**





*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 $10,240,000 (net of
$5,760,000 tax benefit), were segregated from continuing operations and reported
separately as discontinued operations in the statements of income. The Company
reduced the provision for loss on disposal by $518,000 (after-tax) for the year
ended December 31, 2002.





On March
29, 2002, pursuant to an asset purchase agreement dated March 21, 2002, the
Company completed the sale of the DOM business to Pennsylvania Cold Drawn
(“PCD”) for $8,115,000, consisting of $1,238,000 cash and the buyer’s nine-year
secured promissory note for $6,877,000. In November 2003, the Company
restructured the buyer’s promissory note in exchange for the release of
Maverick’s guarantee of certain payment obligations and obtained additional
security including the buyer’s personal guarantee and increased the outstanding
note obligation. The Company’s net sales to PCD for the three months ended March
31, 2004, and for the years ended December 31, 2003 and 2002 were $553,000,
$1,481,000, and $1,006,000, respectively.





*Accounting
Change*





In
January 2003, the Financial Accounting Standards Board (“FASB”) issued
Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”).
A variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that does not have equity investors
with voting rights nor has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN 46 requires a
variable interest entity (“VIE”) to be consolidated by a company if that company
is subject to a majority of the risk of loss from the variable interest entity’s
activities or is entitled to receive a majority of the entity’s residual
returns.





During
the first quarter of 2004, the Company adopted the provisions of FIN 46 with
respect to PCD, which is a VIE as defined under FIN 46. As the Company was
deemed the primary beneficiary, it was required to consolidate PCD as of March
31, 2004. As a result, the Company recognized a noncash charge of $1,584,000
(net of benefit for income taxes of $951,000), reflecting the cumulative losses
of PCD from the time of the sale on March 29, 2002, as a cumulative effect of an
accounting change in the accompanying consolidated statements of income. The
consolidation resulted in an increase in assets of $13,981,000 and an increase
in liabilities of $17,258,000, before eliminations, as of December 31, 2004. The
third-party creditors of PCD have no recourse to the general credit of the
Company.





*Impairment*





During
the third quarter of 2004, the Company recorded a noncash impairment charge of
$3,767,000 related to the investment in PCD to recognize the impact of that
company’s continuing unfavorable operating results. The charge is included in
selling, general and administrative expense in the accompanying statement of
income.








40
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





**4.
Inventories**





Inventories
at December 31, 2004 and 2003, consist of the following (in
thousands):





**2004**
    
    
    **2003**Finished
      goods
    
    $
    207,194
    
    $
    98,575Work-in-process
    
    
    44,380
    
    
    10,252Raw
      materials
    
    
    113,007
    
    
    34,748In-transit
      materials
    
    
    70,760
    
    
    28,275Storeroom
      parts
    
    
    11,739
    
    
    12,175$
    447,080
    
    $
    184,025








**5.
Property, Plant and Equipment**





Property,
plant and equipment at December 31, 2004 and 2003, consist of the following (in
thousands):





**2004**
    
    
    **2003**Land
    
    $
    9,072
    
    $
    8,735Land
      and leasehold improvements
    
    
    11,676
    
    
    10,643Buildings
    
    
    64,477
    
    
    61,105Machinery
      and equipment
    
    
    257,520
    
    
    223,722Computer
      software
    
    
    25,182
    
    
    12,358Furniture
      and fixtures
    
    
    3,215
    
    
    4,243Construction-in-process
    
    
    20,176
    
    
    19,959391,318
    
    
    340,765Accumulated
      depreciation
    
    
    (179,784
    )
    
    (151,331
    )$
    211,534
    
    $
    189,434





Property,
plant and equipment held in use by the Company are reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable.





During
2004, 2003, and 2002, the Company capitalized interest in the amount of
$868,000, $670,000, and $616,000, respectively.





On
December 16, 2004, the Company announced its intention to locate its new,
state-of-the-art Republic Conduit facility in Louisville, Kentucky. The Company
is in the process of negotiating and executing the land, building, and equipment
contracts for the new facility. Construction is scheduled to begin in late March
2005 and is expected to be fully completed by late 2005 or early 2006. As of
December 31, 2004, the Company has made several deposits totaling $6,534,000 for
equipment to be used in the manufacturing process. These deposits have been
classified in construction-in-progress as of December 31, 2004. In addition, the
Company has open commitments in the amount of $24,748,000 as of December 31,
2004, related to this project. The Company estimates the total cost for the new
facility, including land, building, and equipment, to be $63,000,000. The cost
of the new facility will be funded through the Company’s existing Senior Credit
Facility.








**6.
Goodwill and Other Acquired Intangibles**





The
Company conducts a formal impairment test of goodwill on an annual basis and
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
value. A fair value approach is used to test goodwill for impairment. An
impairment charge is recognized for the amount, if any, by which the carrying
amount of goodwill exceeds its fair value. Fair value is established using
discounted cash flows. When available and as appropriate, comparative market
multiples are used to corroborate discounted cash flow results. The annual
impairment tests did not indicate any impairments of goodwill.








41
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





The
following table presents the Company’s goodwill by segment (in
thousands):





**Energy**
    
    
    **Industrial**
    
    
    **Total**Balance,
      December 31, 2002
    
    $
    43,131
    
    $
    50,053
    
    $
    93,184Acquisitions
      and purchase accounting adjustments
    
    
    7,198
    
    
    (17,400
    )
    
    (10,202
    )Balance,
      December 31, 2003
    
    
    50,329
    
    
    32,653
    
    
    82,982Purchase
      accounting adjustments
    
    
    3,002
    
    
    -
    
    
    3,002Balance,
      December 31, 2004
    
    $
    53,331
    
    $
    32,653
    
    $
    85,984





Upon
closing an acquisition, the Company estimates the fair values of assets and
liabilities acquired and consolidates the information. The Company finalizes
initial fair value estimates within one year of the acquisition
date.





The
following table presents the Company’s intangible assets acquired during 2003 by
class (in thousands, except number of years):





****
    
    
    ********
    
    
    **Republic**
      **Conduit**
    
    
    **SeaCAT**
    
    
    **Total**Trademarks/brand
      name - indefinite life
    
    $
    24,700
    
    $
    2,100
    
    $
    26,800Software
      - 2-year useful life
    
    
    400
    
    
    -
    
    
    400Patent
      - 9-year useful life
    
    
    -
    
    
    100
    
    
    100Customer
      relationships - 26-year useful life
    
    
    2,300
    
    
    -
    
    
    2,300Customer
      relationships - 17-year useful life
    
    
    -
    
    
    5,900
    
    
    5,900$
    27,400
    
    $
    8,100
    
    $
    35,500





The
following table presents the Company’s total purchased intangible assets at
December 31, 2004 and 2003 (in thousands):





****
    
    
    **Trademarks/**
    
    
    
    
    
    
    
    
    **Customer****Brand
      Names**
    
    
    **Software**
    
    
    **Patent**
    
    
    **Relationships**
    
    
    **Total****December
      31, 2004**Intangible
      assets
    
    $
    26,800
    
    $
    400
    
    $
    100
    
    $
    8,200
    
    $
    35,500Less
      accumulated amortization
    
    
    -
    
    
    400
    
    
    15
    
    
    563
    
    
    978$
    26,800
    
    $
    -
    
    $
    85
    
    $
    7,637
    
    $
    34,522**December
      31, 2003**Intangible
      assets
    
    $
    26,800
    
    $
    400
    
    $
    100
    
    $
    8,200
    
    $
    35,500Less
      accumulated amortization
    
    
    -
    
    
    80
    
    
    3
    
    
    113
    
    
    196$
    26,800
    
    $
    320
    
    $
    97
    
    $
    8,087
    
    $
    35,304





Based on
the carrying amount of the intangibles as of December 31, 2004, future
amortization for the five years ended December 31, 2009, is estimated to be
$447,000 each year.








42
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





**7.
Long-Term Debt and Revolving Credit Facilities**





Long-term
debt, including the Company’s long-term revolving credit facility, at December
31, 2004 and 2003, consists of the following (in thousands):




**2004**
    
    
    **2003**Senior
      revolving credit facility, secured by certain accounts receivable,
      inventories, property, plant and equipment, and all or part of the voting
      stock of the Company’s subsidiaries; due on March 31, 2006; interest
      payable monthly (4.4% at December 31, 2004) at either U.S. or Canadian
      prime, Bankers’ Acceptance rates plus stamping fees, or the LIBOR rate,
      adjusted by an interest margin, depending upon excess
      availability
    
    $
    54,660
    
    $
    50,213Convertible
      senior subordinated notes, unsecured; due June 15, 2033; interest payable
      semi-annually at 4.0%
    
    
    120,000
    
    
    120,000Capital
      lease obligation, secured by property and plant (net book value $5,472 at
      December 31, 2004); payable in monthly installments (including
      interest at 8.0%) of $59; final payment due on August 1,
      2007
    
    
    1,708
    
    
    2,261Note
      payable, secured by property and plant (net book value $2,225 at
      December 31, 2004); due on May 1, 2006, which was pre-paid on March
      1, 2005; interest payable quarterly at 11.0%
    
    
    2,500
    
    
    5,000PCD
      debt obligations
    
    
    2,071
    
    
    -Capital
      lease obligation, final payment due February 1, 2004
    
    
    -
    
    
    481180,939
    
    
    177,955Current
      maturities
    
    
    (3,298
    )
    
    (3,533
    )$
    177,641
    
    $
    174,422
   ***Senior
Credit Facility***





The
Company has a senior credit facility providing for an $185,000,000 revolving
line of credit. The Company has letters of credit outstanding under this
agreement of $5,026,000 at December 31, 2004. Interest is payable monthly at the
LIBOR rate adjusted by an interest margin, depending upon certain financial
measurements. Under the senior credit facility, the Company can borrow an amount
based on a percentage of eligible accounts receivable, eligible inventory, and
property, plant and equipment, reduced by outstanding letters of credit. The
available borrowings under the senior credit facility were approximately
$109,961,000 as of December 31, 2004. The senior credit facility includes
restrictive covenants relating to maintaining a minimum fixed charge coverage
ratio if availability falls below $30,000,000. Also, if availability falls below
$50,000,000, the debt will be classified as current. The senior credit facility
limits capital expenditures to $30,000,000 per year (excluding the new Republic
Conduit facility in Louisville, Kentucky) and limits the Company’s ability to
pay dividends, create liens, sell assets, or enter into transactions with
affiliates without the consent of the lenders.





***Convertible
Senior Subordinated Notes***





The Old
Notes issued in June 2003 are convertible under certain limited circumstances
into shares of the Company’s common stock at a conversion price of $29.19 per
share, provided certain contingencies are met, including the Company’s common
stock has exceeded 120.0% of the conversion price then in effect for 20 trading
days out of 30 consecutive trading days.





The New
Notes exchanged in December 2004 require the Company to settle all conversions
for a combination of cash and shares, if any, in lieu of only shares. Cash paid
will equal the lesser of the principal amount of the New Notes and their
conversion value. Shares of common stock will be issued to the extent the
conversion value exceeds the principal amount of the New Notes. As a result of
the exchange offer, the Company has $115,457,000 of the New Notes and $4,543,000
of the Old Notes outstanding as of December 31, 2004. The New Notes and the Old
Notes (“Convertible Notes”) have identical terms other than the net share
settlement upon conversion and the public acquirer change of control features
included in the New Notes and are convertible into a maximum of 4,110,997 shares
of the Company’s common stock. Upon a change of control in which the acquirer’s
common stock is traded on a U.S. national securities exchange or quoted on the
Nasdaq National Market, the New Notes will become convertible into the common
stock of the acquirer.





The
Convertible Notes are due June 15, 2033. The Company pays interest semi-annually
on the Convertible Notes at the rate of 4.0% per annum. Beginning with the
six-month interest period commencing on June 15, 2008, the Company





43
 **Maverick
Tube Corporation and Subsidiaries**
**Notes
to Consolidated Financial Statements**





will pay
contingent interest during a six-month interest period if the average trading
price of the Convertible Notes equals or exceeds 130.0% of the principal amount
of the Convertible Notes during a specified period prior to such six-month
interest period. The embedded derivative related to this contingent interest
feature is required to be valued separately from the Convertible Notes. However,
the fair value of this derivative is not material at December 31, 2004. The
Convertible Notes are general unsecured obligations of the Company and are
subordinated to the Company’s present and future senior
indebtedness.





The
Company has the right to redeem the Convertible Notes after June 15, 2008, at a
redemption price equal to par plus accrued interest, if any. Prior to June 15,
2011, the Company may redeem the Convertible Notes only if the closing price of
the Company’s common stock has exceeded 130.0% of the conversion price then in
effect over 20 trading days out of a period of 30 consecutive trading days.
After June 15, 2011, the Company may redeem the Convertible Notes at any time.
Holders of the Convertible Notes have the right to require the Company to
repurchase all or some of their Convertible Notes on June 15, 2011, 2013, 2018,
2023, and 2028, at a price equal to par plus accrued interest, if any, payable
in cash. Holders of the Convertible Notes also have the right to require the
Company to purchase all or some of their Convertible Notes at a price equal to
par plus accrued interest, if any, if certain change of control events occur
prior to June 15, 2011.





During
the September 2004 meeting of the Emerging Issues Task Force (“EITF”), a
consensus was reached on EITF Issue 04-8, “The Effect of Contingently
Convertible Debt on Diluted Earnings per Share.” EITF 04-8 requires companies to
include certain convertible debt and equity instruments in their calculations of
diluted earnings per share that were previously excluded from the calculation.
EITF 04-8 is effective for periods ending after December 15, 2004, and must be
applied by restating all periods during which time the applicable convertible
instruments were outstanding. The Company adopted EITF 04-8 during 2004 and has
included the dilutive effect of the Convertible Notes and the New Notes in
diluted earnings per share for all periods presented. The impact of adopting
EITF 04-8 was immaterial to the financial statements of the
Company.





***Capital
Leases***





The
present value of future minimum lease payments under capital lease obligations
as of December 31, 2004, is as follows (in thousands):








Total
      Minimum
      Lease
      Payments
    
    
    **Interest**
    
    
    **Present
      Value of Minimum Lease Payments**2005
    
    $
    714
    
    $
    115
    
    $
    5992006
    
    
    712
    
    
    65
    
    
    6472007
    
    
    476
    
    
    14
    
    
    462$
    1,902
    
    $
    194
    
    $
    1,708






Property,
plant and equipment at December 31, 2004 and 2003, include $7,354,000 and
$19,653,000 under capital leases. Accumulated depreciation for these assets was
$1,882,000 and $5,090,000 at December 31, 2004 and 2003,
respectively.





***Debt
Issuance Costs***





Senior
credit facility issuance costs at December 31, 2004 and 2003, were $5,183,000
and $4,708,000 and are being amortized over the life of the facility.
Convertible Note issuance costs at December 31, 2004 and 2003, were $4,395,000
and $4,059,000 and are being amortized over an eight-year period. These costs
are classified as other assets in the accompanying consolidated balance sheets.
The Company’s amortization expense (recorded as a component of net interest
expense) related to these issuance costs for the years ended December 31, 2004,
2003, and 2002, was $1,963,000, $1,665,000, and $1,111,000,
respectively.





The fair
value of the Company’s total debt is based on estimates using discounted cash
flow analyses based on quoted market prices for similar issues. The estimated
fair value of total debt at December 31, 2004, was $220,520,000.








44
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**




**8.
Derivatives, Financial Instruments, and Risk Management**





***Derivative
Instruments and Hedging Activities***





Certain
activities of the Company expose it to market risks, including the effects of
changes in foreign currency exchange rates and interest rates. The financial
exposures are monitored and managed by the Company as an integral part of its
overall risk management program. The Company's risk management program seeks to
reduce the potentially adverse effects that the volatility of the markets may
have on its operating results.





The
Company maintains an interest rate risk management strategy that may, from time
to time, use derivative instruments to minimize significant, unanticipated
earnings fluctuations caused by interest rate volatility.





The
Company maintains a foreign currency risk management strategy that uses
derivative instruments to protect its interests from unanticipated fluctuations
in earnings and cash flows caused by volatility in currency exchange rates. The
Company does not hold or issue financial instruments for trading purposes, nor
does it hold or issue leveraged derivative instruments.





The
Company generally uses cash flow hedging strategies to reduce the potentially
adverse effects market volatility may have on its operating results. Cash flow
hedges are hedges of forecasted transactions or of the variability of cash flows
to be received or paid related to a recognized asset or liability. The Company
enters into foreign exchange forward contracts which expire in three months with
the objective of converting U.S. denominated debt held by Prudential into its
functional currency. These contracts are entered into to protect against the
risk the eventual cash flows resulting from such transactions will be adversely
affected by changes in exchange rates. The Company also uses interest rate swaps
to convert a portion of its variable rate revolving credit facility to fixed
rates. These interest rate swaps expire in three months.





***Accounting
for Derivatives and Hedging Activities***





The
Company formally documents at inception all relationships between hedging
instruments and hedged items, as well as its risk management objective and
strategy for undertaking various hedged items. The Company also formally
assesses, both at the hedge's inception and on an ongoing basis, whether the
derivatives used in hedging transactions are highly effective in offsetting
changes in fair value or cash flows of the hedged items. Changes in the fair
value of a derivative that is highly effective as, and is designated and
qualifies as, a cash flow hedge are recorded in other comprehensive earnings,
until the underlying transactions occur. When it is determined a derivative is
not highly effective as a hedge or it has ceased to be a highly effective hedge,
the Company discontinues hedge accounting prospectively.





The
following table summarizes the notional transaction amounts and fair values for
the Company’s outstanding derivatives, by risk category and instrument type, at
December 31, 2004.




**Qualifying
      Cash Flow Hedges**
    
    
    **Notional
      Amount**
    
    
    **Fair
      Value**
      **Asset/(Liability)**
    ****
      ****
    
    **Description**Interest
      rate swaps
      (floating
      to fixed rate swaps)
    
    $
    50,000
    
    $
    35
    
    
    Effectively
      converts the interest rate on an equivalent amount of variable rate
      borrowings to a fixed rateForeign
      currency hedges
      (floating
      to fixed exchange rates)
    
    $
    30,000
    
    $
    (3,117
    )
    
    Effectively
      hedges the variability in forecasted cash flows due to the foreign
      currency risk associated with the settlement of nonfunctional currency
      denominated debt





At
December 31, 2004, the interest rate swap fair value is included on the balance
sheet in other long-term assets, and the foreign currency hedge fair value is
included in other long-term liabilities. As of December 31, 2004, $241,000 of
deferred net income on derivative instruments was accumulated in other
comprehensive income (loss), the majority of which is expected to be
reclassified to earnings during the next twelve months. The ineffective portion
of these hedges was immaterial as of December 31, 2004, and the Company expects
the hedge to remain highly effective.





45
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





*Concentration
of Credit Risk*





By using
derivative financial instruments to hedge exposures to changes in exchange rates
and interest rates, the Company exposes itself to credit risk. The Company
manages exposure to counterparty credit risk by only entering into derivative
financial instruments with highly rated institutions that can be expected to
fully perform under the terms of the agreement.





*Nonderivative
Financial Instruments*





Nonderivative
financial instruments included in the balance sheet are cash and cash
equivalents, short-term investments, accounts receivable, accounts payable, and
long-term debt. The carrying value of amounts reported in the consolidated
balance sheets for cash and cash equivalents, short-term investments, accounts
receivable, and accounts payable approximates fair value. Management’s estimate
of the fair value of the long-term debt obligations is described in Note 7 to
the consolidated financial statements.








**9.
Restructuring Charges**





During
December 2001, the Company announced its plans to exit its Longview, Washington,
facility and move the operations to one of its existing buildings in Hickman,
Arkansas. As a result, all 124 employees at the facility were terminated as of
December 31, 2002. Restructuring costs of $584,000 and $1,186,000, respectively,
were recorded in the 2003 and 2002 consolidated statements of income and were
fully paid by December 31, 2004.








**10.
Income Taxes**





The
jurisdictional components of income from continuing operations before income
taxes and cumulative effect of accounting change for the years ended December
31, 2004, 2003, and 2002, are as follows (in thousands):





**2004**
    
    
    **2003**
    
    
    **2002**Domestic
    
    $
    238,229
    
    $
    7,576
    
    $
    (8,161
    )Foreign
    
    
    75,459
    
    
    28,129
    
    
    14,324$
    313,688
    
    $
    35,705
    
    $
    6,163





The
components of the provision (benefit) for income taxes for continuing operations
before cumulative effect of accounting change for the years ended December 31,
2004, 2003, and 2002, are as follows (in thousands):





**2004**
    
    
    **2003**
    
    
    **2002****Current:**Federal
    
    $
    79,580
    
    $
    514
    
    $
    878State
    
    
    5,145
    
    
    12
    
    
    (89
    )Foreign
    
    
    25,251
    
    
    8,477
    
    
    7,617109,976
    
    
    9,003
    
    
    8,406**Deferred:**Domestic
    
    
    1,160
    
    
    2,388
    
    
    (2,686
    )Foreign
    
    
    7,172
    
    
    1,357
    
    
    (2,443
    )8,332
    
    
    3,745
    
    
    (5,129
    )$
    118,308
    
    $
    12,748
    
    $
    3,277








46
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





The
difference between the effective income tax rate and the U.S. federal income tax
rate is as follows (in thousands):





**2004**
    
    
    **2003**
    
    
    **2002**Provision
      at U.S. statutory tax rate
    
    $
    109,791
    
    $
    12,497
    
    $
    2,157State
      and local taxes, net of federal tax benefit
    
    
    5,002
    
    
    86
    
    
    (89
    )Taxes
      on foreign income in excess of (less than)U.S.
      statutory rate
    
    
    (853
    )
    
    (89
    )
    
    160Increase
      in state tax rate
    
    
    511
    
    
    -
    
    
    -Taxes
      on foreign dividends
    
    
    -
    
    
    -
    
    
    1,776Valuation
      allowances
    
    
    57
    
    
    53
    
    
    (1,001
    )Permanent
      items
    
    
    (575
    )
    
    129
    
    
    (426
    )Other
    
    
    4,375
    
    
    72
    
    
    700$
    118,308
    
    $
    12,748
    
    $
    3,277





The
Company’s effective tax rate is based on expected income, statutory tax rates,
and tax planning opportunities available to the Company in the various
jurisdictions in which the Company operates. Significant judgment is required in
determining the Company’s effective tax rate and in evaluating its tax
positions. The Company establishes accruals for certain tax contingencies for
exposures associated with permanent tax differences, tax credits, and related
interest expense when, despite the belief the Company’s tax return positions are
fully supported, the Company believes certain positions are likely to be
challenged and the Company’s positions may not be fully sustained. The tax
contingency accruals are adjusted quarterly in light of changing facts and
circumstances, such as the progress of tax audits, case law, and emerging
legislation and are included in “Other” above.





A number
of years may elapse before a particular matter, for which the Company has
accrued, is audited and finally resolved. The number of years with open tax
audits varies by jurisdiction. While it is often difficult to predict the final
outcome or the timing of resolution of any particular tax matter, the Company
believes its tax contingency accruals are adequate to address known tax
contingencies. Favorable resolution of such contingencies could be recognized as
a reduction of the Company’s effective tax rate in the year of resolution.
Unfavorable settlement of any particular issue could impact the effective tax
rate and may require the use of cash in the year of resolution. The Company’s
tax contingency accruals are presented in the balance sheet within accrued
liabilities.





Temporary
differences which give rise to deferred tax assets and liabilities at December
31, 2004 and 2003, are as follows (in thousands):





**2004**
    
    
    **2003****Deferred
      tax assets:**Various
      accrued liabilities and reserves
    
    $
    9,771
    
    $
    2,669Net
      operating loss carryforwards
    
    
    7,329
    
    
    3,298Alternative
      minimum tax carryforwards
    
    
    -
    
    
    5,282Foreign
      tax credit carryforwards
    
    
    6,886
    
    
    12,362Pension
      plans
    
    
    770
    
    
    675Asset
      valuations
    
    
    1,508
    
    
    1,335Valuation
      allowances:Foreign
      tax credit carryforwards
    
    
    (6,886
    )
    
    (6,877
    )Net
      operating loss carryforwards
    
    
    (109
    )
    
    (53
    )Total
      deferred tax assets
    
    
    19,269
    
    
    18,691**Deferred
      tax liabilities:**Plant,
      equipment and intangible assets
    
    
    28,711
    
    
    19,157Net
      deferred tax liabilities
    
    $
    (9,442
    )
    $
    (466
    )







On
October 22, 2004, the American Jobs Creation Act of 2004 (the “Act”) was signed
into law. The act creates a temporary incentive for U.S. multinationals to
repatriate accumulated income earned outside the U.S. at an effective tax rate
of 5.25%. On November 15, 2004, the FASB issued proposed Standard FAS 109-b,
“Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision Within the American Jobs Creation Act of 2004.” This standard allows
companies additional time to evaluate the effect of the law on whether
unrepatriated foreign earnings continue to qualify for the SFAS No. 109,
“Accounting for Income Taxes,” exception to recognizing deferred tax liabilities
and requires explanatory disclosures from those who need the additional time.
Through December 31, 2004, the Company has not provided deferred taxes on
foreign earnings because such earnings are intended to be
permanently





47
 **Maverick
Tube Corporation and Subsidiaries**
**Notes
to Consolidated Financial Statements**





reinvested
outside the U.S. Whether the Company will ultimately take advantage of this
provision depends on a number of factors including reviewing future
Congressional guidance before a decision can be made. Further, the Company
cannot reasonably estimate the related range of possible amounts of unremitted
earnings it may consider for repatriation or the related potential range of
income tax effects of such repatriation at the time of the issuance of these
financial statements. As a result, the Company will make no change in its
current intention to permanently reinvest accumulated earnings of its foreign
subsidiaries. If it becomes apparent the Company will repatriate these earnings,
a one-time tax charge to the Company’s consolidated statements of income could
occur.





At
December 31, 2004, the Company had net operating loss carryforwards with a tax
value of $7,329,000. Management’s assessment is the character and nature of
future taxable income will allow the Company to realize the full amount of the
tax benefits associated with the net operating loss carryforwards before they
expire beginning in 2011, except for $109,000 for which a valuation allowance
has been recorded.





**11.
Defined Contribution Plans**





The
Company sponsors four defined contribution 401(k) plans available to all U.S.
employees. The plans may be amended or terminated at any time by the Board of
Directors. The Company has provided matching contributions to the plans for the
years ended December 31, 2004, 2003, and 2002, of $2,807,000, $1,701,000, and
$927,000, respectively.





The
Company also sponsors two deferred compensation plans covering certain officers
and key employees. One plan provides for discretionary contributions based
solely upon the Company’s profitability and the individuals’ gross wages. The
other plan provides for fixed contributions for certain officers of the Company.
The Company contribution to these plans for the years ended December 31, 2004,
2003, and 2002, was $658,000, $467,000, and $151,000, respectively.





48
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





**12.
Defined Benefit Plans**





Prudential
sponsors two pension plans (Hourly Plan and Salary Plan) and a postretirement
benefit plan for substantially all of its Canadian employees and a supplemental
executive retirement plan (SERP) for certain former key Prudential executives. A
reconciliation of changes in the plans’ benefit obligations, fair value of
assets, and statement of funded status for the years ended December 31, 2004 and
2003, is as follows (in thousands):




****
    
    Pension
      Benefits
    **Postretirement******
    
    and
      SERP
    **Benefit
      Plan****2004**
    
    
    **2003**
    
    
    **2004**
    
    
    **2003**Change
      in benefit obligation:Benefit
      obligation at beginning of year
    
    $
    42,627
    
    $
    32,390
    
    $
    1,883
    
    $
    1,441Service
      cost
    
    
    1,704
    
    
    1,507
    
    
    100
    
    
    59Interest
      cost
    
    
    3,137
    
    
    2,534
    
    
    189
    
    
    117Plan
      amendments
    
    
    3,202
    
    
    -
    
    
    -
    
    
    -Actuarial
      loss
    
    
    5,242
    
    
    213
    
    
    1,081
    
    
    -Benefits
      paid
    
    
    (1,417
    )
    
    (1,215
    )
    
    (83
    )
    
    (55
    )Foreign
      currency translation change
    
    
    3,145
    
    
    7,198
    
    
    138
    
    
    321Benefit
      obligation at end of year
    
    $
    57,640
    
    $
    42,627
    
    $
    3,308
    
    $
    1,883Change
      in fair value of plan assets:Fair
      value of plan assets at beginning of year
    
    $
    36,624
    
    $
    26,478
    
    $
    -
    
    $
    -Employer
      contributions
    
    
    4,369
    
    
    2,120
    
    
    -
    
    
    -Actual
      return on plan assets
    
    
    4,028
    
    
    3,357
    
    
    -
    
    
    -Benefits
      paid
    
    
    (1,417
    )
    
    (1,215
    )
    
    -
    
    
    -Foreign
      currency translation change
    
    
    2,703
    
    
    5,884
    
    
    -
    
    
    -Fair
      value of plan assets at end of year
    
    $
    46,307
    
    $
    36,624
    
    $
    -
    
    $
    -Funded
      status:Underfunded
      status at end of year
    
    $
    (11,333
    )
    $
    (6,003
    )
    $
    (3,308
    )
    $
    (1,883
    )Unrecognized
      actuarial loss
    
    
    13,553
    
    
    9,265
    
    
    1,302
    
    
    504Unrecognized
      transition obligation (asset)
    
    
    (5,287
    )
    
    (5,557
    )
    
    486
    
    
    267Unrecognized
      prior service cost
    
    
    5,243
    
    
    2,356
    
    
    -
    
    
    -Prepaid
      (accrued) benefit cost
    
    $
    2,176
    
    $
    61
    
    $
    (1,520
    )
    $
    (1,112
    )Amounts
      recognized in the balance sheets:Prepaid
      benefit costs
    
    $
    2,582
    
    $
    1,962
    
    $
    -
    
    $
    -Accrued
      benefit liability
    
    
    (9,318
    )
    
    (5,935
    )
    
    (1,520
    )
    
    (1,112
    )Intangible
      asset
    
    
    4,448
    
    
    2,022
    
    
    -
    
    
    -Accumulated
      other comprehensive income
    
    
    4,464
    
    
    2,012
    
    
    -
    
    
    -Net
      amount recognized
    
    $
    2,176
    
    $
    61
    
    $
    (1,520
    )
    $
    (1,112
    )




49
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**








****
    
    
    **Pension
      Benefits**
    
    
    **Postretirement****and
      SERP**
    
    
    **Benefit
      Plan**Estimated
      future benefit payments are as follows at December 31, 2004
      (in
      thousands):2005
    
    $
    2,222
    
    $
    892006
    
    
    2,423
    
    
    982007
    
    
    2,528
    
    
    1112008
    
    
    2,766
    
    
    1252009
    
    
    2,927
    
    
    1352010
      through 2013
    
    
    17,951
    
    
    864$
    30,817
    
    $
    1,422Employer
      contributions expected for the year ended December 31, 2005
      (in
      thousands):Contributions
      required by funding regulations or laws
    
    $
    2,992
    
    $
    -Additional
      discretionary contributions
    
    
    1,374
    
    
    76$
    4,366
    
    $
    76





The
accumulated benefit obligation for all defined benefit pension plans was
$54,892,000 and $39,063,000 at December 31, 2004 and 2003,
respectively.





The
provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” require the
recognition of an additional minimum liability and related intangible asset to
the extent accumulated benefits exceed plan assets. As of December 31, 2004, the
Company recorded an adjustment to stockholders’ equity of $4,464,000, which was
required to reflect the Company’s minimum liability.





Benefit
costs consist of the following (in thousands):





**2004**
    
    
    **2003**
    
    
    **2002**Pension
      benefit costs:Service
      cost
    
    $
    1,704
    
    $
    1,507
    
    $
    1,048Interest
      cost
    
    
    3,137
    
    
    2,534
    
    
    1,963Expected
      return on plan assets
    
    
    (2,783
    )
    
    (2,256
    )
    
    (1,985
    )Amortization
      of prior service cost
    
    
    489
    
    
    242
    
    
    131Amortization
      of transition asset
    
    
    (680
    )
    
    (633
    )
    
    (518
    )Recognized
      net actuarial gain
    
    
    389
    
    
    685
    
    
    197$
    2,256
    
    $
    2,079
    
    $
    836





**2004**
    
    
    **2003**
    
    
    **2002**Postretirement
      benefit plan costs:Service
      cost
    
    $
    100
    
    $
    59
    
    $
    45Interest
      cost
    
    
    189
    
    
    117
    
    
    88Recognized
      net actuarial loss
    
    
    113
    
    
    57
    
    
    46$
    402
    
    $
    233
    
    $
    179








50
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





The
weighted average assumptions used in accounting for the Company’s plans at
December 31, 2004 and 2003, are as follows:





**Postretirement****Pension
      Benefits**
    **Benefit
      Plan****2004**
    
    
    **2003**
    
    
    **2004**
    
    
    **2003**Discount
      rate
    
    
    6.0
    %
    
    6.5
    %
    
    6.0
    %
    
    6.5
    %Expected
      return on plan assets
    
    
    7.0
    %
    
    7.0
    %
    
    -
    
    
    -Rate
      of compensation increase
    
    
    4.5
    %
    
    4.3
    %
    
    -
    
    
    -





A
discount rate of 6.5% was used for the expense determination for
2004.





The
pension plan’s prior service costs are amortized on the straight-line basis over
the average remaining service period of active participants. Gains and losses
are amortized over the average remaining service period of active
participants.





At each
of December 31, 2004 and 2003, the pension plan assets were invested 58.0% in
equity securities and 42.0% in debt securities. Target investment rates were
55.0% equity securities, 43.0% debt securities, and 2.0% short-term investments.
The expected rate of return on equity securities is 8.8%, on debt securities is
5.0%, and on short-term investments is 3.0%. The range on the contractual
maturities for the debt securities is from current to April 22, 2043. The
weighted average years of the contractual maturities for these debt securities
are 3.8 years to 9.4 years depending on the fund involved.





***Investment
Strategy***





The
long-term investment objective is to secure the defined pension benefits while
managing the variability and level of the Company’s contributions. The portfolio
is rebalanced periodically, as required, ensuring the maximum equity content is
60.0% at any time. Investments are managed by external managers, who report to a
Pension Committee, and are restricted to those permitted by the Alberta Employee
Pension Plan Act, the federal Pension Benefits Standards Act on
investment-related issues, and the Income Tax Act and Regulations. Investments
are made through pooled or segregated funds.





***Determination
of the Long-Term Rate of Return on Assets***





To
estimate the expected long-term rate of return on assets, the Company considered
the current level of expected returns on the bond portion of the portfolio, the
historical level of the risk premium associated with other asset classes in
which the portfolio is invested, and the expectation for future returns on each
asset class. The expected return for each asset class was weighted based on the
policy’s asset mix to develop an expected long-term rate of return for the
portfolio.





***Measurement
Date***





The date
used to determine pension benefits is December 31.





For
postretirement benefit plan measurement purposes, a 5.5% annual rate of increase
in the per capita cost of covered health care benefits was assumed for 2005. The
rate was assumed to decrease gradually each successive year until it reaches
4.5%.





Assumed
health care cost trend rates have a significant effect on the amounts reported
for a postretirement health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effect (in
thousands):







****
    
    
    1.0%
      Increase
    
    
    **1.0%
      Decrease**Effect
      on total service and interest cost components
    
    $
    58
    
    $
    38Effect
      on accumulated postretirement benefit obligations
    
    $
    590
    
    $
    465








51
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





**13.
Segment Information**





***Reportable
Segments***





The
following table sets forth data (in thousands) regarding the reportable industry
segments of the Company. Identifiable assets are those used in the Company’s
operations in each segment.




****
    
    
    Energy
    
    
    **Industrial******
    
    
    Products
    
    
    **Products**
    
    
    **Corporate**
    
    
    **Total**Year
      Ended December 31, 2004Net
      sales
    
    $
    954,440
    
    $
    501,824
    
    $
    -
    
    $
    1,456,264Income
      from operations
    
    
    172,488
    
    
    151,574
    
    
    -
    
    
    324,062Identifiable
      assets
    
    
    691,324
    
    
    248,081
    
    
    63,032
    
    
    1,002,437Goodwill
      and intangible assets
    
    
    60,967
    
    
    59,539
    
    
    -
    
    
    120,506Depreciation
      and amortization
    
    
    16,943
    
    
    4,655
    
    
    6,100
    
    
    27,698Capital
      expenditures
    
    
    19,186
    
    
    9,904
    
    
    5,730
    
    
    34,820Year
      Ended December 31, 2003Net
      sales
    
    $
    621,955
    
    $
    262,362
    
    $
    -
    
    $
    884,317Income
      from operations
    
    
    44,428
    
    
    914
    
    
    -
    
    
    45,342Identifiable
      assets
    
    
    439,747
    
    
    150,976
    
    
    80,003
    
    
    670,726Goodwill
      and intangible assets
    
    
    58,336
    
    
    59,950
    
    
    -
    
    
    118,286Depreciation
      and amortization
    
    
    14,337
    
    
    3,558
    
    
    4,516
    
    
    22,411Capital
      expenditures
    
    
    7,278
    
    
    6,438
    
    
    7,186
    
    
    20,902Year
      Ended December 31, 2002Net
      sales
    
    $
    375,097
    
    $
    77,816
    
    $
    -
    
    $
    452,913Income
      from operations
    
    
    10,374
    
    
    114
    
    
    -
    
    
    10,488Identifiable
      assets
    
    
    313,636
    
    
    224,719
    
    
    57,528
    
    
    595,883Goodwill
      and intangible assets
    
    
    43,131
    
    
    50,053
    
    
    -
    
    
    93,184Depreciation
      and amortization
    
    
    10,123
    
    
    5,591
    
    
    4,240
    
    
    19,954Capital
      expenditures
    
    
    15,260
    
    
    3,806
    
    
    3,743
    
    
    22,809
   The
corporate information in the above table is not considered a segment; however,
it represents the corporate assets not identifiable to a reporting segment
necessary for the day-to-day operations of the Company.





*Geographic
Information*




****
    
    
    
    
    
    
    
    
    Other****
    
    
    U.S.
    
    
    **Canada**
    
    
    **Countries**
    
    
    **Total**Year
      Ended December 31, 2004Net
      sales
    
    $
    1,040,163
    
    $
    394,355
    
    $
    21,746
    
    $
    1,456,264Long-lived
      assets
    
    
    306,153
    
    
    25,887
    
    
    -
    
    
    332,040Year
      Ended December 31, 2003Net
      sales
    
    $
    567,075
    
    $
    296,739
    
    $
    20,503
    
    $
    884,317Long-lived
      assets
    
    
    286,589
    
    
    21,131
    
    
    -
    
    
    307,720Year
      Ended December 31, 2002Net
      sales
    
    $
    281,676
    
    $
    159,364
    
    $
    11,873
    
    $
    452,913Long-lived
      assets
    
    
    253,277
    
    
    18,628
    
    
    523
    
    
    272,428


Net sales
are attributable to the country based on where the product is to be delivered.
Long-lived assets represent net property, plant and equipment, goodwill, and net
other acquired intangibles.





Prudential
Steel Ltd., located in Calgary, Alberta, operates under a collective bargaining
agreement that covers approximately 77% of its employees. The agreement is due
to expire on December 31, 2006. The Elyria and Ferndale facilities of Republic
Conduit also operate under collective bargaining agreements that in the
aggregate cover 43% of the employees of Maverick C&P, Inc. The agreements
are due to expire on November 15, 2005.




52
 **Maverick
Tube Corporation and Subsidiaries**
**Notes
to Consolidated Financial Statements**





In
addition, our Counce, Tennessee facility of Maverick Tube, L.P., operates under
a collective bargaining agreement that covers approximately 82% of the employees
at that location. The agreement is also due to expire on November 15, 2005.
Furthermore, approximately 86% of the employees of Texas Arai, a division of
Maverick Tube, L.P., are union members, however, the union at Texas Arai was
decertified on January 12, 2005.





**14.
Operating Leases**





The
Company rents office facilities and equipment under various operating leases.
Future minimum payments under noncancelable operating leases with initial or
remaining terms in excess of one year are as follows at December 31, 2004
(in thousands):





2005
    
    $
    5,2782006
    
    
    4,3722007
    
    
    3,7452008
    
    
    3,1062009
    
    
    551Thereafter
    
    
    715$
    17,767





Rent
expense for all operating leases was $4,946,000, $3,989,000 and $4,103,000, for
the years ended December 31, 2004, 2003, and 2002, respectively.








**15.
Contingencies**





Various
claims, incidental to the ordinary course of business, are pending against the
Company. In the opinion of management, after consultations with legal counsel,
resolution of these matters is not expected to have a material effect on the
accompanying financial statements.








**16.
Stock Plans**





*Stock
Option Plans*





The
Company sponsors two employee stock option plans (the “1990 Plan” and the “1994
Plan”) allowing for incentive stock options and non-qualified stock options. The
Company also sponsors three stock option plans for eligible directors (the “1994
Director Plan,” the “1999 Director Plan,” and the “2004 Director Plan”) allowing
for non-qualified stock options. The Company sponsors a combined employee and
director stock option plan (the “Prudential Plan”) allowing for incentive stock
options and non-qualified stock options. Lastly, the Company also has an Omnibus
Incentive Plan (the “Omnibus Plan”) in which stock options and restricted stock
may be granted. These plans have been approved by the stockholders of the
Company, and no options have been granted by the Company outside of these plans.
The 1990 Plan, 1994 Plan, 1994 Director Plan, 1999 Director Plan, 2004 Director
Plan, Prudential Plan, and Omnibus Plan provide that 340,000, 1,500,000,
200,000, 300,000, 250,000, 650,187, and 750,000 shares, respectively, may be
issued under the plans at an option price not less than the fair market value of
the stock at the time the option is granted. The 1990 Plan, 1994 Plan, 1994
Director Plan, 1999 Director Plan, and Prudential Plan expired on December 2000,
November 2004, November 1999, November 2004, and September 2000, respectively.
Thus, no further options are available for future grants within these plans. The
2004 Director Plan and Omnibus Plan expire in May 2010 and May 2014,
respectively. The options vest pursuant to the schedule set forth for each plan.
In general, the options issued under the 1994, 1999, and 2004 Director Plans
vest six months from the date of grant, and the options issued under the 1990
Plan, 1994 Plan, Prudential Plan, and Omnibus Plan vest ratably over periods
ranging from one year to five years. At December 31, 2004 and 2003, 816,252 and
116,168 shares were available for grant under all of the option
plans.





The
Company grants stock options for a fixed number of shares to directors and
employees with an exercise price equal to the fair value of the shares at the
time of the grant. Accordingly, the Company has not recognized compensation
expense for its stock option grants. The fair value of the options granted for
the years ended December 31, 2004, 2003, and 2002, was determined to be
$895,000, $1,457,000, and $2,779,000, respectively.





For the
purposes of the pro forma disclosures in Note 1, the estimated fair value of the
options is recognized as compensation expense over the options’ vesting period.
The fair value of the options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for the years ended December 31, 2004, 2003, and 2002, respectively:
risk-free interest rate of 3.43%, 2.97%, and 3.82%; no





53
 **Maverick
Tube Corporation and Subsidiaries**
**Notes
to Consolidated Financial Statements**





dividend
payments expected; volatility factors of the expected market price of the
Company’s common stock of 0.613, 0.633, and 0.656; and a weighted average
expected life of the options of 3.4 years, 3.7 years, and 3.9
years.





The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
subjective assumptions including the expected stock price volatility. Because
the Company’s stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management’s opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.





The
following table summarizes option activity and related information.





****
    
    
    
    
    
    Weighted
    
    
    **Weighted******
    
    
    Shares
      Under
    
    
    **Average**
    
    
    **Average******
    
    
    Option
    
    
    **Exercise
      Price**
    
    
    **Fair
      Value**Options
      outstanding at December 31, 2001
    
    
    1,261,963
    
    
    10.98Options
      exercised
    
    
    (180,940
    )
    
    6.11Options
      forfeited
    
    
    (55,650
    )
    
    20.41Options
      granted
    
    
    410,000
    
    
    13.28
    
    $
    6.78Options
      outstanding at December 31, 2002
    
    
    1,435,373
    
    
    11.89Options
      exercised
    
    
    (325,010
    )
    
    7.02Options
      forfeited
    
    
    (106,326
    )
    
    20.41Options
      granted
    
    
    185,000
    
    
    16.39
    
    $
    7.88Options
      outstanding at December 31, 2003
    
    
    1,189,037
    
    $
    13.18Options
      exercised
    
    
    (550,407
    )
    
    12.51Options
      forfeited
    
    
    (7,504
    )
    
    16.02Options
      granted
    
    
    91,668
    
    
    21.56
    
    $
    9.76Options
      outstanding at December 31, 2004
    
    
    722,794
    
    $
    14.73





The
following table summarizes information about fixed stock options outstanding at
December 31, 2004:




****
    
    Options Outstanding
    **Options
      Exercisable******
    
    
    
    
    
    Weighted
      Average
    
    
    **Weighted**
    
    
    
    
    
    **Weighted****Range
      of**
    
    
    
    
    
    **Remaining**
    
    
    **Average**
    
    
    
    
    
    **Average****Exercise
      Price**
    
    
    **Options**
    
    
    **Contractual
      Life**
    
    
    **Exercise
      Price**
    
    
    **Options**
    
    
    **Exercise
      Price**$6.80
      - $7.13
    
    
    67,601
    
    
    4.0
      years
    
    $
    7.00
    
    
    67,601
    
    $
    7.00$10.37
      - $15.95
    
    
    480,858
    
    
    7.5
      years
    
    $
    13.57
    
    
    284,193
    
    $
    13.34$16.99
      - $24.40
    
    
    174,335
    
    
    4.5
      years
    
    $
    20.92
    
    
    136,000
    
    $
    21.12$6.80
      - $24.40
    
    
    722,794
    
    
    6.5
      years
    
    $
    14.73
    
    
    487,794
    
    $
    14.63
   *Restricted
Stock Plan*





Under the
Company’s restricted stock plan, common stock of the Company may be granted at
no cost to certain officers and key employees. Certain plan participants are
entitled to cash dividends and voting rights for their respective shares.
Restrictions limit the sale or transfer of these shares during a vesting period
whereby the restrictions lapse at the end of the third or fifth year. Upon
issuance of stock under the plan, unearned compensation equivalent to the market
value at the date of the grant is charged to stockholders’ equity and
subsequently amortized to expense over the eight-year restriction period. During
the year ended December 31, 2004, net shares granted were 105,240, including
24,864 shares forfeited by an individual. The Company placed the forfeited
shares into treasury stock and subsequently reissued 12,000 of the shares.
Compensation expense related to these shares, net of forfeitures, was $238,000
in 2004.





*Stock
Performance Plan*





Under the
Company’s stock performance plan, common stock may be awarded at the end of the
performance period at no cost to certain officers and key employees, if certain
financial goals are met. Compensation expense is recorded over the performance
period based on the anticipated number of shares to be awarded. Compensation
expense for performance shares was $450,000 for the year ended December 31,
2004.




54
 **Maverick
Tube Corporation and Subsidiaries**
**Notes
to Consolidated Financial Statements**





**17.
Capital Stock**





On June
11, 2000, Maverick and Prudential entered into a Business Combination Agreement
providing for the combination of Prudential with Maverick. The transaction was
completed on September 22, 2000.





Under the
terms of the transaction, Prudential stockholders received 0.52 of an
exchangeable share, issued by Maverick Tube (Canada) Inc., a wholly-owned
Canadian subsidiary of the Company, for each Prudential common share.
Consequently, Prudential stockholders received a total of 15,813,088
exchangeable shares. The exchangeable shares are Canadian securities that began
trading on the Toronto Stock Exchange on September 27, 2000. These shares have
the same voting rights, dividend and distribution entitlements, and other
attributes as shares of the Company’s common stock and are exchangeable, at each
stockholder’s option, for shares of the Company’s common stock on a one-for-one
basis. The transaction was accounted for as a pooling of interests.





In
conjunction with the Prudential transaction, the Company’s Board of Directors
designated one share of the Company’s authorized preferred stock as Special
Voting Stock. The Special Voting Stock is entitled to a number of votes equal to
the number of outstanding exchangeable shares of Maverick Tube (Canada) Inc., on
all matters presented to the common stockholders of the Company. The one share
of Special Voting Stock is issued to CIBC Mellon Trust Company, as trustee
pursuant to the Voting and Exchange Trust Agreement among the Company, Maverick
Tube (Canada) Inc., and CIBC Mellon Trust Company, for the benefit of the
holders of the exchangeable shares of Maverick Tube (Canada) Inc. For financial
statement purposes, the exchangeable shares that have not been exchanged for
shares of the Company’s common stock have been treated as if they had been
exchanged and are included in the Company’s outstanding shares of common
stock.





As long
as any exchangeable shares of Maverick Tube (Canada) Inc. are outstanding, the
Special Voting Stock may not be redeemed, the number of shares comprising the
Special Voting Stock shall not be increased or decreased, and no other term of
the Special Voting Stock shall be amended, except upon the unanimous approval of
all common stockholders of the Company. If the Special Voting Stock is purchased
or otherwise acquired by the Company, it shall be deemed retired and cancelled.
Thereafter, it will become an authorized but unissued and undesignated preferred
share of the Company.








**18.
Stockholder Rights Plan**





In July
1998, the Company’s Board of Directors adopted a common stockholder rights plan
pursuant to which the Company declared a dividend distribution of one preferred
stock purchase right (the “Right”) for each outstanding share of common stock of
the Company (other than shares held in the Company’s treasury). As of September
22, 2000, the Company undertook to distribute at the Separation Time (as defined
below) to the then record holders of exchangeable shares one Right for each
exchangeable share then held of record. The Right becomes exercisable the day a
public announcement is made that a person or group of affiliated or associated
persons has acquired, or obtained the right to acquire, beneficial ownership of
20.0% or more of the outstanding shares of common stock, or the tenth day
following the commencement of a tender offer or exchange offer that would result
in a person or a group becoming the beneficial owners of 20% or more of such
outstanding share of common stock (each, the “Separation Time”). After such
Right becomes exercisable and upon a “flip-in event” (as such item is defined in
the plan), each Right entitles the holder to purchase $100 worth of the
Company’s common stock or preferred stock, as the case may be, for $50. A
"flip-in event" will occur under the Company’s stockholder rights plan when a
person becomes an acquiring person otherwise than through a "permitted offer,"
as described in the Company’s stockholder rights plan. The Company’s stockholder
rights plan defines "permitted offer" to mean a tender or exchange offer for all
outstanding shares of common stock at a price and on terms a majority of the
independent members of the Company’s Board of Directors determines to be
adequate and otherwise in the Company’s best interests and the best interests of
the Company’s stockholders. Until a Right is exercised or exchanged, the holder
thereof will have no rights as a stockholder of the Company, including, without
limitation, the right to receive dividends. The Right is subject to redemption
by the Company’s Board of Directors for $0.01 per Right at any time prior to the
date which a person or group acquires beneficial ownership of 20.0% or more of
the Company’s common stock or subsequent thereto at the option of the Board of
Directors. The Rights expire July 23, 2008.








55
 **Maverick
Tube Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





**19.
Quarterly Financial Data (Unaudited)**





The
results of operations by quarter were as follows (in thousands):





Quarter
      Ended
    
    
    **March
      31,**
    
    
    **June
      30,**
    
    
    **September
      30,**
    
    
    **December
      31,****2004**
    
    
    **2004**
    
    
    **2004**
    
    
    **2004**Net
      sales
    
    $
    311,298
    
    $
    348,088
    
    $
    400,684
    
    $
    396,194Gross
      profit
    
    
    70,540
    
    
    119,264
    
    
    134,012
    
    
    84,671Income
      before cumulative effect of accounting change
    
    
    30,325
    
    
    57,997
    
    
    68,533
    
    
    38,525Net
      income
    
    
    28,741
    
    
    57,997
    
    
    68,533
    
    
    38,525Basic
      earnings per share before cumulative effect of accounting
      change
    
    
    0.72
    
    
    1.37
    
    
    1.62
    
    
    0.90Basic
      earnings per share
    
    
    0.68
    
    
    1.37
    
    
    1.62
    
    
    0.90Diluted
      earnings per share before cumulative effect of accounting
      change
    
    
    0.72
    
    
    1.36
    
    
    1.60
    
    
    0.90Diluted
      earnings per share
    
    
    0.68
    
    
    1.36
    
    
    1.60
    
    
    0.90Quarter
      Ended
    
    
    **March
      31,**
    
    
    **June
      30,**
    
    
    **September
      30,**
    
    
    **December
      31,****2003**
    
    
    **2003**
    
    
    **2003**
    
    
    **2003**Net
      sales
    
    $
    219,438
    
    $
    194,925
    
    $
    226,753
    
    $
    243,201Gross
      profit
    
    
    14,909
    
    
    15,646
    
    
    29,765
    
    
    40,644Net
      income
    
    
    242
    
    
    1,063
    
    
    8,677
    
    
    12,975Basic
      earnings per share
    
    
    0.01
    
    
    0.03
    
    
    0.21
    
    
    0.31Diluted
      earnings per share
    
    
    0.01
    
    
    0.03
    
    
    0.21
    
    
    0.31








**20.
New Accounting Pronouncements (Unaudited)**





*Share-Based
Payments*





In
December 2004, the FASB issued SFAS No. 123 (R), “Share-Based Payment,” which is
a revision of SFAS No. 123, “Accounting for Stock Based Compensation,” and
supersedes APB No. 25. Among other items, SFAS No. 123 (R) eliminates the use of
APB No. 25 and the intrinsic value method of accounting and requires companies
to recognize the cost of employee services received in exchange for awards of
equity instruments, based on the grant-date fair value of those awards, in the
financial statements.





The
effective date of SFAS No. 123 (R) is the first reporting period beginning after
June 15, 2005, which is the Company’s third quarter, although early adoption is
allowed. SFAS No. 123 (R) permits companies to adopt its requirements using
either a “modified prospective” method or a “modified retrospective” method.
Under the “modified prospective” method, compensation cost is recognized in the
financial statements beginning with the effective date, based on the
requirements of SFAS No. 123 (R) for all share-based payments granted after that
date and based on the requirements of SFAS No. 123 for all unvested awards
granted prior to the effective date of SFAS No. 123 (R). The “modified
retrospective” method requirements are the same as under the “modified
prospective” method, but also permit entities to restate financial statements of
previous periods based on pro forma disclosures made in accordance with SFAS No.
123.





The
Company currently plans to adopt SFAS No. 123 (R) on July 1, 2005, using the
modified prospective method. This change in accounting is not expected to
materially impact the Company’s financial position. However, because the Company
currently accounts for share-based payments to its employees using the intrinsic
value method, its results of operations have not included the recognition of
compensation expense for the issuance of stock option awards. Had the Company
applied the fair value criteria established by SFAS No. 123 (R) to previous
stock option grants, the impact to its results of operations would have
approximated the impact of applying SFAS No. 123, which was a reduction to net
income of approximately $1,038,000 in 2004, $2,012,000 in 2003, and $1,120,000
in 2002. The impact of applying SFAS No. 123 to previous stock option grants is
further summarized in Note 1. The Company expects the recognition of
compensation expense for stock options issued and outstanding at December 31,
2004, to reduce both third and fourth quarter 2005 net earnings by approximately
$80,000 and $69,000, respectively.








56
 **Maverick
Tube Corporation and Subsidiaries**
**Notes
to Consolidated Financial Statements**





SFAS No.
123 (R) also requires the benefits associated with the tax deductions in excess
of recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after the effective date. These future amounts cannot be
estimated, because they depend on, among other things, when employees exercise
stock options.





*Inventory
Costs*





In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which clarifies
that abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage) should be recognized as current-period charges and
requires the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. The guidance is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. The Company does not expect SFAS No.
151 to materially impact the financial statements upon adoption.





*Income
Taxes*





On
December 21, 2004, the FASB issued two FSPs regarding the accounting
implications of the American Jobs Creation Act of 2004. FSP No. 109-1,
“Application of FASB Statement No. 109 ‘Accounting for Income Taxes’ to the Tax
Deduction on Qualified Production Activities Provided by the American Job
Creation Act of 2004,” is not expected to have an effect on the Company’s
effective tax rate until fiscal 2006. FSP No. 109-2, “Accounting and Disclosure
Guidance for the Foreign Provision Within the American Jobs Creation Act of
2004,” is effective for fiscal year 2004 and is described in Note
10.








57







**Maverick
Tube Corporation and Subsidiaries**


**Schedule
II - Valuation and Qualifying Accounts**


**(In
Thousands)**





****
    
    
    
    
    Additions**Classification**
    
    
    **Balance
      at Beginning**
      **of
      Year**
    
    
    **Charged
      to Cost and Expenses**
    
    
    **Charged**
      **to
      Other Accounts**
    
    
    **Adjustments**
    
    
    **Balance
      at End of Year**Year
      ended December 31, 2002:Deducted
      from asset account:Accounts
      receivable allowances
    
    $
    2,412
    
    $
    449
    
    $
    2,327
    
    $
    --
    
    $
    5,188Valuation
      allowance for deferredincome
      taxes
    
    $
    4,342
    
    $
    6,877
    
    $
    --
    
    $
    (2,870
    )
    $
    8,349Year
      ended December 31, 2003:Deducted
      from asset account:Accounts
      receivable allowances
    
    $
    5,188
    
    $
    298
    
    $
    --
    
    
    ($72
    )
    $
    5,414Valuation
      allowance for deferredincome
      taxes
    
    $
    8,349
    
    $
    53
    
    $
    --
    
    $
    (1,472
    )
    $
    6,930Year
      ended December 31, 2004:Deducted
      from asset account:Accounts
      receivable allowances
    
    $
    5,414
    
    $
    1,376
    
    $
    --
    
    $
    149
    
    $
    6,641Valuation
      allowance for deferredincome
      taxes
    
    $
    6,930
    
    $
    65
    
    $
    --
    
    $
    --
    
    $
    6,995






**ITEM
9**  **Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures**
 
 None.
 
 **ITEM
9A**  **Controls and Procedures**
 
 *Effectiveness
of Controls and Procedures -* Our
management, under the supervision and with the participation of our chief
executive officer and principal financial officer, has reviewed and evaluated
the effectiveness of the Company’s disclosure controls and procedures as of
December 31, 2004. Based on such review and evaluation, our chief executive
officer and principal financial officer have concluded that the disclosure
controls and procedures were effective at the reasonable assurance level as of
December 31, 2004, to ensure that the information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and
reported within the time period specified in the SEC’s rules and forms and (b)
is accumulated and communicated to the Company’s management, including the
officers, as appropriate to allow timely decisions regarding required
disclosure.
 
 During
the evaluation of the controls and procedures as of September 30, 2004, the
Chief Executive Officer and Chief Financial Officer discovered a potential
significant deficiency in the design and operation of our general computer
controls related to security around access to certain components of our
information systems. We were able to fully implement certain changes to our
security access to remediate this deficiency as of December 31, 2004. In
addition, we successfully implemented a new, companywide human resources and
payroll system in late 2004 and early 2005. There were no other material changes
in the Company’s internal control over financial reporting during the fourth
quarter of 2004 that have materially affected or are reasonably likely to
materially affect the Company’s internal controls over financial
reporting.
 
 *Management’s
Report on Internal Control Over Financial Reporting* - Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. We conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. This evaluation included
review of the documentation of controls, evaluation of the design effectiveness
of controls, testing of the operating effectiveness of controls and a conclusion
of this evaluation. Although there are inherent limitations in the effectiveness
of any system
  58
 
 of
internal control over financial reporting, based on our evaluation, we have
concluded our internal controls over financial reporting were effective as of
December 31, 2004.
 Ernst
& Young LLP, an independent registered public accounting firm, has issued an
attestation report on management’s assessment of internal control over financial
reporting as of December 31, 2004, which is included herein.
 
 **ITEM
9B**  **Other Information**
 
 None.
 
 
 **PART III**
 
 **ITEM
10**  **Directors and Executive Officers of the
Registrant**
 
 The
information required by Item 10 is included in our definitive proxy statement
and incorporated herein by reference. Our definitive proxy statement will be
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 included in our definitive proxy statement
and incorporated herein by reference. Our definitive proxy statement will be
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 and Related Stockholder
      Matters**
 
 The
information required by Item 12 is included in our definitive proxy statement
and incorporated herein by reference. Our definitive proxy statement will be
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 included in our definitive proxy statement
and incorporated herein by reference. Our definitive proxy statement will be
filed with the Securities and Exchange Commission within 120 days of the end of
our most recent fiscal year.
 
 **ITEM
14**  **Principal Accountant Fees and
Services**
 
 Information
required by Item 14 is included in our definitive proxy statement and
incorporated herein by reference. Our definitive proxy statement will be filed
with the Securities and Exchange Commission within 120 days of the end of our
most recent fiscal year.
 
 
 **PART IV**
 
 **ITEM
15**  **Exhibits, Financial Statement
Schedules**
 
 (a)  The
following documents are filed as part of this report.
 
 **1.**
    **Financial
      Statements**
 
 **2.**
    **Schedule**
 
 The
consolidated financial statements and supplemental schedule of Maverick Tube
Corporation and Subsidiaries are included in Part II, Item 8 and are listed in
the Index to Consolidated Financial Statements and Financial Statement Schedule
therein.
 
 **3.**  **Exhibits**
 
 The
exhibits required to be filed as part of this annual report on Form 10-K are
listed in the attached Index to Exhibits.







59


**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
      15, 2005
    /s/
      Pamela G. BoonePamela
      G. Boone, Vice President - Treasurer and Assistant
    Secretary
   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
      15, 2005
    /s/
      C. Robert BunchC.
      Robert Bunch, Chairman and
      Chief
      Executive Officer and Director
      (Principal
      Executive Officer)
 
 
 March
      15, 2005
    /s/
      Pamela G. BoonePamela
      G. Boone
      (Principal
      Financial Officer)
 
 
 March
      15, 2005
    /s/
      C. Adams MooreC.
      Adams Moore, Director
 
 
 March
      15, 2005
    /s/
      David H. KennedyDavid
      H. Kennedy, Director
 
 
 March
      15, 2005
    /s/
      Gerald HageGerald
      Hage, Director
 
 
 March
      15, 2005
    /s/
      Greg EisenbergGreg
      Eisenberg, Director
 
 
 March
      15, 2005
    /s/
      Paul C. McDermottPaul
      C. McDermott, Director
 
 
 March
      15, 2005
    /s/
      Wayne P. MangWayne
      P. Mang, Director











**INDEX TO EXHIBITS**


**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).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).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 current report on 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 current report on
      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 current report on 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 (incorporated herein by reference to
      Exhibit 3.1 to the Registrant’s current report on Form 8-K filed on March
      2, 2005).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).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).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).4.7
    Indenture,
      dated as of June 9, 2003, between Maverick Tube Corporation and the Bank
      of New York (the “2003 Indenture”) (incorporated herein by reference to
      Exhibit 4.3 to the Registrant’s registration statement on Form S-3, filed
      on July 11, 2003 (File No. 33-106976)).4.8
    Form
      of 4.00% Convertible Senior Subordinated Note due 2033 (incorporated
      herein by reference to Exhibit A of the 2003 Indenture).4.9
    Registration
      Rights Agreement dated as of June 9, 2003 by and among Maverick Tube
      Corporation and J.P. Morgan Securities, Inc., Jefferies & Co., Inc.
      and Raymond James & Associates, Inc. (incorporated herein by reference
      to Exhibit 4.5 to the Registrant’s registration statement on Form S-3,
      filed on July 11, 2003 (File No. 33-106976)).
   
 **EXHIBIT****NUMBER**
    **DESCRIPTION**4.10
    Supplemental
      Indenture, dated as of October 24, 2003, between Maverick Tube Corporation
      and the Bank of New York (incorporated herein by reference to Exhibit 4.6
      to the Registrant’s Registration Statement on Form S-3/A, filed on October
      27, 2003 (File No. 33-106976)).4.11
    Form
      of Indenture between Maverick Tube Corporation and The Bank of New York,
      as trustee, governing the 2004 4.00% Convertible Senior Subordinated Note
      due 2033 (“2004 Indenture”) (incorporated herein by reference to Exhibit
      4.1 to the Registrant’s registration statement on Form S-4, filed on
      December 20, 2004 (File No. 333-120923)).4.12
    Form
      of 2004 4.00% Convertible 4.00% Convertible Senior Subordinated Note due
      2033 (incorporated herein by reference to Exhibit A of the 2004
      Indenture).10.1
    Lease
      and Agreement dated July 24, 1992, by and between the Registrant and the
      Arkansas Development Finance 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 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).10.3*
    The
      Maverick Tube Corporation 1994 Stock Option Plan (the “1994 Employee
      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).10.3.1*
    Amendment
      #1 to the 1994 Employee 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).10.4*
    The
      Maverick Tube Corporation Director Stock Option Plan (the “1994 Director
      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).10.4.1*
    Amendment
      #1 to the 1994 Director 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).10.4.2*
    Form
      of Director Non-Qualified Stock Option Agreement issuable under the 1994
      Director Plan.10.5*
    Amended
      and Restated Maverick Tube Corporation 2004 Omnibus Incentive Plan (“2004
      Employee Plan”)10.5.1*
    Form
      of Non-Qualified Stock Option Agreement issuable under the 2004 Employee
      Plan.10.5.2*
    Form
      of Restricted Stock Award Agreement issuable under the 2004 Employee
      Plan.10.5.3*
    Form
      of Restricted Stock Unit Award Agreement issuable under the 2004 Employee
      Plan.10.6*
    Maverick
      Tube Corporation 2004 Stock Incentive Plan for Non-Employee Directors
      (incorporated herein by reference to Attachment C to the registrant’s
      definitive proxy statement filed on March 29, 2004), as amended by First
      Amendment dated February 23, 2005 (incorporated herein by reference to
      Exhibit 10.1 to Registrant’s current report on Form 8-K filed on March 2,
      2005).10.7*
    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).10.8*
    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).
  
 
 **EXHIBIT****NUMBER**
    **DESCRIPTION**10.9
    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).10.10*
    Amended
      and Restated Prudential Steel Ltd. Stock Option Plan (incorporated herein
      by reference to Exhibit 99.1 of the Registrant’s registration statement on
      Form S-8 filed on September 27, 2000 (File No. 333-46740)).10.11*
    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)).10.12
    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).10.13*
    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).10.14
    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).10.15*
    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).10.16
    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).10.17
    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).10.18
    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 current report on Form 8-K filed on January 3,
      2003).10.18.1
    First
      Amendment dated as of February 28, 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, 2003).10.18.2
    Second
      Amendment dated as of June 2, 2003 (incorporated herein by reference to
      Exhibit 10.2 of the Registrant’s quarterly report on Form 10-Q for the
      period ended June 30, 2003).10.18.3
    Third
      Amendment dated as of September 19, 2003 (incorporated herein by reference
      to Exhibit 10.1 of the Registrant’s quarterly report on Form 10-Q for the
      period ended September 30, 2003).10.18.4
    Fourth
      Amendment dated as of December 16, 2003 (incorporated herein by reference
      to Exhibit 10.27 of the Registrant’s annual report on Form 10-K, as
      amended, for the period ended December 31, 2003).10.18.5
    Fifth
      Amendment dated as of March 10, 2004 (incorporated herein by reference to
      Exhibit 10.29 of the Registrant’s annual report on Form 10-K, for the
      period ended December 31, 2003).10.18.6
    Sixth
      Amendment dated as of April 9, 2004 (incorporated herein by reference to
      Exhibit 10.1 of the Registrant’s quarterly report on Form 10-Q, for the
      period ended June 30, 2004).
 
  
 
 **EXHIBIT****NUMBER**
    **DESCRIPTION**10.18.7
    Seventh
      Amendment dated as of August 18, 2004 (incorporated herein by reference to
      Exhibit 10.1 of the Registrant’s quarterly report on Form 10-Q, for the
      period ended September 30, 2004).10.18.8
    Eighth
      Amendment dated as of December 20, 2004 (incorporated herein by reference
      to Exhibit 99.4 of the Registrant’s Amendment No. 2 to registration
      statement on Form S-4 as filed on December 23, 2004 (File No.
      333-120923).10.19
    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).10.20
    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).10.21*
    Employment
      contract between the Registrant and Jim Cowan dated February 20, 2003
      (incorporated herein by reference to Exhibit 10.3 of the Registrant’s
      quarterly report on Form 10-Q for the period ended March 31,
      2003).10.22*
    Severance
      Agreement dated February 19, 2003, by and among the Registrant and Jim
      Cowan (incorporated herein by reference to Exhibit 10.28 of the
      Registrant’s annual report on Form 10-K, as amended, for the period ended
      December 31, 2003).10.23*
    Severance
      Agreement, entered into as of May 11, 2004, by and between the Registrant
      and Pamela G. Boone (the “Boone Severance Agreement”) (incorporated herein
      by reference to Exhibit 10.1 of the Registrant’s current report on Form
      8-K filed on January 14, 2005).10.23.1*
    Addendum
      to the Boone Severance Agreement dated March 13, 2005.10.24*
    Agreement
      and General Release, entered into as of October 15, 2004, by and between
      the Registrant and Gregg Eisenberg.10.25*
    Severance
      Agreement dated May 11, 2004, by and between the Registrant and Richard W.
      Preckel.12
    Computation
      of Earnings to Fixed Charges.21
    Subsidiaries
      of the Registrant.23.1
    Consent
      of Ernst & Young LLP, independent auditors.31.1
    Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
      of the Securities Exchange Act, as amended.31.2
    Certification
      of principal financial officer pursuant to Rule 13a-14(a) and Rule
      15d-14(a) of the Securities Exchange Act, as amended.32.1
    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.32.2
    Certificate
      (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002) of principal financial
      officer.*
    Management
      contract or compensatory plan or arrangement