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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934 for the fiscal year ended December 31, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934 For the transition period from to
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Commission file number 1-12164
WOLVERINE TUBE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 63-0970812
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(State of incorporation) (I.R.S. Employer Identification No.)
1525 Perimeter Parkway, Suite 210
Huntsville, Alabama 35806
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(Address of principal executive offices) Zip Code
(205)353-1310
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(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered:
Common Stock, $0.01 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12 (g) of the Act. None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. {X }
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 14, 1997 was approximately $406,380,073 based upon the
closing price reported for such date on the New York Stock Exchange. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
executive officers and directors of the registrant have been excluded because
such persons my be deemed to be affiliates. This determination is not
necessarily conclusive.
Indicate the number of shares outstanding of each class of Common Stock, as of
the latest practicable date:
Class Outstanding at March 14, 1997
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Common Stock, $0.01 Par Value 13,980,517 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the annual stockholders meeting
to be held May 22, 1997 are incorporated by reference into Part III.
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FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 16
PART II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 9. Changes in and Disagreement with Accountants on
Accounting and Financial Disclosures. . . .. . . . . . . . . . . . . . . . . . . . . . . . . 28
PART III
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Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . 29
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 29
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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ITEM 1
BUSINESS
INTRODUCTION
Wolverine Tube, Inc. ("Wolverine" or the "Company") is a leading North American
manufacturer and distributor of copper and copper alloy tube, and other tubular
products, and believes that it offers the broadest product line of any North
American tube manufacturer. The Company also manufactures and distributes
copper and copper alloy rod, bar and strip products. The Company believes that
in 1996 it was the largest North American producer of copper and copper alloy
tube for commercial products.
Copper's unique attributes--thermal conductivity, ease of bending and joining
and resistance to erosion and corrosion--make it an attractive material for a
broad range of applications in a large number of diverse industries. The
Company focuses on custom-engineered, high value-added copper and copper alloy
tube, which enhances performance and energy efficiency in many applications.
Customers include commercial and residential air conditioning and refrigeration
equipment manufacturers, appliance manufacturers, automotive manufacturers,
industrial equipment manufacturers, utilities and other power generating
companies, refining and chemical processing companies and plumbing
wholesalers.
HISTORY AND STRUCTURE
The Company is the successor to a business founded in Detroit in 1916. In 1987,
the Company was purchased in a leveraged acquisition of substantially all the
assets of the seamless copper tube business of The Henley Group, Inc. and its
Canadian affiliates by an investor group that included the then-existing
management of the Company. In 1988, the Company's wholly-owned subsidiary,
Wolverine Tube (Canada) Inc. ("Wolverine Canada"), acquired substantially all
of the assets of Noranda Metal Industries Limited, a Canadian company. In
January 1991, Genstar Capital Corporation ("Genstar") acquired a controlling
interest in the Company. At that time, Genstar owned 72.8% of the Common Stock
with the balance of the Common Stock owned by the management of the Company
(the "Management Stockholders") and certain other investors.
In August 1993, the Company and certain stockholders engaged in an initial
public offering of 6,555,000 shares of Common Stock. Of those shares, 3,280,000
were sold by Wolverine and 3,275,000 were sold by certain stockholders. Net
proceeds to the Company were approximately $46.4 million.
In November 1994, the Company completed its acquisition of Small Tube Products
Company, Inc., a Delaware corporation ("STP"), by means of a merger of a
wholly-owned subsidiary of the Company with and into STP. The Company acquired
all of the outstanding stock of STP in exchange for 400,000 shares of Wolverine
Common Stock and $54.6 million in cash. As a result
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of the merger, STP became a wholly-owned subsidiary of Wolverine and was
renamed "STPC Holding, Inc."
In September 1995, the Company completed a secondary public offering of
4,882,700 shares of Wolverine Common Stock (the "Secondary Stock Offering"), in
which Genstar and its affiliates sold substantially all of their shares of
Wolverine Common Stock. No additional shares of Common Stock were issued by the
Company in conjunction with the Secondary Stock Offering.
In September 1996, the Company completed the acquisition of Tube Forming, Inc.,
a manufacturer of value-added copper fabricated products based in Carrollton,
Texas, for $34.6 million cash.
The Company, a Delaware corporation, was organized in 1987. The Company's
principal executive offices are located at 1525 Perimeter Parkway, Suite 210,
Huntsville, Alabama 35806, and its telephone number is (205) 353-1310.
PRODUCTS
COMMERCIAL PRODUCTS
The Company includes in the commercial products category several types of
technically sophisticated tube and fabricated tubular products that it sells
directly to equipment manufacturers and that are generally custom designed and
manufactured. Because of the high level of added value, profitability tends to
be higher for commercial products than for the Company's other products.
The Company's commercial products include:
Industrial Tube. Small (as small as .01") and medium diameter copper tube used
primarily by residential air conditioning, appliance and refrigeration
equipment manufacturers is known as "industrial" tube. Industrial tube is made
to customer specifications for equipment manufacturing. The Company's
industrial tube products include coils in lengths of up to one mile (to permit
economical transport to customers for further processing), smooth straight
tube, internally enhanced tube with internal surface ridges to increase heat
transfer in air conditioning coils, and very small diameter capillary tube (for
control valve applications).
Technical Tube. Technical tube is used to increase heat transfer in large
commercial air conditioners, heat exchangers for power generating and chemical
processing plants, water heaters, swimming pool and spa heaters and large
industrial equipment oil coolers. Small, wedgelike grooves (fins) on the outer
surface, and internal and external enhancements of technical tube, increase
surface area and refrigerant agitation, thereby increasing heat transfer
efficiency. The Company was the first to develop integral finned tube, in which
the fins are formed directly from the wall of the tube, and holds many of the
patents in that area.
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Copper Alloy Tube. Copper alloy tube (principally copper mixed with nickel) is
manufactured for certain severe uses and corrosive environments such as
condenser tubes and heat exchangers in power generating plants, chemical
plants, refineries and ships. The Company's copper alloy tube products include
smooth and surface enhanced tube produced from a variety of alloys, U-bends for
heat exchangers and the Company's patented Korodense corrugated heat transfer
tube. Also included in the alloy tube category are surface enhanced titanium
and steel tube produced by the Company from smooth tube supplied by outside
sources.
Fabricated Products. Fabricated products encompass a wide variety of copper,
copper alloy and aluminum tubing for a myriad of different applications. Tubing
can be supplied in various cut lengths, long straight lengths or coils.
Specialty fabricated parts, sub-assemblies and components (such as return bends
and manifolds) are also produced. Capabilities include cutting, bending,
swaging, flaring, end-finishing and brazing, which can be applied to a wide
range of products.
WHOLESALE PRODUCTS
Wholesale products include plumbing tube and refrigeration service tube.
Plumbing tube and refrigeration service tube are produced in standard sizes and
lengths primarily for plumbing, air conditioning and refrigeration service
applications. Many major competitors manufacture the most common 3/4" and 1/2"
diameter plumbing tube. These products are considered commodity products
because price and delivery are the primary competitive factors. Plumbing tube
and refrigeration service tube are sold primarily through wholesalers.
ROD, BAR AND STRIP PRODUCTS
Copper and Copper Alloy Rod and Bar. Copper and copper alloy rod and bar
products include a broad range of copper and copper alloy solid products,
including round, rectangular, hexagonal and specialized shapes. Brass rod and
bar are used by industrial equipment and machinery manufacturers for valves,
fittings and plumbing goods. Copper bars are used in electrical distribution
systems and switchgear.
Copper and Copper Alloy Strip. Copper and copper alloy strip products are used
primarily by automotive, hardware and electrical equipment manufacturers, by
roofing contractors and by mints for coins. Copper and copper alloy strip
products are sold directly to manufacturers and to service centers that keep an
inventory of standard sizes.
PHASEOUT OF CFCS
In September 1987, the United States, Canada and many other countries
signed The Montreal Protocol on Substances that Deplete the Ozone Layer (the
"Montreal Protocol"). As originally drafted, the Montreal Protocol provided for
the limitation on production and consumption of chlorofluorocarbons ("CFCs")
over various periods of time. On November 15, 1990, the President of the United
States signed The Clean Air Act Amendments of 1990 (the "1990 Amendments").
Title VI, Section 604 of the Clean Air Act (the "Act") requires the phase out of
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CFCs (other than methyl chloroform) by the year 2000. On November 23, 1992, the
fourth meeting of the parties to the Montreal Protocol was convened in
Copenhagen. At that meeting the parties agreed, among other things, to
accelerate the phase out of CFC production to January 1, 1996. On December 10,
1993, the United States Environmental Protection Agency (the "EPA") promulgated
regulations requiring domestic producers to cease production of CFCs by January
1, 1996.
The 1990 Amendments, the Montreal Protocol and the EPA regulations generally
contain exceptions for essential uses of CFCs and permit recycling. CFCs are
used as refrigerants in major air conditioning and refrigeration applications
(other than household air conditioning and refrigeration units which rely
exclusively on hydrochlorofluorocarbon-22). Alternatives to CFCs include
hydrofluorocarbons ("HFCs") and hydrochlorofluorocarbons ("HCFCs"), and to a
lesser extent, ammonia. HFCs and HCFCs are generally less efficient
refrigerants than CFCs.
The Company has benefited and expects to continue to benefit from the CFC
phaseout as existing large chillers are replaced over the next five to seven
years with units utilizing alternative refrigerants. Based upon data from the
EPA and the Air Conditioning and Refrigeration Institute ("ARI"), the Company
estimates that there are approximately 130,000 large industrial chillers
worldwide, including 80,000 large industrial chillers in North America, that
are affected by the 1990 Amendments and the Montreal Protocol. Industry
sources estimate that as of December 31, 1996, 18,500 of the large industrial
chillers in North America have been replaced or retrofitted. These chillers
are used to regulate the temperature and humidity in offices, hotels, shopping
centers and other large buildings.
The Company expects demand for its high value-added energy efficient tubes to
increase as manufacturers produce more energy efficient and lower operating
cost units and as existing chillers are replaced in response to the ban on
production of CFCs. There can be no assurance that this anticipated demand will
materialize, or that the Company will not face increased competition, with an
adverse effect on profitability, from other manufacturers in this high
value-added segment. In addition, new refrigerants or technologies that are not
compatible with copper tube may be developed in response to the requirements of
the 1990 Amendments, the Montreal Protocol, and the EPA regulations. The
development of any such new refrigerant or technology could have a material
adverse effect on the Company's results. Furthermore, there can be no
assurance that an effective CFC recycling program will not develop, allowing
the continued use of CFCs, that the pace of the replacement and retrofitting of
chillers using CFCs will proceed as anticipated, or that significant
exceptions will not be made that allow continued production of CFCs.
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MARKETS
Major markets for each of the Company's product lines are set forth below:
<TABLE>
<CAPTION>
PRODUCTS MAJOR MARKETS
<S> <C>
Commercial Products:
Industrial Tube............ Residential and small commercial air conditioning manufacturers,
appliance manufacturers, automotive
manufacturers, industrial equipment manufacturers, refrigeration
equipment manufacturers and redraw mills (which further process the
tube).
Technical Tube............. Commercial air conditioning manufacturers, power and
process industry heat exchanger manufacturers, water,
swimming pool and spa heater manufacturers and oil
cooler manufacturers.
Copper Alloy Tube.......... Utilities and other power generating companies, refining
and chemical processing companies, heat exchanger
manufacturers and shipbuilders.
Fabricated Products........ Consumer appliance, air conditioning and refrigeration,
automotive, heavy equipment, marine building and heating
industries.
Wholesale Products Plumbing wholesalers and refrigeration service
wholesalers.
Rod, Bar and Strip Products Electrical equipment and automotive parts manufacturers,
coin mints, locomotive and other industrial equipment
manufacturers, metal service centers and rerollers (which
further process the product).
</TABLE>
York International accounted for 11% of the Company's consolidated net sales in
1996 and 1994. No customer accounted for as much as 10% of the Company's
consolidated net sales in 1995.
A significant part of the Company's sales are based on short-term purchase
orders. For this reason, the Company does not maintain a backlog and believes
that backlog is not necessarily a meaningful indicator of future results. A
significant and increasing amount of the Company's
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sales result from "partnership" relationships wherein the Company provides a
high degree of specialized service and generally becomes the largest supplier
of a customer's copper tube requirements. Under these arrangements, the
Company's customers provide forecasts of their requirements, against which
purchase orders are periodically released. While these relationships do not
involve long-term supply or purchase contracts from either party, they have
provided the Company with an increased degree of order flow predictability.
SALES AND MARKETING
The Company generally uses a direct field sales force rather than the
agent-based approach used by many of its competitors. The Company believes its
direct sales force forms a critical link in the communication between the
Company and its customers. This link is particularly important in the high
value-added product segments, in which the Company often works with customers
in their product enhancement and new product development efforts.
North America. The sales force in North America consists of the Vice President
of Sales and field marketing representatives who are responsible for selling
and servicing accounts for the entire product line. The sales force is
coordinated by regional managers located in Dallas, Texas; London, Ontario;
Fergus, Ontario; and Vancouver, British Columbia, and a sales manager located
in Decatur, Alabama for fabricated products.
Overseas. The Company's overseas export sales are carried out both directly
with major overseas customers and through foreign agents. These sales are
coordinated by the Executive Vice President, International and Business
Development from the Company's offices in Huntsville, Alabama. The Company has
sales, marketing, and business development offices in Lyon, France, and Hong
Kong.
For information concerning the amount of sales, income from operations and
certain other financial information about foreign and domestic operations see
Note 15 of the Notes to Consolidated Financial Statements.
COMPETITION
While no single company competes with Wolverine in all of the Company's product
lines, the Company faces significant competition in each of its product lines.
The Company has numerous competitors, some of which are larger and have greater
financial resources than the Company. Cerro Copper Products Co., Inc., Halstead
Industries Inc., Industrias Nacobre S.A. de C.V., Kobe Copper Products Inc.,
Mueller Industries Inc., Olin Corporation, Outokumpu American Brass Company and
others compete with the Company in one or more product lines. There can be no
assurance that the Company will be able to compete successfully or that
competition will not have an adverse effect on the Company's operating results.
Minimal product differentiation among competitors in the Company's wholesale
and rod, bar and strip product lines creates a pricing structure for these
products resembling "commodity" pricing (i.e., a price structure where
customers differentiate between products almost exclusively on price). In these
product areas certain of the Company's competitors, primarily Cerro Copper
Products Co., Inc. and Halstead
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Industries Inc., have significantly larger market shares than the Company, and
tend to be the industry pricing leaders. If the Company's competitors in these
product lines were to significantly reduce prices, the Company's operating
results could be adversely affected.
The Company currently faces limited competition for certain high value-added
commercial products. If other companies, or some of the Company's existing
customers, begin or expand operations in these categories, the Company could be
adversely affected. Because the Company competes primarily on the basis of the
technical advantages of its commercial products, technical improvements by
competitors could reduce the Company's competitive advantage in these product
lines and thereby adversely affect the Company. The Company could also be
adversely affected if new technologies emerge in the refrigeration industry, or
other consumer industries, including technologies developed in response to the
elimination of CFCs, that would reduce or eliminate the need for copper and
copper alloy tube. Certain of the Company's products, such as plumbing tube,
compete with products made of alternative substances, such as polybutylene
plastic. A substantial increase in the price of copper could decrease the
relative attractiveness of copper products in cases where an alternative exists
and thereby adversely affect the Company's operating results.
MANUFACTURING
The manufacture of seamless tube and tubular products consists of casting,
extruding, drawing, forming and finishing processes. In most cases, the raw
material is first cast into a solid cylindrical shape or "billet." The billet
is then heated to a high temperature and extruded under high pressure into a
tube. The tube is either drawn to smaller sizes or reduced on a forging machine
and then drawn to smaller sizes. The outside and/or inside surface can be
enhanced to achieve the desired heat transfer qualities. Depending on customer
needs, bending, annealing (heating to restore flexibility), coiling or other
operations may be required to finish the product.
Virtually all of the tube produced by the Company is seamless as opposed to
welded tube. Welded tube is made from a flat strip that is rolled and welded
together at the edges. A seamless tube has no welded edge because it is formed
by piercing a hole through the center of a cylinder of heated metal and
extruding the tube under pressure. The Company believes that many customers
prefer the reliability and durability of a seamless tube.
RAW MATERIALS, SUPPLIERS AND PRICING
The Company's principal raw materials are copper, nickel, zinc and tin. In
1996, the Company purchased approximately 346 million pounds of metal,
approximately 89% of which was copper. The Company contracts for its copper
requirements with a variety of sources, including producers, merchants,
brokers, dealers and industrial suppliers. The Company's raw materials are
available from a wide variety of sources, and the Company does not believe that
the loss of any one source would materially affect its operations.
The key elements of the Company's copper procurement and product pricing
strategies are the assurance of a stable supply and the avoidance of exposure
to metal price fluctuations. The price
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of copper purchased by the Company is based upon fluctuating market prices,
usually with the COMEX price as a benchmark. The Company generally has an
"open pricing" option under which the Company may set the price of all or a
portion of the metal subject to a purchase contract at any time up to the last
COMEX trading day (usually two days before the end of the month) of the last
month in the contract period.
In the majority of cases, the price to the customer contains two components:
(i) a metal charge based upon the market value of the metal content on the date
of shipment of the product to the customer; and (ii) a fixed fabrication
charge. In other cases, the Company quotes a firm price to the customer which
covers both the metal price and the fabrication charge. In either case, the
Company minimizes its exposure to metal price fluctuations through various
strategies. Generally, at the time the metal price for the customer is
established, the Company prices an equivalent amount of metal under its open
pricing arrangements with its suppliers. It is the Company's policy not to
attempt to profit from fluctuations in copper prices by taking commodity risks
or speculative commodity positions.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are devoted to new product
development and manufacturing process improvements. The Company's research and
development is primarily conducted at the Decatur facility.
Recently developed heat transfer products, including the Company's line of
"Turbo" products, account for over 30% of commercial product gross profit.
Turbo products include Turbo-A, the Company's internally enhanced tube, and
Turbo-B, the proprietary line of enhanced surface tube for chillers. Demand for
enhanced tube products is driven by the need for improved energy efficiency.
New product development will continue to be concentrated in the heat transfer
area. The Company is involved in several industry, university and government
sponsored research projects relating to CFC alternative refrigerants as well as
more energy efficient tube for the power and petro-chemical industries. The ARI
has chosen the Company's tube as the "standard" to measure the efficiency of
alternative refrigerants. See "Phaseout of CFCs."
The Company's research and development expense was $1.6 million, $1.5 million
and $1.6 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company uses its existing manufacturing facilities and
personnel to assist in manufacturing process research and development efforts.
In addition, the Company engages in new product development efforts with
certain of its major customers.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive environmental regulations
imposed by federal, state, provincial and local authorities in the United
States and Canada with respect to emissions to air, discharges to waterways,
and the generation, handling, storage, transportation, treatment and disposal
of waste materials. In addition, the Company has incurred and in the future may
incur liability under environmental statutes and regulations with respect to
the
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contamination of sites owned or operated by the Company (including contamination
caused by prior owners and operators of such sites) and the off-site
disposal of hazardous substances. The
Company believes its operations are in substantial compliance with
the terms of all applicable environmental laws and regulations as currently
interpreted. However, the Company expects that future regulations and changes in
the text or interpretation of existing regulations may subject its operations to
increasingly stringent standards. While the precise effect of these changes on
the Company cannot be estimated, compliance with such requirements may make it
necessary, at costs which may be substantial, to retrofit existing facilities
with additional pollution-control equipment and to undertake new measures in
connection with the storage, transportation, treatment and disposal of
by-products and wastes.
The Company has a reserve of $3.7 million for environmental remediation costs.
This reserve is reflected in the Company's December 31, 1996 consolidated
balance sheet and does not anticipate any recovery for amounts indemnified by
other parties. The total cost of environmental assessment and remediation
depends on a variety of regulatory, technical and factual issues, some of which
cannot be anticipated. While the Company believes that the reserve, under
existing laws and regulations, is adequate to cover presently identified
environmental remediation liabilities, there can be no assurance that such
amount will be adequate to cover the ultimate costs of these liabilities, or
the costs of environmental remediation liabilities that may be identified in
the future. See "Item 3 - Legal Proceedings" and "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Environmental Matters".
EMPLOYEES
As of December 31, 1996, the Company had a total of 3,377 employees. None of the
United States or the London, Ontario employees is represented by a union. A
majority of the hourly employees at the Montreal and Fergus plants are
unionized and are covered by collective bargaining agreements that expire in
1999 and 1997, respectively. In December 1996, an attempt to organize the
employees at the Shawnee, Oklahoma facility, by the International Brotherhood
of Teamsters, Local Union 886, AFL-CIO, was defeated. Under applicable federal
law, as a consequence of that defeat, there is a prohibition on any union
conducting an election at that facility prior to December 1997. As a whole,
the Company believes its relationships with its employees are very good.
PATENTS AND TRADEMARKS
The Company owns a number of United States and other patents and trademarks and
has granted licenses under some of such patents and trademarks. While the
Company believes that its patents and trademarks have competitive value, it
does not consider the business of the Company as a whole to be dependent on its
patents, patent rights or trademarks.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain of the statements and subject areas contained herein in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not based upon historical or current facts deal with or may
be impacted by potential future circumstances and developments. Such statements
and the discussion of such subject areas involve, and are therefore qualified
by, the inherent risks and uncertainties surrounding future expectations
generally, and also may materially differ from the Company's actual future
experience involving any one or more of such subject areas. The Company has
attempted to identify, in context, certain of the factors that it currently
believes may cause actual future experience and results to differ from current
expectations regarding the relevant statement or subject area. The Company's
operations and results also may be subject to the effect of other risks and
uncertainties in addition to the relevant qualifying factors identified
elsewhere herein, including, but not limited to, cyclicality and seasonality in
the industries to which Wolverine sells its products, the impact of competitive
products and pricing, extraordinary fluctuations in the pricing and supply of
the Company's raw materials, unanticipated developments in the areas of
environmental compliance, and other risks and uncertainties identified from time
to time in the Company's reports filed with the Securities and Exchange
Commission.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to each
executive officer of the Company:
<TABLE>
<CAPTION>
Years in the
Name Age Industry Positions with the Company
---- --- -------- --------------------------
<S> <C> <C> <C>
John M. Quarles 56 25 Chairman and Director
Thomas B. Roller 47 10 President and Chief Executive Officer,
Director
Gregory M. Trickey 48 24 Chief Operations Officer and Director
Executive Vice President, Chief Financial
James E. Deason 49 3 Officer, Secretary, Treasurer and Director
Richard P. Westmoreland 60 16 Executive Vice President, International and
Business Development
Thomas J. Ruble 44 2 Senior Vice President, Operations
Senior Vice President and General Manager,
Alan L. Smith 48 2 Fabricated Products Group
Dale G. Barnhart 44 13 Senior Vice President, Marketing and Sales
Norman R. Clevinger 49 24 Vice President, Development and Planning
William H. Hartman 56 35 Vice President, Purchasing
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Thomas J. Malone 49 18 Vice President, Corporate Development
Sam Alfano 41 1 Corporate Controller
</TABLE>
Mr. Quarles has been the Chairman of the Company since May 1994 and a Director
since January 1991. From October 1990 to September 1996, Mr. Quarles was the
Company's President and Chief Executive Officer. Mr. Quarles joined the Company
in 1972 and has held numerous positions, including Director of Development and
Planning from 1985 to 1987 and President of the Company's former U.S. operating
subsidiary from 1987 to 1990.
Mr. Roller has been the Company's President and Chief Executive Officer since
September 1996, and a Director since December, 1996. Prior to joining the
Company, Mr. Roller was President and Chief Executive Officer of Fruehauf
Trailer Corp, Inc. since 1992. From 1991 to 1992, Mr. Roller was the President
and Chief Executive Officer of Plywood Panels. Prior to that, Mr. Roller spent
10 years at Carrier Corporation. In October 1996, Fruehauf Trailer Corp. filed
a voluntary petition under Chapter 11 of the Federal bankruptcy laws.
Mr. Trickey has been Chief Operations Officer and a Director of the Company
since May 1994. He was Executive Vice President, Operations of Wolverine from
October 1990 to May 1994. Mr. Trickey has been employed by the Company for 24
years, holding numerous positions in engineering and operations.
Mr. Deason has been the Executive Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since September 1994 and a Director of
the Company since October 1995. Prior to joining the Company, Mr. Deason, a
Certified Public Accountant, was most recently a partner with Ernst & Young LLP
in Birmingham, Alabama.
Mr. Westmoreland has been Executive Vice President, International and Business
Development since December 1995. He was Executive Vice President, Marketing and
Sales of the Company from October 1990 to December 1995. From 1986 to 1990, Mr.
Westmoreland was Vice President, Marketing and Sales for the Company.
Mr. Ruble has been Senior Vice President, Operations of Wolverine since April
1995. Prior to joining Wolverine, Mr. Ruble spent over 20 years with Delphi
Chassis Systems of General Motors Corporation, where he was most recently
responsible for multiplant operations.
Mr. Smith has been Senior Vice President and General Manager, Fabricated
Products Group since January 1996. For more than five years prior to joining
Wolverine, Mr. Smith was Vice President, General Manager at Copperweld
Corporation, where he was responsible for sales and marketing, manufacturing
and distribution of their Bimetallic Products Company.
Mr. Barnhart has been the Senior Vice President, Marketing and Sales since
January 1997. For more than five years prior to joining Wolverine Tube, Mr.
Barnhart was Vice President, Business Development, of Copeland Corporation.
11
<PAGE> 14
Mr. Clevinger has been the Vice President, Development and Planning of the
Company since March 1990. Mr. Clevinger has spent 25 years with the Company,
holding numerous positions in product engineering.
Mr. Hartman has been the Vice President, Purchasing of the Company since 1988.
Mr. Hartman has spent 35 years with the Company, holding numerous positions in
material control.
Mr. Malone joined the Company as Vice President, Corporate Development in March
1997. Prior to joining the Company, he served in a variety of positions at
Carrier Transicold, a division of United Technologies Inc., since 1978, most
recently serving as Vice President, Asia Pacific Operations.
Mr. Alfano has been the Corporate Controller since May 1996. For more than five
years prior to joining Wolverine, Mr. Alfano, a Certified Public Accountant,
was with Citation Corporation where he held the positions of Corporate
Controller and Director of Administration of the Texas Foundries Division.
12
<PAGE> 15
ITEM 2
PROPERTIES
UNITED STATES FACILITIES The Company owns and operates manufacturing
facilities in Decatur, Alabama; Ardmore, Tennessee; Booneville and Greenville,
Mississippi; Roxboro, North Carolina; Shawnee, Oklahoma; and Carrollton, Texas.
The Altoona, Pennsylvania facility is partially owned and partially leased from
a local industrial development agency for $3,500 per year in perpetuity. All
of these facilities are operating at or near capacity. The Company's corporate
offices are comprised of approximately 5,000 square feet of a leased facility
in Huntsville, Alabama. The following table describes each of the Company's
United States manufacturing facilities:
<TABLE>
<CAPTION>
Number of
Property Plant Size Year Employees at
Location Size(acres) (sq. ft.) Opened Dec. 31, 1996 Description
- -------- ----------- --------- ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Decatur, AL 166 590,442 1948 944 Produces each of the Company's tube
product lines. A significant portion
of production is industrial, technical
and copper alloy tube. Produces
smooth feedstock tube for the Ardmore
and Booneville facilities.
Ardmore, TN 6 56,724 1974 86 A redraw facility that produces higher
margin commercial products such as
capillary tube and specially
fabricated components.
Booneville, 30 152,200 1989 180 Processes feedstock tube from Decatur
MS facility into enhanced surface
industrial tube.
Greenville, 10 50,000 1982 86 A redraw facility that produces higher
MS margin commercial products such as
capillary tube and specially
fabricated parts.
Roxboro, NC 33 137,450 1994 262 Produces technical copper tube,
plumbing tube and refrigeration
service tube.
Shawnee, OK 51 309,450 1974 447 Produces each of the Company's copper
tube product lines. Capable of
producing feedstock tube for the
Ardmore and Booneville facilities.
Altoona, PA 32 169,000 1956 300 A redraw facility that produces higher
margin commercial products such as
capillary tube, specially fabricated
parts and smaller diameter tube.
Carrollton, TX 8 65,000 1987 197 A redraw facility that produces higher commercial
products such as specially fabricated parts, return
bends and manifolds.
</TABLE>
13
<PAGE> 16
CANADIAN FACILITIES The Company's Canadian manufacturing facilities are
located in London and Fergus, Ontario, and in Montreal, Quebec. The facilities
are operating at or near capacity. The following table describes each of the
Company's Canadian manufacturing facilities:
<TABLE>
<CAPTION>
Property Number of
Size Plant Size Year Employees at
Location (Acres) (Sq. Ft.) Opened Dec. 31, 1996 Description
- -------- ------- --------- ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
London, Ontario 45 195,000 1958 338 Produces plumbing tube,
refrigeration service tube
and industrial tube. Also
houses corporate offices.
Fergus, Ontario 26 150,000 1968 121 Produces copper and copper
alloy strip.
Montreal, Quebec 25 424,000 1942 416 Produces plumbing tube and
refrigeration service tube,
copper alloy tube and copper
and copper alloy rod and bar.
</TABLE>
14
<PAGE> 17
ITEM 3
LEGAL PROCEEDINGS
The Company's facilities and operations are subject to extensive environmental
laws and regulations, and the Company is currently involved in various
proceedings relating to environmental matters as described under "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Environmental Matters." The Company is not involved in any legal
proceeding that it believes could have a material adverse effect upon its
financial condition or operations.
15
<PAGE> 18
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders by the Company during
the final quarter of the fiscal year covered by this report.
16
<PAGE> 19
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "WLV." On March 14, 1997, the Company had 396 stockholders of record
and the closing price of the Company's Common Stock was $35.50.
The following table sets forth, for the periods indicated, the range of high
and low reported sale prices for the Company's Common Stock on the New York
Stock Exchange for each quarter of fiscal years 1995 and 1996.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1995: High Low
<S> <C> <C>
First quarter $26 3/4 $23 1/4
Second quarter $34 $24 1/2
Third quarter $43 1/2 $31 5/8
Fourth quarter $38 $30 7/8
<CAPTION>
Fiscal Year Ended December 31, 1996: High Low
<S> <C> <C>
First quarter $43 1/8 $34 1/2
Second quarter $40 5/8 $31
Third quarter $43 1/4 $32 3/4
Fourth quarter $43 3/8 $34 1/2
</TABLE>
The Company did not declare or pay cash dividends on its Common Stock during
the years ended December 31, 1995 or 1996. The Company does not currently plan
to pay cash dividends on the Common Stock. Any future determination to pay cash
dividends will depend on the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors. The Company intends to retain earnings to support the
growth of the Company's business.
The Indenture governing the Company's 10 1/8% Senior Subordinated Notes Due
2002 (the "Senior Notes") restricts the payment of cash dividends on the
Common Stock. Pursuant to the terms of that Indenture, the Company can pay
dividends on the Common Stock only if certain financial and other tests are
met. See Note 5 of the Notes to Consolidated Financial Statements. Also, under
the terms of the Company's Redeemable Cumulative Preferred Stock, the Company
must pay all accrued dividends on outstanding Redeemable Cumulative Preferred
Stock prior to
17
<PAGE> 20
making any cash dividend payments on the Common Stock. See Note 10 of the Notes
to Consolidated Financial Statements. Finally, the Company's credit agreement
with a group of banks permits the Company to pay dividends on the Common Stock
only if certain financial and other tests are met. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
18
<PAGE> 21
ITEM 6
SELECTED FINANCIAL DATA
The historical consolidated financial data presented below for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 were derived from the audited
consolidated financial statements of the Company, and should be read in
conjunction therewith and with the information set forth under "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------
Statement of Income Data: 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $699,863 $664,605 $525,619 $468,987 $483,609
Costs of goods sold 606,157 580,749 459,043 406,590 426,035
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 93,706 83,856 66,576 62,397 57,574
Selling, general and administrative 21,903 23,391 17,877 22,942 24,459
expenses
Write-down of fixed assets (a) - - - 2,259 -
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 71,803 60,465 48,699 37,196 33,115
Other expenses:
Interest expense, net 9,321 9,038 6,728 8,761 9,371
Amortization and other, net 1,107 1,604 1,376 1,264 2,220
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes,
extraordinary item and cumulative
effect of accounting change 61,375 49,823 40,595 27,171 21,524
Income tax expense 21,792 17,587 15,550 11,138 9,355
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of accounting change 39,583 32,236 25,045 16,033 12,169
Extraordinary item, net of income tax - - - - (4,197)
benefit
Cumulative effect of accounting change,
net of tax benefit - - - (1,768) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 39,583 $ 32,236 $ 25,045 $ 14,265 $ 7,972
====================================================================================================================================
Net income applicable to common shares $ 39,303 $ 31,956 $ 24,765 $ 13,966 $ 6,213
====================================================================================================================================
Earnings per common share:
Income before extraordinary item and
cumulative effect of accounting change $ 2.77 $ 2.26 $ 1.82 $ 1.39 $ 0.98
Extraordinary item - - - - (0.39)
Cumulative effect of accounting change - - - (0.16) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2.77 $ 2.26 $ 1.82 $ 1.23 $ 0.59
====================================================================================================================================
Weighted average number of common and
common equivalent shares outstanding 14,196 14,118 13,643 11,331 10,576
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
Other Data: 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pounds shipped 349,297 313,145 303,813 288,483 281,071
Depreciation and amortization $ 16,346 $ 15,790 $ 12,891 $ 11,815 $ 13,122
Capital expenditures 8,540 15,805 34,382 22,330 4,049
Average COMEX price of copper per pound(c) 1.06 1.35 1.07 0.85 1.03
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
Balance Sheet Data: 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $397,020 $357,225 $340,552 $276,036 $214,365
Total long-term debt 100,473 100,547 100,715 100,010 100,464
Redeemable Cumulative Preferred Stock 2,000 2,000 2,000 2,000 3,500
Stockholders' equity 209,222 164,526 128,719 97,644 39,302
</TABLE>
(a) The Company discontinued the majority of its aluminum tube operations in
1993. The Company recorded a one-time, pre-tax $2.3 million charge for fixed
asset write-downs and disposal costs in the quarter ended July 3, 1993.
(b) Reflects the payment of preferred stock dividends and accretion of
preferred stock redemption requirements.
(c) Source: Metals Week
20
<PAGE> 23
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following general factors should be considered in analyzing the Company's
results of operations:
Components of Cost of Goods Sold
A substantial portion of the Company's cost of goods sold reflects the cost of
raw material, principally copper. These costs, which fluctuate with the
markets for raw material, are generally passed along to the customers.
Accordingly, the Company's net sales and cost of goods sold levels are affected
by the rise and fall of copper prices, even in the absence of increases or
decreases in business activity. Such increases or decreases cause variations
in the Company's gross margin (gross profit as a percentage of net sales), but
have little direct impact on the Company's levels of gross profit.
Variability of Wholesale Product Gross Profit
Gross profit attributable to sales of the Company's wholesale products has
fluctuated and may continue to fluctuate substantially from period to period.
In 1996, 1995 and 1994, gross profit from sales of these products was $7.9
million, $2.2 million, and $6.5 million respectively. Gross profit derived
from the sale of wholesale products is mainly affected by changes in selling
prices. Selling prices for these products are affected by general economic
conditions (especially the rate of housing starts), industry competition and
manufacturing capacity, industry production levels and other market factors,
all of which are beyond the control of the Company.
Impact of Product Mix
The Company's sales range from higher value-added and higher margin commercial
products to commodity type products such as wholesale tube and rod, bar and
strip. The Company's overall profitability from period to period is affected
by the mix in sales within these categories. The Company has substantial sales
in Canada, and its product mix in that market, as compared to the United States
market, reflects a much higher percentage of commodity type products such as
wholesale tube and rod, bar and strip. The results of Canadian operations
reflect both this different product mix and the impact of Canadian market and
economic trends, which can be independent of United States trends.
Cyclical and Seasonal Nature of Demand
Because the Company primarily supplies component parts, the Company's
operations are affected by changes in its customers' markets. Demand in
certain industries to which the Company sells is cyclical. In particular,
sales of plumbing tube and refrigeration service tube are affected by changes
in residential construction rates. Demand in certain industries to which the
Company sells, including the residential air conditioning industry, is also
seasonal. Sales to the residential air conditioning market are generally
greater in the first and second quarters of the year and lower in the third and
fourth quarters because manufacturers typically build inventories in the early
part of the year in anticipation of summer air conditioning sales and housing
starts. In addition, sales of industrial tube are affected adversely in years
with unusually cool summers.
21
<PAGE> 24
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Consolidated net sales for the year ended December 31, 1996 were $699.9 million,
an increase of 5.3% from net sales of $664.6 million in 1995. Pounds shipped
increased by 11.5% in 1996 to 349.2 million from 313.1 million in 1995. Net
sales reflect a decrease in the price of copper, the Company's main raw
material. The average COMEX copper price for 1996 was $1.06 compared with $1.35
for 1995. Shipments of commercial tube increased by 5.5% in 1996 over 1995 due
to continued demand from large commercial air conditioning equipment
manufacturers as the CFC phaseout continued, and increased shipments of
industrial tube used in residential air conditioning and appliance applications,
partially resulting from the acquisition of Tube Forming, Inc., in September
1996. As fabrication charges in the wholesale tube products market increased,
the Company increased its offering of wholesale products in the United States.
As a result, shipments of Wolverine's wholesale products increased by 49.7% in
1996. Pounds shipped in the United States were 213.7 million in 1996 for an
increase of 10.6% from 1995. Canadian pounds shipped in 1996 were 135.6
million, 13.2% more than 1995.
Consolidated gross profit increased by 11.7% for 1996 to $93.7 million from
$83.9 million in 1995. The gross profit improvement was due to increased sales
of higher margin commercial products and increased sales of wholesale tube,
especially in the United States. Consolidated gross margin increased to 14.0%
in 1996 from 12.6% in 1995. Gross profit from United States operations
improved by 9.6% to $75.6 million from $69.0 million in 1995 due to the factors
outlined above. Gross profit for the Canadian operations increased by 21.5% to
$18.1 million from $14.9 million in 1995, principally due to improvements in
wholesale product fabrication charges.
Consolidated selling, general and administrative expenses for the year ended
December 31, 1996, were $21.9 million compared with $23.4 million in 1995.
This decrease is primarily the result of decreased pension expenses resulting
from the pension plan's investment performance and reduced incentive expenses
which were partially offset by increased professional fees and general
management salaries.
As a result of the increased gross profit and reduced selling, general and
administrative expenses, consolidated income from operations increased by 18.8%
to $71.8 million in 1996 from $60.5 million in 1995. United States income from
operations increased 15.8% to $57.3 million in 1996 from $49.5 million in 1995.
Canadian income from operations increased by 31.8% to $14.5 million in 1996
from $11.0 million in 1995.
Consolidated net interest expense increased by $0.3 million to $9.3 million for
the year ended December 31, 1996, from $9.0 million in 1995. This increase was
due to decreased capitalized interest as a result of completed capital projects
which was offset by increased interest income on cash and equivalents.
The effective tax rate for the year ended December 31, 1996, was 35.5% compared
with 35.3% for the year ended December 31, 1995.
For the year ended December 31, 1996, net income was $39.6 million or $2.77 per
share compared with $32.2 million or $2.26 per share for the year ended
December 31, 1995. Included in the 1995 results was the one-time after tax
charge of $685,000, or $0.05, per share relating to the costs of a secondary
stock offering.
22
<PAGE> 25
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Consolidated net sales for the year ended December 31, 1995 were $664.6
million, an increase of 26.4% from net sales of $525.6 million for 1994. This
was due to several factors including an increase in the price of copper, the
Company's main raw material. The average COMEX copper price for 1995 was $1.35
compared with $1.07 for 1994. Pounds shipped increased by 3.1% in 1995 to
313.1 million from 303.8 million in 1994. Shipments of commercial tube
increased by 16.8% to 211.9 million in 1995 over 1994 due to increased demand
from large commercial air conditioning equipment manufacturers as the CFC
phaseout continued and increased shipments of fabricated products resulting
from the acquisition of STP in November 1994. Shipments of Wolverine's
wholesale products declined by 24.2% mainly due to the Company's shift from
base tube production from wholesale products to the production of higher
value-added commercial products in 1995. Pounds shipped in the United States
were 193.3 million in 1995 or an increase of 13.3% from 1994. Pounds shipped in
Canada in 1995 were 119.8 million, 10.1% less than 1994.
Consolidated gross profit increased by 26.0% in 1995 to $83.9 million from
$66.6 million in 1994. The gross profit improvement was due to increased sales
of higher margin commercial products, especially in the United States.
Additionally, the benefits of reduced manufacturing costs resulting from the
completion of several capital expenditure projects contributed to the increased
consolidated gross profit in 1995. Consolidated gross margin decreased to
12.6% in 1995 from 12.7% in 1994. Gross profit from the United States improved
by 28.5% to $69.0 million from $53.7 million in 1994 due to the factors
outlined above. Gross profit for the Canadian operations increased by 15.5% to
$14.9 million from $12.9 million in 1994.
Consolidated selling, general and administrative expenses for the year ended
December 31, 1995, were $23.4 million compared with $17.9 million in 1994. The
increase was principally due to the addition of Small Tube Products as well as
increased professional fees due primarily to the Canadian litigation with
Noranda Metals Inc. (See Environmental Update - New Westminster)
As a result of the increased gross profit which was partially offset by
increased selling, general and administrative expenses, consolidated income
from operations increased by 24.2% to $60.5 million in 1995 from $48.7 million
in 1994. United States income from operations increased 26.3% to $49.5 million
in 1995 from $39.2 million in 1994. Canadian income from operations increased
by 15.8% to $11.0 million in 1995 from $9.5 million in 1994.
Consolidated net interest expense increased by $2.3 million to $9.0 million for
the year ended December 31, 1995, from $6.7 million in 1994. This increase was
due to decreased interest income due to the reduction of investments and
decreased capitalized interest as a result of completed capital projects.
The effective tax rate for the year ended December 31, 1995, was 35.3% compared
with 38.3% for the year ended December 31, 1994. The lower effective tax rate
in 1995 is primarily the result of the utilization of research and development
tax credits relating to activities in developing new and improved production
processing and products. In addition, the Company reached a settlement with the
Internal Revenue Service in the third quarter of 1995 regarding prior years'
audits which resulted in a one-time reduction of certain reserves established in
connection with these audits.
For the year ended December 31, 1995, net income was $32.2 million, or $2.26
per share, compared with $25.0 million, or $1.82 per share for the year ended
December 31, 1994. Included in the 1995 results was the one-time tax charge
of $685,000, or $0.05, per share relating to the costs of a secondary stock
offering.
23
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is the Company's primary source of
liquidity and totaled $39.4 million, $27.2 million and $25.4 million for the
years ending December 31, 1996, 1995 and 1994 respectively. The increase from
1995 is principally the result of increased net income and reduced accounts
receivable, partially offset by an increase in inventory and accounts payable.
The ratio of current assets to current liabilities was 3.61 in 1996, 2.87 in
1995 and 1.96 in 1994. The current ratio increased in 1996 from 1995 primarily
as a result of the higher inventory levels and lower accounts payable. The
increase in inventories from the December 31, 1995 balance sheet is the result
of increases in production intended to meet anticipated higher sales volumes in
1996 as compared to 1995, as well as the acquisition of Tube Forming, Inc.
Current liabilities decreased in 1996 from 1995 as a result of utilizing cash
from operations to decrease days outstanding on accounts payable and decreased
copper prices.
The Company has an unsecured credit agreement with a group of banks. The
credit agreement, as amended in June 1996, (i) provides an aggregate available
revolving credit facility limit of $75.0 million, (ii) has up to a Cdn. $13.5
million sublimit available to Wolverine Tube (Canada) Inc., (iii) matures in
full in March 1998, and (iv) bears interest, at the Company's election, at a
floating base rate which is either the federal funds effective rate, plus a
specified margin of .50% to 1.50%, or LIBOR plus a specified margin of .25% to
1.00%. As of December 31, 1996, there were no outstanding borrowings under the
agreement.
The Company's $99 million in outstanding principal amount of 10.125% Senior
Subordinated Notes due September 1, 2002, are redeemable at the option of the
Company beginning on September 1, 1997, at rates ranging from 103.80% in 1997
to 100% in 2000. In the event that the Company elects to redeem these notes,
it would require the use of other long term financing.
On September 6, 1996 the Company completed the acquisition of the outstanding
stock of Tube Forming, Inc., and selected assets from two related entities for
$34.6 million. The acquisition was financed with existing cash holdings of
$14.6 million and borrowings under the Company's revolving credit facility of
$20.0 million, all of which borrowings were repaid prior to December 31, 1996.
Capital expenditures were $8.5 million in 1996, $15.8 million in 1995 and $34.4
million in 1994. The Company currently expects to spend approximately $23
million in 1997 under its existing capital improvement program. The Company
believes that it will be able to satisfy its existing working capital needs,
interest obligations, and capital expenditure requirements with cash flow from
operations and funds available under its credit facility.
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to extensive environmental
laws and regulations. During the year ended December 31, 1996, the Company
spent approximately $1.8 million on environmental matters which include
remediation costs, monitoring costs and legal and other related costs. The
Company has a reserve of $3.7 million for environmental remediation costs which
is reflected in the Company's Consolidated Balance Sheet (see Note 8). The
Company spent approximately $0.6 million in capital expenditures relating to
environmental matters during 1996, and has budgeted approximately $3.0 million
for such capital expenditures during 1997. A summary of pending environmental
matters is set forth below. Based upon information currently available, the
Company believes that the costs of the environmental matters described below are
not reasonably likely to have a material adverse effect on the Company's
consolidated financial condition, results of operations or liquidity.
24
<PAGE> 27
Oklahoma City, Oklahoma
The Company is one of a number of Potentially Responsible Parties ("PRPs")
named by the Environmental Protection Agency (EPA) with respect to the soil and
groundwater contamination at the Double Eagle Refinery Superfund site in
Oklahoma City, Oklahoma. The costs associated with the cleanup of this site
will be entirely borne by the PRP group (the "Group"), as the site owner has
filed for bankruptcy protection. In March 1993, twenty-three PRPs named with
respect to the soil contamination of the site, including the Company, submitted
a settlement offer to the EPA. Settlement negotiations between the Group and the
EPA are continuing, but currently contemplate a settlement and consent order
among the PRPs, the EPA and the State of Oklahoma, which would provide for each
PRP's liability to be limited to a pro rata share of an aggregate amount based
upon the EPA's worst-case cost scenario to remediate the site. Under the
current proposal, the Company's settlement amount is estimated to be between
$355,000 and $410,000.
Decatur, Alabama
The Company is subject to an order under Section 3008(h) of the Resource
Conservation and Recovery Act (RCRA) to perform a facilities investigation of
its site in Decatur, Alabama, including a portion of the site where wastes were
buried (the "Burial Site"). Should the EPA decide to order remediation, the
remaining monitoring, legal and other costs are estimated to be $2.1 million.
Under an agreement between the Company and an affiliate of The Henley Group,
Inc. (collectively,"Henley"), the prior owner of the property, Henley took
control of investigation and any required cleanup of the Burial Site. The
agreement stipulates that after February 1997, any additional costs of
investigation and required cleanup be shared between the Company and Henley on
a dollar for dollar basis. In February 1997, the Company exercised its option
to release Henley from liability for further remediation, monitoring and
related costs with respect to the Burial Site in exchange for a $750,000
settlement payment, all pursuant to the terms of the existing agreements with
Henley. Henley has yet to respond to the Company. The agreement expires on
December 31, 1999, and the potential liability, if any, at that time reverts
back to the Company.
New Westminster, British Columbia
In February 1988, the Company purchased substantially all of the assets of
Noranda Metal Industries Limited ("NMI" and, collectively with its parent,
Noranda, Inc., "Noranda"), which included property located in Montreal, Quebec
(the "Montreal Property"), Fergus, Ontario (the "Fergus Property"), and a
leasehold interest in property located on Annacis Island in Delta, British
Columbia (the "New Westminister Property," and collectively with the Montreal
Property and the Fergus Property, the "Properties"). In 1993, the Company
commissioned a series of environmental assessments of the properties, which
resulted in the finding of PCBs above permissible limits at the New Westminster
property and in an adjacent tidal flat of the Fraser River. Additional
findings include traces of PCBs within the Montreal Property, as well as the
presence of heavy metal and other contaminants at the New Westminster Property
and the Montreal Property.
The Company discontinued operations at the New Westminster facility in April
1991, and the facility was sold in November 1995 to Juker Holdings Ltd.
("Juker"). Terms of the sales agreement provide that Juker assume
responsibility for the remediation of the New Westminster and neighboring
properties (excluding the Fraser River) and indemnify Wolverine from any
liability with respect to the remediation of the Property.
The Company currently has no obligation to remediate the soil contamination at
its Montreal Property under existing current Quebec statutes. The traces of
PCBs within the Montreal Property have been remediated. The Company has
instituted a program to prevent further contamination and is monitoring the
existing contamination. The Company intends to continue to operate the
Montreal Property and does not currently plan to remediate the heavy metal
contamination; thus, no estimate has been made of the costs to remove the heavy
metal from the soil and no amount has been accrued in the accompanying
consolidated financial statements.
25
<PAGE> 28
On October 13, 1993, the Company filed a Statement of Claim against Noranda and
other parties, contending that Noranda is liable for substantially all of the
cleanup costs at New Westminster and Montreal under the environmental indemnity
contained in the purchase agreement and that Noranda materially breached the
agreement by failing, among other things, to provide full and complete
disclosure of the condition of the facilities. The Statement of Claim seeks
certain declaratory judgments, specific performance of the agreement, and
general specific prospective damages of up to $25,000,000 (Canadian). In
March, 1997 the Company and Noranda reached an oral agreement to settle the
Statement of Claim. The proposed settlement provides that Noranda will
reimburse the Company for a portion of the costs incurred in the remediation
study and other related costs associated with the New Westminister Property.
In addition, the oral agreement contemplates that Noranda and the Company would
enter into a cost sharing arrangement with respect to future remediation costs
at the Montreal Property, up to a maximum amount of $9.9 million. Pursuant to
the proposed arrangement, which would expire in September 2002, Noranda would
be responsible for a maximum of $6 million and the Company would be responsible
for a maximum of $3.9 million of such costs. Any remediation costs in excess
of $9.9 million would be the sole responsibility of the Company. While the
Company anticipates entering into a definitive agreement with Noranda as
summarized above, there can be no assurance that such an agreement will be
entered into or that, if an agreement is reached, the terms thereof will be as
orally agreed upon.
The Ministry of Environment, Lands and Parks of the Province of British
Columbia (the "B.C. Ministry") has issued a Pollution Abatement Order to the
Company and NMI regarding the New Westminster facility and a tidal flat in the
Fraser River immediately adjacent to an outfall from this property's drainage
system. The order requires the Company and NMI to prevent discharge of
contaminants from the property, to undertake further investigation of this
site and to prepare a remediation plan and implementation schedule for cleanup
of the contaminated area, including the Fraser River. Pursuant to the sale
agreement with Juker, Juker assumed responsibility for the remediation of the
New Westminster Property, other than with respect to the Fraser River. The
Company has been informed that Juker has completed the remediation of the New
Westminister Property, and that NMI has completed the remediation of the Fraser
River and associated uplands, all as outlined in the implementation plan that
was approved by the B.C. Ministry. The Company does not anticipate that it
will have any further liability under the Pollution Abatement Order.
Ardmore, Tennessee
On December 28, 1995, the Company entered into a Consent Order and Agreement
with the Tennessee Division of Superfund ("the Tennessee Division"), relating
to the Ardmore Facility, under which the Company agreed to conduct a
preliminary investigation regarding whether volatile organics detected in and
near the municipal drinking water supply are related to the Ardmore Facility
and, if necessary, to undertake any appropriate response. That investigation
has disclosed contamination, including elevated concentrations of certain
volatile and organic compounds, in soils in certain areas of the Ardmore
Facility and also has disclosed elevated levels of certain volatile organic
compounds in the shallow residuum groundwater zone at the Ardmore Facility.
Under the terms of the Consent Order and Agreement, the Company submitted a
Remediation Investigation and Feasibility Study ("RI/FS") work plan, which was
accepted by the Tennessee Division, and the Company has initiated the RI/FS.
Based on the available information, and recognizing that the nature and scope
of remediation will be affected by the results of the RI/FS, the Company
preliminarily estimates a range of between $670,000 and $1,000,000 to complete
the investigation and remediation of this site, of which approximately $127,000
has been spent.
26
<PAGE> 29
A recent report of a 1995 EPA site inspection of the Ardmore Facility
recommended further action for the site. The Company believes, however, that
because the Tennessee Division is actively supervising an ongoing investigation
of the Ardmore Facility, it is unlikely that EPA will intervene and take
additional action. If the EPA should intervene, however, the Company could
incur additional costs for any further investigation or remedial action
required.
Greenville, Mississippi
Following the Company's acquisition of its Greenville, Mississippi facility
(the "Greenville Facility"), a preliminary investigation disclosed volatile
organic contaminants in soil and ground water at the site. Based on further
investigation, it appears that the contamination has not spread off site. The
Company entered into a Consent Order with the Mississippi Department of
Environmental Quality ("MDEQ") for a pilot study program which will help
determine the effectiveness of certain technology tentatively identified for
remediation and which will also help define the scope of remediation for the
site. This pilot study program is expected to continue through June 1, 1997,
although the Company expects to enter into a final Consent Order with MDEQ
prior to that time. While the Company's consultants and the MDEQ have not
finalized the remediation plan, the remaining total investigative and remedial
costs could total $1,274,000, depending upon the remediation plan ultimately
adopted. Applicable costs of testing and remediation required at the
Greenville Facility are being shared with the former owners of the facility on
a dollar for dollar basis, not to exceed $750,000, pursuant to the terms of an
Escrow Agreement established at the time the facility was acquired. Any
remediation costs in excess of $750,000 would be the sole responsibility of
Wolverine.
Other
The Company has been identified by the EPA as one of a number of PRPs at
Superfund sites in Athens, Alabama and in Criner, Oklahoma. The Company
believes that its potential liability with respect to these Superfund sites is
not material. However, there can be no assurance that the Company will not be
named a PRP at additional Superfund sites in the future or that the costs
associated with those sites would not be substantial.
The Company believes that it faces no significant liability for the Athens,
Alabama, site because it has removed all of the material that it contributed to
the site. The Company believes that it faces no significant liability for the
Criner, Oklahoma, site because Henley, the prior owner of the site, has
retained liability for all cleanup costs resulting from past disposal of used
oil at the Criner, Oklahoma site pursuant to an indemnification agreement
between the Company and Henley. Henley, which is not affiliated with the
Company, has discharged these obligations to date.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1 (the "SOP"), "Environmental Remediation Liabilities,"
which provides authoritative guidance on the recognition, measurement, display,
and disclosure of environmental remediation liabilities. The SOP applies to all
non governmental entities that prepare financial statements in accordance with
generally accepted accounting principals. The Company will adopt SOP 96-1 in
the first quarter of 1997 and, based on current circumstances, does not believe
the effect of adoption will have a material effect on the Company's Consolidated
financial position, results of operations or liquidity.
27
<PAGE> 30
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Income - For the years ended
December 31, 1996, 1995 and 1994. F-1
Consolidated Balance Sheets - December 31, 1996 and 1995. F-2
Consolidated Statements of Stockholders' Equity - For the years ended
December 31, 1996, 1995 and 1994. F-3
Consolidated Statements of Cash Flows - For the years ended
December 31, 1996, 1995 and 1994. F-4
Notes to Consolidated Financial Statements. F-5
Report of Ernst & Young LLP, Independent Auditors. F-20
</TABLE>
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
No changes in or disagreements with accountants on accounting and financial
disclosure matters existed during the most recent two years.
28
<PAGE> 31
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors is incorporated
by reference from the information under the caption "Election of Directors"
contained in the Company's definitive 1997 proxy statement. The required
information concerning executive officers of the Company is contained in Part I
of this report.
ITEM 11
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" in the Company's
definitive 1997 proxy statement.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" in the Company's definitive 1997 proxy statement.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained under the caption "Certain Transactions" in the Company's
definitive 1997 proxy statement.
29
<PAGE> 32
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Index to exhibits, financial statements and schedules.
(1) The following consolidated financial statements for the
Company and Report of Independent Auditors are included beginning
on page F-1 hereof:
Consolidated Statements of Income - For the years ended December 31,
1996, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Stockholders' Equity - For the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - For the years ended December
31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.
(2) The following consolidated financial statement schedule of the
Company is included on page S-1 hereof:
SCHEDULE II Valuation and Qualifying Accounts
All other schedules are omitted as inapplicable or because the
required information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K.
The following exhibits are included in this Form 10-K
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.1* Employment Agreement, dated as of
September 16, 1996, between the
Company and John M. Quarles
10.2* Severance Agreement, dated as of
September 16, 1996, between the
Company and Thomas B. Roller
</TABLE>
30
<PAGE> 33
<TABLE>
<S> <C>
10.3* 1996 Key Manager Bonus Plan
10.4* Long Term Incentive Plan
11 Computation of Earnings Per Share
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule (for SEC use only)
</TABLE>
The following exhibit is incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 29, 1996:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1 Fourth Amendment to Loan Agreement,
dated June 7, 1996
</TABLE>
The following exhibit is incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30, 1996:
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
10.1 Third Amendment to Loan Agreement,
dated April 26, 1996
</TABLE>
The following exhibits are incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company, as amended
3.2 Bylaws of the Company
</TABLE>
31
<PAGE> 34
<TABLE>
<S> <C>
10.1* Amendment No. 1 to Employment Agreement, dated December 7, 1995,
between the Company and John M. Quarles
</TABLE>
The following exhibit is incorporated by reference to the Company's
Registration Statement on Form 8-A, filed on February 22, 1996:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1 Rights Agreement, dated as of February 13, 1996, between the Company and
Society National Bank, as Rights Agent
</TABLE>
The following exhibit is incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 1, 1995:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.22 Second Amendment to Loan
Agreement, dated as of April
5, 1995, by and among
the Company, Wolverine Tube
(Canada), Inc., and the banks
named therein
</TABLE>
The following exhibits are incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.13* Form of Indemnity Agreement
10.19* Supplemental Executive Retirement Plan
10.21
First Amendment to Loan Agreement, dated as of November 23, 1994, by
and among the Company, Wolverine Tube (Canada), Inc. and the banks
named therein
</TABLE>
32
<PAGE> 35
The following exhibits are incorporated by reference to the Company's
Registration Statement on Form S-4 (File No. 33-82834).
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2 Agreement and Plan of Merger, dated as of June 29, 1994, among the
Company STP Acquisition, Inc., Small Tube Products, Inc. and Bessemer
Capital Partners, L.P., as amended by Amendment No. 1 thereto, dated as
of September 26, 1994
10.17 Registration Rights Agreement, dated June 29, 1994, between Bessemer
Capital Partners, L.P. and the Company
</TABLE>
The following exhibit is incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 1, 1994:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.18* Employment Agreement between the Company and John M. Quarles
</TABLE>
The following exhibit is incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 2, 1994:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.15 Form of Nonqualified Stock Option Agreement under the Company's 1993
Equity Incentive Plan
</TABLE>
The following exhibits are incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.10 First Supplemental Indenture, dated as of August 2, 1993
10.11 Registration Rights Agreement, dated as of July 31, 1993, between the
Company and Genstar Capital Corporation
10.12 Management Consulting and Advisory Agreement, dated as of July 15,
1993, between the Company and Genstar Investment Corporation
10.14 Loan Agreement, dated February 28, 1994, by and among the Company,
Wolverine Tube (Canada), Inc. and the banks named therein
</TABLE>
33
<PAGE> 36
The following exhibits are incorporated by reference to the Company's
Registration Statement on form S-1 (File No. 33-65148).
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1* Severance Pay Plan, dated as of May 10, 1990
10.3* Form of Severance Agreement
10.4 The Company's 1991 Stock Option Plan
10.5 Form of Nonqualified Stock Option Agreement under the Company's 1991
Stock Option Plan
10.7 The Company's 1993 Equity Incentive Plan
10.8 The Company's 1993 Stock Option Plan for Outside Directors
10.9 Indenture, dated as of September 1, 1992, between the Company and
Society National Bank, as Trustee
</TABLE>
* Identifies each exhibit that is a "management contract or compensatory plan
or arrangement" required to be included as an exhibit to this Form 10-K
pursuant to Item 14(c) of Form 10-K.
34
<PAGE> 37
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, in the City of
Huntsville, State of Alabama, on the 21st day of March, 1997.
WOLVERINE TUBE, INC.
By /s/Thomas B. Roller
Name: /s/ Thomas B. Roller
------------------------------------------
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
========================================================================================================
<S> <C> <C>
/s/ John M. Quarles Chairman and Director March 21, 1997
- ------------------------------------
John M. Quarles
/s/ Thomas B. Roller President and Chief Executive March 21, 1997
- ------------------------------------ Officer and Director
Thomas B. Roller
/s/ Gregory M. Trickey Chief Operations Officer and
- ------------------------------------ Director
Gregory M. Trickey
/s/ James E. Deason Executive Vice President, March 21, 1997
- ------------------------------------ Chief Financial Officer, Secretary,
James E. Deason Treasurer and Director (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Donald C. Blasius Director March 21, 1997
- ------------------------------------
Donald C. Blasius
/s/ John L. Duncan Director March 21, 1997
- ------------------------------------
John L. Duncan
Director March 21, 1997
- ------------------------------------
Thomas P. Evans
/s/ Jan K. Ver Hagen Director March 21, 1997
- ------------------------------------
Jan K. Ver Hagen
</TABLE>
<PAGE> 38
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $699,863 $664,605 $525,619
Cost of goods sold 606,157 580,749 459,043
- -----------------------------------------------------------------------------------------------------------------
Gross profit 93,706 83,856 66,576
Selling, general and administrative expenses 21,903 23,391 17,877
- -----------------------------------------------------------------------------------------------------------------
Income from operations 71,803 60,465 48,699
Other expenses:
Interest expense, net (Note 5) 9,321 9,038 6,728
Amortization and other, net 1,107 1,604 1,376
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 61,375 49,823 40,595
Income taxes (Note 9) 21,792 17,587 15,550
- -----------------------------------------------------------------------------------------------------------------
Net income 39,583 32,236 25,045
Less preferred stock dividends (280) (280) (280)
- -----------------------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 39,303 $ 31,956 $ 24,765
=================================================================================================================
Net income per common share (Note 1): $ 2.77 $ 2.26 $ 1.82
=================================================================================================================
Weighted average number of common and
common equivalent shares (Note 1) 14,196 14,118 13,643
=================================================================================================================
</TABLE>
See accompanying notes.
F-1
<PAGE> 39
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 2,967 $ 5,494
Accounts receivable, net 79,128 80,940
Inventories (Note 2) 73,525 55,237
Prepaid expenses and other 205 170
- ---------------------------------------------------------------------------------------------------
Total current assets 155,825 141,841
Property, plant and equipment, net (Note 3) 150,221 148,876
Deferred charges and intangible assets, net (Note 4) 84,946 61,239
Prepaid pensions (Note 6) 6,028 5,269
- ---------------------------------------------------------------------------------------------------
Total assets $ 397,020 $ 357,225
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,318 $ 37,400
Accrued liabilities 11,231 10,435
Deferred income taxes (Note 9) 4,613 1,647
- ---------------------------------------------------------------------------------------------------
Total current liabilities 43,162 49,482
Deferred income taxes (Note 9) 25,857 23,132
Long-term debt (Note 5) 100,473 100,547
Postretirement benefit obligation (Note 7) 12,505 12,774
Accrued environmental remediation (Note 8) 3,732 4,690
- ---------------------------------------------------------------------------------------------------
Total liabilities 185,729 190,625
Commitments and contingencies (Notes 8 and 13)
Minority interest 69 74
Redeemable cumulative preferred stock, par value $1 per
share; 20,000 shares issued and outstanding
at December 31, 1996 and 1995 (Note 10) 2,000 2,000
Stockholders' equity:
Cumulative preferred stock, par value $1 per share;
500,000 shares authorized (Note 10) -- --
Common stock, par value $.01 per share; 20,000,000 shares
authorized, 13,980,517 and 13,669,603 shares issued and
outstanding at December 31, 1996 and 1995, respectively
(Notes 11 and 12) 140 137
Additional paid-in capital 98,870 93,189
Retained earnings 117,515 78,212
Accumulated currency translation adjustments (7,303) (7,012)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 209,222 164,526
- ---------------------------------------------------------------------------------------------------
Total liabilities, redeemable cumulative preferred stock and
stockholders' equity $ 397,020 $ 357,225
===================================================================================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 40
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Accumulated Total
Redeemable Cumulative Additional Currency Stock-
Preferred Stock Common Stock Paid-In Retained Translation holders'
Shares Amount Shares Amount Capital Earnings Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 20,000 $2,000 13,017,100 $130 $81,621 $ 21,491 $(5,598) $ 97,644
Common stock issued -- -- 459,721 5 9,217 -- -- 9,222
Net income -- -- -- -- -- 25,045 -- 25,045
Preferred stock dividends -- -- -- -- -- (280) -- (280)
Translation adjustments -- -- -- -- -- -- (2,912) (2,912)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 20,000 2,000 13,476,821 135 90,838 46,256 (8,510) 128,719
Common stock issued -- -- 192,782 2 1,024 -- -- 1,026
Net income -- -- -- -- -- 32,236 -- 32,236
Tax benefit from stock options exercised -- -- -- -- 1,327 -- -- 1,327
Preferred stock dividends -- -- -- -- -- (280) -- (280)
Translation adjustments -- -- -- -- -- -- 1,498 1,498
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 20,000 2,000 13,669,603 137 93,189 78,212 (7,012) 164,526
Common stock issued -- -- 310,914 3 2,702 -- -- 2,705
Net income -- -- -- -- -- 39,583 -- 39,583
Tax benefit from stock options exercised -- -- -- -- 2,979 -- -- 2,979
Preferred stock dividends -- -- -- -- -- (280) -- (280)
Translation adjustments -- -- -- -- -- -- (291) (291)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 20,000 $2,000 13,980,517 $140 $98,870 $ 117,515 $(7,303) $ 209,222
==============================================================================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 41
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 39,583 $ 32,236 $ 25,045
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 14,127 13,481 11,412
Amortization 2,219 2,309 1,479
Deferred income taxes 4,708 1,708 1,581
Changes in operating assets and liabilities, net of effect
from purchase of subsidiaries:
Accounts receivable 4,752 (10,835) (17,275)
Inventories (17,171) 433 (4,942)
Prepaid expenses and other (224) 43 (203)
Accounts payable (10,339) (10,397) 14,805
Accrued liabilities, including pension,
postretirement benefit and environmental 1,775 (1,783) (6,505)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 39,430 27,195 25,397
INVESTING ACTIVITIES
Additions to property, plant and equipment (8,540) (15,805) (34,382)
Purchase of available-for-sale securities -- -- (23,976)
Sale of available-for-sale securities -- -- 23,833
Proceeds received from sale of assets held for sale -- 1,926 --
Purchase of subsidiaries (34,614) -- (54,646)
Other (1,233) 28 (707)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (44,387) (13,851) (89,878)
FINANCING ACTIVITIES
Financing fees (8) (11) (213)
Net borrowing (repayment) from revolving credit facility -- (8,500) 8,500
Issuance of common stock 2,705 1,026 227
Proceeds from long-term debt -- -- 1,510
Principal payments on long-term debt (68) (228) (183)
Dividends paid on preferred stock (280) (280) (280)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,349 (7,993) 9,561
Effect of exchange rate on cash and equivalents 81 35 (198)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (2,527) 5,386 (55,118)
Cash and equivalents at beginning of year 5,494 108 55,226
- ------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 2,967 $ 5,494 $ 108
========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Interest paid $ 10,594 $ 10,557 $ 10,103
Income taxes paid 15,758 13,001 11,531
NONCASH FINANCING ACTIVITIES:
Tax benefit from stock options exercised $ 2,979 $ 1,327 --
</TABLE>
See accompanying notes.
F-4
<PAGE> 42
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The accompanying consolidated financial statements include the accounts of
Wolverine Tube, Inc. (the "Company") and its wholly-owned subsidiaries. The
minority interest represents a 26% ownership of Small Tube Europe B.V., a
subsidiary of STPC Holding, Inc., which is a wholly owned subsidiary of the
Company. All significant intercompany transactions and balances have been
eliminated.
The Company is engaged in the manufacturing and distribution of seamless copper
and copper alloy tubular products as well as rod, bar and strip products. The
Company's focus is developing and manufacturing high value added products used
in engineered applications which require tubular products that have superior
heat transfer capability. The Company's major customers are primarily located
in North America and include the residential and commercial building
industries, plumbing wholesalers, air conditioning and refrigeration
manufacturers, utilities and automobile manufacturers, refining and chemical
processing companies, and industrial manufacturers. Sales are made under normal
terms and generally do not require collateral.
On September 6, 1996 the Company completed the acquisition of the outstanding
stock of Tube Forming, Inc., and selected assets ( the "TFI Acquisition") from
two related entities for $34.6 million cash. The acquisition was financed with
existing cash holdings of $14.6 million and borrowing under the Company's
revolving credit facility of $20 million.
The following summarizes the unaudited consolidated pro forma results of
operations, assuming the TFI Acquisition had occurred at the beginning of each
of the following periods. This pro forma summary does not necessarily reflect
what the results of operations would have been had the acquisition actually
occurred on January 1, 1995.
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Net sales $ 725,803 $ 689,135
Net income applicable to common shares 42,304 34,436
Net income per common share 2.98 2.44
=====================================================================================================
</TABLE>
Cash and Equivalents
The Company considers all highly liquid financial instruments with a maturity
of three months or less at the time of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. The Company's cost is
generally based on the last-in, first-out (LIFO) method.
F-5
<PAGE> 43
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is provided on
the straight-line method over the following periods:
Furniture and fixtures 2-9 years
Tooling 3-10 years
Buildings and improvements 3-39 years
Machinery and equipment 5-20 years
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations where
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by these assets are less than their carrying amount.
Income Taxes
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Property, plant and equipment, inventories, prepaid pension,
postretirement obligations and certain other accrued liabilities are the
primary sources of these temporary differences.
Deferred Charges and Intangible Assets
Debt issuance costs are deferred and amortized over the term of the debt to
which they relate using the interest method. Intangible assets consist of
patents and goodwill. Patents are amortized on the straight-line method over
their estimated lives. Excess cost over the fair value of net assets acquired
(or goodwill) generally is amortized on a straight-line basis over 40 years.
The carrying value of goodwill is reviewed if the facts and circumstances
suggest that it may be impaired. Negative operating results, negative cash
flows from operations, among other factors, could be indicative of the
impairment of goodwill. If this review indicates that goodwill will not be
recoverable, the Company's carrying value of the goodwill would be reduced.
Earnings Per Common Share
Net income per common share is based upon the weighted average number of common
shares outstanding and the dilutive common equivalent shares, related to stock
options outstanding during the period, less treasury shares assumed to have
been purchased with the option proceeds.
Fair Values of Financial Instruments
The following methods are used by the Company in estimating fair value
disclosures for financial instruments:
Cash and equivalents: The carrying amount reported in the
consolidated balance sheets for cash and equivalents approximates its
fair value.
Financing arrangement, long-term debt and redeemable cumulative
preferred stock: The carrying amount of the Company's borrowings
under its financing arrangement approximates its fair value. The fair
value of the Company's long-term debt is based upon quoted market
price. The fair value of the Company's redeemable cumulative
preferred stock is based upon its dividend rate and call provisions.
F-6
<PAGE> 44
Environmental Expenditures
Environmental expenditures that pertain to current operations and relate to
future revenues are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations, that do not contribute to future
revenues, are expensed. Liabilities are recognized for remedial activities when
the cleanup is probable and the cost can be reasonably estimated.
Financial Instruments and Hedging Accounting
In connection with the purchase of certain raw materials, principally copper,
on behalf of certain customers for future manufacturing requirements, the
Company has entered into commodity forward contracts as deemed appropriate for
certain customers to reduce the risk of future price increases. These forward
contracts are accounted for as hedges and, accordingly, gains and losses are
deferred and recognized in cost of sales as part of the product cost. At
December 31, 1996, the Company had entered into contracts hedging certain
future commodity purchases through 1998 of approximately $48.1 million. The
Company is exposed to loss on the forward contracts in the event of non
performance by the customers whose orders are covered by such contracts.
However, the Company does not anticipate non-performance by such customers.
Stock Options
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation costs for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the shares at
the date of grant. Accordingly, the Company recognizes no compensation expense
for stock option grants.
Translation to U.S. Dollars
Assets and liabilities of Wolverine Tube, Inc., denominated in foreign
currency, are translated to U.S. dollars at rates of exchange at the balance
sheet date. Income statement items translated at average exchange rates during
the period. Translation adjustments arising from changes in exchange rates are
included in the accumulated currency translation adjustment component of
stockholders' equity. Realized exchange gains and losses are included in
income.
Research and Development Costs
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The amounts charged to expense were $1.6 million, $1.5
million and $1.6 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-7
<PAGE> 45
2. INVENTORIES
<TABLE>
<CAPTION>
Inventories are as follows: 1996 1995
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Finished products $ 13,626 $ 11,530
Work-in-process 26,646 20,757
Raw materials and supplies 33,253 22,950
- ---------------------------------------------------------------------------------------------------
$ 73,525 $ 55,237
===================================================================================================
</TABLE>
The reserves for LIFO included in inventories at December 31, 1996 and 1995 are
$4,038,000 and $9,333,000 respectively.
3. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment is as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Land and improvements $ 10,886 $ 10,091
Buildings and improvements 39,094 36,418
Machinery and equipment 161,737 153,282
Construction-in-progress 4,695 1,571
- ----------------------------------------------------------------------------------------------------
216,412 201,362
Less accumulated depreciation (66,191) (52,486)
- ----------------------------------------------------------------------------------------------------
$ 150,221 $ 148,876
====================================================================================================
</TABLE>
4. DEFERRED CHARGES AND INTANGIBLE ASSETS
Deferred charges and intangible assets are as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred debt issuance costs $ 3,891 $ 3,898
Goodwill 87,686 62,922
Patents and other 2,789 1,640
- ---------------------------------------------------------------------------------------------------
94,366 68,460
Less accumulated amortization (9,420) (7,221)
- ---------------------------------------------------------------------------------------------------
$ 84,946 $ 61,239
====================================================================================================
</TABLE>
F-8
<PAGE> 46
5. FINANCING ARRANGEMENTS AND LONG-TERM DEBT
The Company has outstanding at December 31, 1996 and 1995, $99,000,000 of
10.125% Senior Subordinated Notes (Notes) due September 1, 2002. The Notes are
redeemable at the option of the Company beginning on September 1, 1997, at
prices ranging from 103.80% in 1997 to 100% in 2000. The fair value of the
notes at December 31, 1996 is $103,950,000.
The Company has a non interest-bearing loan agreement with the government of
Canada with a total loan facility of $1,466,000. As of December 31, 1996 and
1995, the Company had received advances of $1,459,000 and $1,319,000,
respectively. The loan is to be repaid in four annual installments commencing
in 1997.
In March 1994, the Company entered into a credit agreement with a group of
banks. The credit agreement, as amended in 1996, (i) has an aggregate available
revolving credit facility limit of $75.0 million, (ii) has up to a Cdn. $13.5
million sublimit available to Wolverine Tube (Canada) Inc., (iii) matures in
full in March 1998, and (iv) bears interest, at the Company's election, at a
floating base rate which is either the federal funds effective rate plus a
specified margin of .50% to 1.50%, or LIBOR, plus a specified margin of .25% to
1.00%. As of December 31, 1996 and 1995, there were no outstanding borrowings
under the agreement.
The Notes and credit agreement contain covenants that include requirements to
meet certain financial tests, maintain certain financial ratios and certain
other restrictions and limitations, including the restrictions on payment of
dividends by the Company, limitations on the issuance of additional debt, the
redemption of capital stock and the sale or transfer of assets.
Interest expense is net of interest income and capitalized interest of $954,000
and $184,000 in 1996, $500,000 and $1,236,000 in 1995 and $1,764,000 and
$1,802,000 in 1994, respectively.
6. RETIREMENT AND PENSION PLANS
U.S. Plans
The Company has established trusteed, noncontributory defined benefit pension
plans covering the majority of all U.S. employees fulfilling minimum age and
service requirements. Benefits are based upon years of service and the average
of the employees' highest five years of compensation during the last ten years
of employment. The Company contributes annual amounts that fall within the range
determined to be deductible for federal income tax purposes.
Certain assumptions utilized in accounting for the U.S. defined benefit plans
were:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.5% 8.5%
Rate of increase in compensation 4.0-4.25 4.0-4.25 4.0-4.2
Expected long-term rate of return on plan assets 9.0 9.0 9.0
</TABLE>
F-9
<PAGE> 47
A summary of the components of net periodic pension cost for the U.S. defined
benefit plans for the periods ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 3,194 $ 2,619 $ 2,606
Interest cost 6,226 5,743 4,709
Expected return on plan assets (10,792) (14,193) (780)
Deferred gain (loss) on assets 4,010 8,926 (3,437)
- -------------------------------------------------------------------------------------------------------------------------
$ 2,638 $ 3,095 $ 3,098
=========================================================================================================================
</TABLE>
The following table sets forth the funded status of the plans and the amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested $ 66,640 $ 62,251
Non vested 5,843 5,372
- ---------------------------------------------------------------------------------------------------
$ 72,483 $ 67,623
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Plan assets at fair value $ 89,708 $ 78,537
Actuarial present value of projected benefit obligation (87,745) (85,391)
- ---------------------------------------------------------------------------------------------------
Fair value of plan asset over (under) projected benefit obligation 1,963 (6,854)
Unrecognized prior service cost 654 (222)
Unrecognized net loss 1,157 9,882
- ---------------------------------------------------------------------------------------------------
Prepaid pension $ 3,774 $ 2,806
===================================================================================================
</TABLE>
Plan assets at December 31, 1996, were invested in common stock (53%), fixed
income securities (42%) and cash equivalents (5%).
F-10
<PAGE> 48
The Company has 401(k) plans covering substantially all U.S. employees. The
Company provides a 30%-50% match for the first 5% to 7.5% of the employee's
salary contributed to the plans. The amount of expense recorded by the Company
with respect to these plans for the years ended December 31, 1996, 1995 and
1994 was $1,010,309, $734,000 and $475,000 respectively.
In August 1994, the Company adopted the Wolverine Tube, Inc. Supplemental
Benefit Restoration Plan (the "Restoration Plan"). This defined benefit pension
plan is nonfunded and provides benefits to certain eligible executives of the
Company. The benefits provided under the Restoration Plan are identical to the
benefits provided by the Retirement Plan. During 1996, 1995, and 1994 the
Company incurred expenses of $148,000, $121,000, and $125,000 respectively,
relating to the Restoration Plan.
Canadian Plans
The Company sponsors a defined contribution profit-sharing retirement plan for
the London, Ontario facility employees who are required to contribute 4% of
regular wages, subject to a maximum contribution limit specified by Canadian
income tax regulations. Employer contributions are determined based upon the
facility's operating results which will not be less than the greater of 1% of
regular earnings of participants to 10% of an adjusted net income as defined in
the agreement. Contributions to this plan were $750,000 in 1996, $577,000 in
1995 and $419,000 in 1994.
The Company has established noncontributory defined benefit pension plans
covering substantially all employees at the Montreal, Quebec and Fergus,
Ontario facilities. The Company contributes the actuarially determined amounts
annually into the plans.
Significant assumptions utilized in accounting for the Salaried Employees,
Canadian Operational Employees and Quebec Operational Employees pension plans
for the years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Canadian Quebec
Salaried Operational Operational
Employees Employees Employees
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.0% 7.0%
Rate of increase in compensation 3.0 N/A N/A
Expected long-term rate of return on plan assets 8.0 8.0 8.0
</TABLE>
A summary of the components of net periodic pension cost for the Salaried
Employees, Canadian Operational Employees and Quebec Operational Employees
pension plans for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 523 $ 445 $ 429
Interest cost 1,052 971 931
Expected return on plan assets (3,123) (2,514) (1,124)
Deferred gain on assets 1,753 1,337 --
- --------------------------------------------------------------------------------------------------------------------------
$ 205 $ 239 $ 236
==========================================================================================================================
</TABLE>
F-11
<PAGE> 49
The following table sets forth the funded status and the amounts recognized in
the Company's consolidated balance sheets for the Salaried Employees, Canadian
Operational Employees, and Quebec Operational Employees pension plans at
December 31:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested $ 16,116 $ 13,830
Non-vested 139 114
- ----------------------------------------------------------------------------------------------------
$ 16,255 $ 13,944
====================================================================================================
Plan assets at fair value $ 19,641 $ 17,526
Actuarial present value of projected benefit obligation (16,803) (14,443)
- ----------------------------------------------------------------------------------------------------
Fair value of plan assets over projected benefit obligation 2,838 3,083
Unrecognized net (gain) (436) (620)
- ----------------------------------------------------------------------------------------------------
Prepaid pension obligation $ 2,402 $ 2,463
====================================================================================================
</TABLE>
Plan assets at December 31, 1996, were invested in common stock (58%), fixed
income securities (41%) and cash equivalents (1%).
7. POSTRETIREMENT BENEFIT OBLIGATION
In addition to the Company's U.S. defined benefit pension plan, the Company
sponsors a defined benefit health care plan and life insurance plan that
provides postretirement medical benefits and life insurance to substantially
all full-time U.S. employees who have worked ten years after age 50, and widows
of employees who die while employed after age 55 and have at least five years
of service with the Company. The plan is contributory, with retiree
contributions adjusted annually.
Net periodic postretirement benefit cost for the years ended December 31, 1996,
1995 and 1994, includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 363 $ 498 $ 689
Interest cost 537 731 875
Amortization of deferred (gain) loss (669) (372) 11
- ------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 231 $ 857 $ 1,575
========================================================================================================================
</TABLE>
F-12
<PAGE> 50
The following table sets forth the funded status of the plan and the amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Retirees $ 4,579 $ 5,885
Fully eligible active plan participants 718 957
Other active plan participants (spouses of retirees) 2,212 3,231
- ----------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 7,509 10,073
Unrecognized net gain 4,996 2,701
- ----------------------------------------------------------------------------------------------------
Net accrued postretirement benefit obligation $ 12,505 $ 12,774
====================================================================================================
</TABLE>
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e. health care cost trend rate) is 5% for 1996 and is assumed to remain at
that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rate by one percentage point in each year would have
resulted in an increase in the postretirement medical benefit obligation at
December 31, 1996 of $426,000 and an increase in the aggregate of the service
cost and interest cost components of net periodic postretirement benefit cost
for 1996 of $60,000. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75% and 7.50% at December
31, 1996 and 1995, respectively.
8. ENVIRONMENTAL REMEDIATION
The Company is subject to extensive U.S. and Canadian federal, state,
provincial and local environmental laws and regulations. These laws, which are
constantly changing, regulate the discharge of materials into the environment.
The Company has received various communications from regulatory authorities
concerning certain environmental matters and has currently been named as a
potentially responsible party ("PRP") at various waste disposal sites. The
Company believes that its potential liability with respect to these waste
disposal sites is not material.
The Company has accrued environmental remediation costs of $3,732,000 at
December 31, 1996, consisting primarily of $132,000 for estimated remediation
costs for the London and Fergus facilities, $2,063,630 for the Decatur
facility, $637,170 for the Greenville facility, and an aggregate of $899,200
for the Ardmore facility and the Shawnee facility (with respect to the Double
Eagle Refinery site). Based on information currently available, the Company
believes that the costs of these matters are not reasonably likely to have a
material effect on the Company's consolidated financial condition, results of
operations or liquidity.
F-13
<PAGE> 51
9. INCOME TAXES
The components of income before income taxes for the years ended December 31,
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
U.S. $ 47,014 $ 38,100 $ 30,637
Canadian 14,361 11,723 9,958
- -----------------------------------------------------------------------------------------------------------------------
$ 61,375 $ 49,823 $ 40,595
=======================================================================================================================
</TABLE>
The provision for income taxes for the years ended December 31, consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 12,340 $ 10,726 $ 9,375
Canadian 3,309 3,549 4,444
State 1,435 1,604 1,519
- ------------------------------------------------------------------------------------------------------------------------
$ 17,084 $ 15,879 $ 15,338
Deferred:
U.S $ 3,913 $ 2,309 $ 1,084
Canadian 795 (601) (872)
- ------------------------------------------------------------------------------------------------------------------------
4,708 1,708 212
- ------------------------------------------------------------------------------------------------------------------------
$ 21,792 $ 17,587 $ 15,550
========================================================================================================================
</TABLE>
F-14
<PAGE> 52
The components of net deferred tax amounts recognized in the consolidated
balance sheets at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Basis of property, plant and equipment $ 30,948 $ 29,547
Inventory valuation 4,613 3,035
Prepaid Pension 2,377 798
Other 55 304
- ----------------------------------------------------------------------------------------------------
Total deferred tax liabilities 37,993 33,684
Deferred tax assets:
Environmental remediation accrual 1,373 1,811
Pension obligation 126 621
Postretirement benefit obligation 4,803 4,967
Other 1,211 1,506
- ----------------------------------------------------------------------------------------------------
Total deferred tax assets 7,513 8,905
- ----------------------------------------------------------------------------------------------------
Net deferred tax liability $ 30,480 $ 24,779
====================================================================================================
</TABLE>
The Company's effective tax rate differs from the applicable U.S. federal
statutory rate for the periods ended December 31 due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State and local taxes, net of federal benefit 1.5 2.1 2.5
Effect of difference in U.S. and Canadian rates (0.3) (0.1) (0.4)
Permanent difference 0.1 1.2 (0.7)
Other (0.8) (2.9) 1.9
- -----------------------------------------------------------------------------------------------------------------------
35.5% 35.3% 38.3%
=======================================================================================================================
</TABLE>
The Internal Revenue Service and Revenue Canada are conducting examinations of
the Company's U.S. Federal and Canadian Federal income tax returns for the
years 1991 through 1994 and 1991 through 1995, respectively. The Company
believes that it has made an adequate provision for these matters and they will
not have a material adverse effect on its consolidated financial condition,
results of operations or liquidity.
F-15
<PAGE> 53
10. CUMULATIVE PREFERRED STOCK
The Company has 500,000 shares authorized for issuance of $1 par value
cumulative preferred stock. Of these shares, there are currently 20,000 shares
of cumulative preferred stock issued and outstanding which must be redeemed by
the Company on March 1, 2002, if not earlier, for $100 per share plus accrued
and unpaid dividends. The cumulative preferred stock provides for annual
dividends at the rate of $14 per share. The dividends accrue quarterly whether
declared or not, and compound quarterly at 14% per annum to the extent unpaid.
At December 31, 1996 and 1995, all accrued dividends were paid.
The cumulative preferred stock is entitled to a preference, in liquidation, in
the amount of $100 per share, plus any accrued and unpaid dividends and any
related interest. The owners of the cumulative preferred stock are not entitled
to any voting rights, except that in the event that six consecutive quarterly
dividends are not paid, the holders of the cumulative preferred stock are
entitled to vote separately as a class to elect 20% of the directors of the
Company. There are also certain restrictions against the declaration or payment
of dividends on common stock or the acquisition of common stock by the Company
if it is in default on any dividends or redemption payments on the cumulative
preferred stock. Additionally, amendment of the Company's articles of
incorporation or changes in the number of authorized stock ranking on a parity
with the preferred stock must be approved by holders of the cumulative
preferred stock.
At December 31, 1996, 20,000 shares remain outstanding with a fair value of
$2,316,277.
11. COMMON STOCK
All holders of common stock are entitled to receive dividends when and if
declared by the Company's Board of Directors provided that all dividend
requirements of the cumulative preferred stock have been paid. Additionally,
the payment of dividends on the Company's Common Stock is restricted under the
terms of the Company's various financing agreements. To date, no dividends have
been paid to the holders of the Common Stock and there are no immediate plans
to institute a dividend.
On February 13, 1996, the Board of Directors (the Board) adopted a Stockholder
Rights Plan designed to protect the Company and its stockholders from coercive,
unfair, or inadequate takeover bids. Pursuant to the Rights Plan, a dividend of
one Preferred Share Purchase Right (the "Rights") was declared for each share
of Common Stock outstanding at the close of business on February 23, 1996. The
Rights are generally not exercisable until ten days after a person or group
acquires, or commences a tender offer that could result in the party acquiring
15% of the outstanding shares of Common Stock. Each Right, should it become
exercisable, will enable the owner to buy one one-thousandth of a share of
newly created Series A Junior Participating Preferred Stock at an exercise
price of $175, and in certain circumstances, to purchase shares of Common Stock
at a substantially reduced price. The Board is generally entitled to redeem the
Rights at $0.01 per Right at any time prior to the date they become
exercisable. The Rights will expire on February 23, 2006.
12. STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued Employees" (APB 25) and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in
F-16
<PAGE> 54
valuing employee stock options. Under APB 25, no compensation expense is
recognized because the exercise price of the Company's employee stock equals
the market price of the underlying stock on the date of grant.
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk free interest rates of 6.34%,
and 6.50%; volatility factors of the expected market price of the Company's
common stock of .328 and a weighted-average expected life of the option of 7
years. The weighted-average exercise price of options outstanding at the
beginning of the year, granted during the year, exercised during the year,
forfeited during the year and outstanding at the end of the year is $12.01,
$36.65, $8.70, $19.43, and $20.62 respectively. The weighted average remaining
life for options outstanding at December 31, 1996 is 7.4 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
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee 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 employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1996 1995
---- ----
(In thousands, except per share amounts)
<S> <C> <C>
Net income applicable to common shares $38,697 $31,796
Net income per Common Share 2.75 2.26
================================================================================================================
</TABLE>
The 1993 Equity Plan provides for the issuance of stock option, restricted
shares, stock appreciation rights, phantom shares and other additional awards
to key executives and employees. The maximum number of additional shares
issuable under the 1993 Equity Plan is 550,000 at a price no less than fair
market value at the date of grant. Options granted under the 1993 Equity Plan
vest 20% on each anniversary thereafter. Options granted under prior plans
remain outstanding but are governed by the provisions of the 1993 Equity Plan.
The 1993 Directors' Plan provides for the issuance of stock options to outside
directors at the fair market value on the date of grant. A maximum of 50,000
shares are issuable under the 1993 Directors' Plan. The initial options granted
vest at 33.3% per year and all subsequent options granted will vest
immediately. All initially granted options must be held one year before being
exercised.
F-17
<PAGE> 55
The Company's stock option plans are summarized as follows:
<TABLE>
<CAPTION>
1993 1993 Option
Directors Plan Equity Plan Price
- ------------------------------------------------------------------------------------------------------------------
(Number of shares)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 10,000 788,400 $ 4.44-$18.57
- ------------------------------------------------------------------------------------------------------------------
Granted 2,000 123,000 $20.88-$26.25
Exercised - (63,204) $ 4.44-$7.39
Forfeited - (29,160) $ 4.44-$7.39
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 12,000 819,036 $ 4.44-$26.25
Granted 7,000 138,000 $25.25-$34.00
Exercised - (192,782) $ 4.44-$20.88
Forfeited - (3,420) $20.88-$25.50
- ------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 19,000 760,834 $ 4.44-$34.25
Granted 8,000 178,500 $35.38-$41.13
Exercised - (310,914) $ 4.44-$25.25
Forfeited - (13,454) $ 4.44-$25.25
==================================================================================================================
Outstanding at December 31, 1996 27,000 614,966 $ 4.44-$25.25
- ------------------------------------------------------------------------------------------------------------------
Exercisable at:
December 31, 1994 5,333 251,166 $ 4.44-$23.75
December 31, 1995 10,666 262,400 $ 4.44-$34.25
December 31, 1996 18,666 167,947 $ 4.44-$36.88
</TABLE>
13. COMMITMENTS
Pursuant to various operating lease agreements, at December 31, 1996, the
Company has payments obligations totaling $2,547,000 during the next five years
and thereafter in annual amounts ranging from $1,267,000 to $168,000. Total
rental expense for operating leases amounted to approximately $1,564,000,
$1,634,000, and $1,334,000 for the years 1996, 1995, and 1994, respectively.
The Company has made commitments for capital expenditures of approximately
$7,472,000 as of December 31, 1996.
14. RELATED PARTY TRANSACTIONS
During 1996, 1995 and 1994, pursuant to a management consulting and advisory
agreement (the "Agreement"), the Company paid management fees and out-of-pocket
expenses of $450,000, $463,892, and $611,454 respectively, to Genstar
Investment Corporation ("GIC"), an affiliate of Genstar Capital Corporation, a
former controlling stockholder of the Company. Under the terms of the
Agreement, the Company paid GIC a management fee of $150,000 per quarter
through September 30, 1996, at which time the Agreement terminated.
F-18
<PAGE> 56
15. GEOGRAPHIC DATA
The Company operates in the metal products industry as more fully described in
Note 1. These operations are conducted in the U.S. and Canada. One customer
accounted for 11% of the Company's net sales in 1996 and 1994. In 1995, no
customer accounted for as much as 10% of the Company's net sales. The following
summarized geographic data is based on estimates that do not consider fully the
extent to which the Company's product development, engineering, marketing and
management activities are interrelated. Thus, the data is not totally
indicative of the extent that each geographic area contributed to the Company's
consolidated operating results.
<TABLE>
<CAPTION>
U.S. Canada Consolidated
- ------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Year ended December 31, 1996:
Sales 476,090 223,773 699,863
Income from operations 57,347 14,456 71,803
Identifiable assets 317,720 79,300 397,020
Year ended December 31, 1995:
Sales 441,908 222,697 664,605
Income from operations 49,438 11,027 60,465
Identifiable assets 268,980 88,245 357,225
Year ended December 31, 1994:
Sales $ 319,609 $ 206,010 $ 525,619
Income from operations 39,182 9,517 48,699
Identifiable assets 257,544 83,008 340,552
</TABLE>
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 March 30 June 29 September 28 December 31
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 179,414 $ 180,279 $ 168,653 $ 171,517
Gross profit 23,414 25,584 22,847 21,861
Net income 10,263 10,434 $ 9,580 $ 9,306
Net income per common share 0.72 0.73 0.67 0.65
</TABLE>
<TABLE>
<CAPTION>
1995 April 2 July 1 September 30 December 31
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 179,756 $ 164,453 $ 159,914 $ 160,482
Gross profit 23,912 22,512 18,206 19,226
Net income 9,132 8,927 $ 6,989 $ 7,188
Net income per common share 0.65 0.63 0.49 0.50
</TABLE>
F-19
<PAGE> 57
WOLVERINE TUBE, INC. AND SUBSIDIARIES
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Wolverine Tube, Inc.
We have audited the accompanying consolidated balance sheets of Wolverine Tube,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Wolverine Tube,
Inc. and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
February 5, 1997
Birmingham, Alabama
F-20
<PAGE> 58
WOLVERINE TUBE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Schedule II
<TABLE>
<CAPTION?
Additions
---------
Charged to
Balance Charged to Other
Beginning Cost and Accounts- Deductions- Balance at
Description of Period Expenses Describe Describe End of Period
----------- --------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Deducted from assets accounts:
Reserve for sales returns and allowances... $ 426 $ 83 $ -- $ 99 (1) $ 410
Allowances for doubtful accounts........... 925 522 203 (3) 758 (2) 892
------ ---- ---- ----- ------
Totals................................... $1,351 $605 $203 $857 $1,302
====== ==== ==== ==== ======
Year ended December 31, 1995
Deducted from assets accounts:
Reserve for sales returns and allowances... $ 410 $ -- $ -- $111 (1) $ 299
Allowances for doubtful accounts........... 892 119 -- (53)(2) 1,064
------ ---- ---- ----- ------
Totals................................... $1,302 $119 $ 0 $318 $1,363
====== ==== ==== ==== ======
Year ended December 31, 1996
Deducted from assets accounts:
Reserve for sales returns and allowances... $ 299 $ -- $ -- $107 (1) $ 192
Allowances for doubtful accounts........... 1,064 100 25 (4) 607 (2) 582
------ ---- ---- ----- ------
Totals................................... $1,363 $100 $ 25 $714 $ 774
====== ==== ==== ==== ======
</TABLE>
(1) Reduction of reserve, net of translation adjustments.
(2) Uncollectible amounts written off, net of translation adjustments and
recoveries.
(3) Reflects the addition of Small Tube Product's allowance for doubtful
accounts effective November 23, 1994.
(4) Reflects the addition of Tube Forming's allowance for doubtful accounts
effective September 6, 1996.
<PAGE> 59
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
10.1 Employment Agreement, dated as of
September 16, 1996, between the Company and
John M. Quarles
10.2 Severance Agreement, dated as of September 16, 1996
between the Company and Thomas B. Roller
10.3 1996 Key Manager Bonus Plan
10.4 Long Term Incentive Plan
11 Computation of Earnings per Share
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This AGREEMENT, between Wolverine Tube, Inc., a Delaware
corporation (herein referred to as the "Employer") and John M. Quarles (herein
referred to as the "Executive"), is effective this 16th day of September, 1996
(the "Effective Date").
W I T N E S S E T H:
WHEREAS, there currently is in effect an Employment Agreement, dated
as of April 1, 1994, as amended December 7, 1995 (the "Existing Employment
Agreement"), between the Employer and the Executive;
WHEREAS, the Employer and the Executive wish to replace the Existing
Employment Agreement with this Agreement effective as of the date first set
forth above, at which time the terms of this Agreement will supersede the
Existing Employment Agreement;
WHEREAS, the Executive is willing to serve in the capacities set forth
herein and the Employer desires to retain the Executive in such capacities on
the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment and Duties. The Employer hereby employs the Executive as its
Chairman and the Executive hereby accepts such employment. The Executive shall
have such duties as are set forth in the Certificate of Incorporation and the
By-Laws of the Employer and such additional duties as are commensurate with the
Executive's position, including without limitation, supervision and oversight
of all employees and operations of the Company and any mergers and
acquisitions. The Executive shall be responsible for reporting to the Board of
Directors on behalf of management, presiding at all meetings of the
stockholders and of the Board of Directors, and will perform such other duties
and responsibilities as may be assigned to him by the Board of Directors. The
Executive shall devote substantially all his business time, attention, skill
and efforts to the faithful performance of his duties hereunder and shall not
accept employment elsewhere during the Term (as defined in Section 2 of this
Agreement). During the time that the Executive serves as Chairman, (i) the
Executive shall devote such time to his position during the year ending
December 31, 1996 as Executive deems appropriate in his sole discretion, and
(ii) thereafter, the Executive shall devote at least 60 days per year (working
on such days of the year as are agreed upon from time to time by the
<PAGE> 2
Executive and the Board) in the performance of his duties hereunder.
2. Term. This Agreement shall become effective on the Effective Date and
shall terminate on December 31, 1997; provided, however, that all obligations
of the parties to be performed subsequent to the Term shall survive and remain
in full force and effect subsequent to the end of the Term. Upon the Effective
Date, this Agreement shall supersede the Existing Employment Agreement.
3. Compensation. During the Term, the Executive shall be entitled to the
following compensation for his services to the Employer and any subsidiary of
the Employer:
(a) Base Salary and Adjusted Base Salary. The Executive's base salary
(the "Base Salary") for the calendar year ending December 31, 1996 shall be at
the rate of $400,400 per annum payable in accordance with the normal payroll
practices of the Employer. The Base Salary shall be reviewed at least annually
by the Board. The Base Salary level, as increased from time to time, shall not
be decreased during the Term; provided, however, that commencing January 1,
1997 and during the time thereafter that the Executive serves as Chairman of
the Employer pursuant to Section 1, his base salary (the "Adjusted Base
Salary") shall be one quarter of the amount of his Base Salary effective on
December 31, 1996, plus an amount equal to 1/60 of his Adjusted Base Salary for
each day in excess of 60 days per year that the Executive devotes to his duties
pursuant to Section 1 at the request of the Employer.
(b) Annual Bonus. In addition to the Base Salary, for year the
Executive shall be eligible to receive an annual bonus (the "Annual Bonus"), if
any, payable under the Company's Key Manager Bonus Plan, or any successor or
substitute plan as may be designated by the Board. For the year ending December
31, 1997, in addition to the Adjusted Base Salary, the Executive shall be
eligible to receive the Annual Bonus, if any, calculated as that percentage of
Base Salary actually paid to Executive as Adjusted Base Salary.
(c) Benefit Plans. The Executive shall be entitled to participate in
all incentive, savings and retirement plans and welfare benefit plans of the
Employer applicable to other key executives, including but not limited to
retiree medical benefits, and shall be entitled to vacation (except during 1997
while serving as Chairman) and fringe benefits in accordance with the policies
of the Employer applicable to other key executives; provided, however, that in
the event that the Employer makes changes to such plans that adversely affect
the Executive in any way, the Employer will reimburse the Executive for costs
incurred by the Executive in maintaining a level of benefits equivalent to
those that were previously available to the Executive under the Executive's
prior employment agreement with the Employer dated
2
<PAGE> 3
July 7, 1992. The changes referred to in the proviso of the previous sentence
include changes made by Employer both before Executive's termination of
employment and after any termination of employment. During such time that
Executive provides services to Employer in any capacity under this Agreement,
including as Chairman, he will be considered to be a full-time employee for
purposes of all benefit plans of Employer, including without limitation, the
Employer's medical benefit plans. The parties hereto agree that the intent of
this Section 3(c), among other things, is to insure that upon his retirement at
age 55 or thereafter, the Executive and his family shall be entitled to
receive, until his attainment of age 65 or such later date as may be applicable
to the other family members, the same retiree medical benefits without change
that were in place under the Executive's prior employment agreement with the
Employer dated July 7, 1992.
(d) Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him in the performance of
his duties for the Employer which shall be paid to him in accordance with the
policies and procedures of the Employer applicable to key executives.
4. Termination of Employment.
(a) Termination for Cause; Resignation Without Good Reason. If the
Executive's employment is terminated by the Employer for Cause (as defined in
Section 7 of this Agreement) or if the Executive resigns from his employment
hereunder other than for Good Reason (as defined in Section 7 of this
Agreement), the Executive shall be entitled only to payment of any Base Salary
and Adjusted Base Salary earned prior to the Date of Termination (as defined in
Section 7 of this Agreement), but not yet paid to the Executive, and any
payment from any employee benefit plan and the continuation of coverage under
any insurance program which may be required by law. The Employer shall be under
no obligation to make any additional payments of Base Salary or Adjusted Base
Salary, Annual Bonus or any other benefits specified in Sections 3 and 6 of
this Agreement for any periods after the Date of Termination. The Executive
shall not be entitled to the payment of any pro rata amount of any Annual Bonus
for the calendar year during which the Date of Termination occurs.
(b) Termination Without Cause; Resignation for Good Reason.
(i) If the Executive's employment is terminated by the Employer
without Cause, or if the Executive resigns from his employment for
Good Reason, subject to the Executive's continuing compliance with
Section 5 of this Agreement, the Executive shall be entitled to
receive the following benefits:
3
<PAGE> 4
(A) The Executive shall be entitled to a severance payment
(the "Severance Payment") equal to the Base Salary and Adjusted
Base Salary he would have received during the remainder of the
Term (assuming for the purpose of calculating this payment that
the Executive will begin to receive Adjusted Base Salary on
January 1, 1997). Such payment may be made at Executive's option
either as a lump sum within 30 days after the Severance Date or
as a series of payments in accordance with the Company's normal
payroll procedures for the number of payment periods between the
Severance Date and the end of the Term, and
(B) The Employer shall reimburse the Executive for any
costs incurred by the Executive in maintaining medical and life
insurance coverage substantially the same as the coverage the
Executive would have received under Section 3(c) of this
Agreement had he remained employed by the Employer through the
end of the Term. The parties hereto agree that the intent of
this Section 4(b)(i)(B), among other things, is to insure that
the Executive, upon termination of the Executive's employment
under Section 4(b) of this Agreement, shall be entitled to
receive the same retiree medical benefits without change that
were in place when the Executive entered into the Executive's
prior employment agreement with the Employer on July 7, 1992,
that the Executive would have received had he been employed
through the Term of this Agreement.
(ii) In lieu of the severance benefits set forth in Section
4(b)(i) above, the Executive shall have the option, subject to the
Board's determination that the Executive is qualified, to continue to
be employed by the Employer following the Severance Date in a
different position designated by the Board at a location acceptable
to the Executive during the period until the end of the Term at a
salary equal to the Base Salary or Adjusted Base Salary that would
otherwise be paid to the Executive pursuant to Section 4(b)(i)(A)
above with customary benefits for such position and with such other
compensation, if any, to be agreed upon by the Employer and the
Executive at that time.
(c) Death Before End of Term. If the Executive dies prior to the
expiration of the Term, the Employer shall be under no obligation to make
additional payments to the Executive's estate after the Date of Termination
except for any Base Salary or Adjusted Base Salary earned prior to the Date of
Termination but not yet paid and for the pro rata portion of any Annual Bonus
for the period until his death. Such bonus payment shall be made
4
<PAGE> 5
at the time such bonus payment would normally have been made for such year. The
Employer shall also continue to provide any benefits to the Executive's
survivors as required by law or by the terms of the Company's benefit plans as
the same existed as of the Executive's prior employment agreement with the
Employer dated July 7, 1992.
(d) Disability. The Employer may terminate the Executive's employment
because of Permanent Disability (as defined in Section 7 of this Agreement)
prior to the expiration of the Term. If the Executive's employment is
terminated because of Permanent Disability, the Executive shall be entitled to
continue to receive payment of base salary and Adjusted Base Salary through the
end of the term (assuming for the purpose of calculating this payment that the
Executive will begin to receive Adjusted Base Salary on January 1, 1997) offset
by any payment to the Executive on account of disability from any employer or
government sponsored disability insurance plan through the end of the Term. The
Employer shall also continue to provide any benefits to the Executive required
by law or the terms of the Company's benefit plans as the same existed as of
the Executive's prior employment agreement with the Employer dated July 7,
1992.
(e) Notice of Termination Required. No termination of employment by
the Executive or by the Employer pursuant to this Section 4 shall be effective
unless the terminating party shall have delivered a Notice of Termination (as
defined in Section 7 of this Agreement) to the other party.
5. Non-Competition and Trade Secrets.
(a) No Competing Employment. While employed by the Employer and for a
period of 18 months after the Date of Termination (the "Restricted Period"),
the Executive shall not, unless he receives the prior written consent of the
Employer, directly or indirectly, own an interest in, manage, operate, join,
control, lend money or render financial or other assistance to or participate
in or be connected with, as an officer, employee, partner, stockholder,
consultant or otherwise, any individual, partnership, firm, corporation or
other business organization or entity that, at such time, is engaged in the
business of manufacturing copper or copper alloy tube or any other business
engaged in by the Employer.
(b) No Interference. During the Restricted Period, the Executive shall
not, whether for his own account or for the account of any other individual,
partnership, firm, corporation or other business organization, intentionally
solicit, endeavor to entice away from the Employer or any subsidiary of the
Employer, or otherwise interfere with the relationship of the Employer or any
subsidiary of the Employer with, any person who is employed by the Employer or
any subsidiary of the Employer or any person or entity who is, or was within
the then most recent
5
<PAGE> 6
twelve-month period, a customer or client of the Employer's or any subsidiary
of the Employer
(c) Secrecy. The Executive recognizes that the services performed by
him are special, unique and extraordinary in that, by reason of his employment,
he may acquire confidential information and trade secrets concerning the
operation of the Employer, the use or disclosure of which could cause the
Employer substantial loss and damages which could not be readily calculated and
for which no remedy at law would be adequate.
Accordingly, the Executive covenants and agrees with the Employer that
he will not at any time during the Restricted Period, except in performance of
the Executive's obligations to the Employer, or with the prior written consent
of the Employer pursuant to the authority granted by a resolution of the Board,
directly or indirectly, disclose any secret or confidential information that he
may learn or has learned by reason of his association with the Employer or use
any such information. The term "confidential information" includes, without
limitation, information not previously disclosed to the public or to the trade
by the Employer's management with respect to the Employer's products,
facilities and methods, trade secrets and other intellectual property, systems,
procedures, manuals, confidential reports, product price lists, customer lists,
financial information (including the revenues, costs or profits associated with
any of the Employer's products), business plans, prospects, employee or
employees' compensation, or opportunities but shall exclude any information
already in the public domain which has been disclosed to the public during the
normal course of the Employer's business.
(d) Exclusive Property. The Executive confirms that all confidential
information is the exclusive property of the Employer. All business records,
papers and documents kept or made by the Executive relating to the business of
the Employer or any subsidiary of the Employer shall be and remain the property
of the Employer or such subsidiary, respectively, during the Term and at all
times thereafter. Upon the termination of his employment with the Employer or
upon the request of the Employer at any time, the Executive shall promptly
deliver to the Employer, and shall retain no copies of, any written materials,
records and documents made by the Executive or coming into his possession
concerning the business or affairs of the Employer or any subsidiary of the
Employer other than personal notes or correspondence of the Executive not
containing proprietary information relating to such business or affairs.
(e) Injunctive Relief. The Executive acknowledges that a breach of any
of the covenants contained in this Section 5 may result in material irreparable
injury to the Employer for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that,
in the event of such a breach, any payments remaining under the
6
<PAGE> 7
terms of this Agreement shall cease and the Employer shall be entitled to
obtain a temporary restraining order and/or a preliminary or permanent
injunction restraining the Executive from engaging in activities prohibited by
this Section 5 or such other relief as may be required to specifically enforce
any of the covenants in this Section 5. The Executive agrees to and hereby does
submit to in personam jurisdiction before each and every such court for that
purpose.
6. No Forfeiture of Options.
(a) In the event the Executive retires, dies, suffers from a Permanent
Disability, resigns for Good Reason, or is terminated by the Employer without
Cause, then, notwithstanding the provisions of Section 7(a), 7(b) and 14 of the
1991 Stock Option Agreement (as defined in Section 7 of this Agreement) and
Section 6(e)(i), 6(e)(ii) and 13 of the 1991 Stock Option Plan (as defined in
Section 7 of this Agreement), the options owned by the Executive which were
granted pursuant to the 1991 Stock Option Agreement, whether or not vested
pursuant to Section 4(a) of the 1991 Stock Option Agreement, shall not be
subject to forfeiture or to Employer's rights of purchase and shall not expire,
and instead shall remain in effect and continue to vest and become exercisable,
until the end of the term of the 1991 Stock Option Agreement.
(b) Notwithstanding the provisions of Section 7(a) of the Equity
Incentive Plan (as defined in Section 7 of this Agreement) and Section 3(b) of
the 1993 Stock Option Agreement (as defined in Section 7 of this Agreement),
all options granted to the Executive pursuant to the 1993 Stock Option
Agreement or otherwise under the Equity Incentive Plan shall fully vest on the
earlier of (i) the date the executive relinquishes his duties as the Employer's
President and Chief Executive Officer pursuant to Section 1(b) or (ii) December
31, 1996, and shall expire on the second anniversary of such vesting.
7. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) 1991 Stock Option Agreement. "1991 Stock Option Agreement" shall
mean the Non-Qualified Stock Option Agreement under the 1991 Stock Option Plan
dated as of October 1, 1991 between the Employer and the Executive, as in
effect on the date hereof.
(b) 1991 Stock Option Plan. "1991 Stock Option Plan" shall mean the
Wolverine Holding Company 1991 Stock Option Plan.
(c) 1993 Stock Option Agreement. "1993 Stock Option Agreement" shall
mean the Non-Qualified Option Agreement under the Equity Incentive Plan dated
as of May 26, 1994 between the Employer and the Executive, as in effect on the
date hereof.
7
<PAGE> 8
(d) Cause. Each of the following shall constitute Cause:
(i) the Executive's conviction for, or guilty plea to, a felony
or a crime involving moral turpitude;
(ii) the Executive's commission of an act of substantial
personal dishonesty in connection with his employment by the
Employer;
(iii) a substantial breach of fiduciary duty in connection with
his employment with the Employer which shall include, but not be
limited to, (1) investment in any person or organization with the
knowledge that such person or organization has or proposes to have
dealings with the Employer, such person or organization competes with
the Employer, or the Employer is considering an investment in such
person or organization. (The reference to "organization" excludes
federal credit unions, publicly owned insurance companies and
corporations the stock of which is listed on a national securities
exchange or quoted on NASDAQ if the direct and beneficial stock
ownership of the Executive, including members of his immediate
family, is not more than one percent (1%) of the total outstanding
stock of such corporation); (2) a loan (including a guaranty of a
loan) from or to any person or organization having or proposing any
dealings with the Employer or in competition with the Employer; (3)
participation directly or indirectly in any transaction involving the
Employer other than as an officer or employee of the Employer; (4)
acceptance from any person or organization having or proposing any
dealings with the Employer or in competition with the Employer of any
gratuity, gift, entertainment or favor which exceeds either nominal
value or common courtesies which are generally accepted business
practice; or (5) service as an officer, director, partner or employee
of, or consultant to, any person or organization having or proposing
dealings with the Employer or in competition with the Employer; or
(iv) the Executive's willful and repeated failure, after written
notice, to execute the written policies of the Employer as
established by the Board.
(e) Date of Termination. "Date of Termination" shall mean (A) if the
Executive's employment is terminated for Permanent Disability, thirty (30) days
after a Notice of Termination is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties during
such thirty (30) day period), and (B) for any other reason (including
nonrenewal of the Agreement), the date specified in the Notice of Termination
(which, in the case of a termination
8
<PAGE> 9
without Cause shall not be less than thirty (30) days, and in the case of a
termination by the Executive shall not be less than thirty (30) nor more than
sixty (60) days from the date such Notice of Termination is given).
(f) Equity Incentive Plan. "Equity Incentive Plan" shall mean the
Wolverine Holding Company 1993 Equity Incentive Plan.
(g) Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without the Executive's express written consent, any of the following:
(i) a relocation of the Executive's place of employment to a
place of business more than 35 miles from the location of the
Executive's place of business as of the date hereof;
(ii) a reduction in the Executive's benefits or pay pursuant to
Section 4 of this Agreement, other than as provided for in this
Agreement; or
(iii) a substantial adverse alteration in the nature or status
of the Executive's responsibilities from those in effect on the date
hereof, disregarding change in title only, other than as provided for
in this Agreement.
The resignation by the Executive as Chairman after September 16, 1996 shall not
be considered a resignation without Good Reason.
(h) Notice of Termination. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(i) Permanent Disability. "Permanent Disability" shall mean a physical
or mental condition of the Executive that, in the judgment of the Employer,
based upon certification by a licensed physician acceptable to the Executive
and the Employer, prevents the Executive from being able to perform the
services required under this Agreement and such condition has continued for a
period of at least six months during any twelve consecutive months and is
expected to continue as determined by the physician.
8. Binding Agreement. This Agreement shall be binding on, and inure to
the benefit of, the Employer and its successors and assigns whether by reason
of consolidation, merger, reorganization or otherwise. This Agreement shall be
binding on the Executive. This Agreement shall also inure to the benefit of
9
<PAGE> 10
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributes, devises and
legatees. If the Executive should die while any amount would still be payable
hereunder if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee or other designee or, if there is
no such designee, to the Executive's estate.
9. Notice. Any notice hereunder by either party to the other shall be
given in writing by personal delivery, telex, telecopy or certified mail,
return receipt requested, to the applicable address first set forth below (or
such other address as may from time to time be designated by notice by any
party hereto for such purpose):
Wolverine Tube, Inc.
Perimeter Corporate Park
Suite 210
1525 Perimeter Parkway
Huntsville, Alabama 35806
Attention: Board of Directors
With a copy to:
Jones, Day, Reavis & Pogue
303 Peachtree Street
Suite 3500
Atlanta, Georgia 30308-3242
Attention: Lizanne Thomas, Esq.
John M. Quarles
381 Santa Rosa Boulevard
Fort Walton Beach, Florida 32548
Notice shall be deemed given, if by personal delivery, on the date of such
delivery or, if by telex or telecopy, on the business day following receipt of
answer back or telecopy confirmation or, if by certified mail, on the date
shown on the applicable return receipt.
10. Amendment and Waiver. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, modification, waiver or
discharge is agreed to in writing and signed by the Executive and such officer
as may be specifically designated by the Board. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
10
<PAGE> 11
11. Merger of Prior Negotiations; Termination of Existing Employment
Agreement. Upon the Effective Date, this Agreement will set forth all of the
promises, agreements, conditions and understandings between the parties hereto
respecting the subject matter hereof and will supersede all prior negotiations,
conversations, discussions, correspondence, memoranda and agreements between
the parties concerning such subject matter. Upon the Effective Date, the
parties hereby agree that the Existing Employment Agreement shall be
terminated.
12. Partial Invalidity. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term or
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision.
13. Governing Law. This Agreement is to be governed by and interpreted in
accordance with the laws of the State of Alabama applicable to contracts
executed in and to be performed in that State.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Alabama in
accordance with the commercial rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the 16th day of September, 1996.
WOLVERINE TUBE, INC.
By:/s/ James E. Deason
----------------------------------------
Name: James E. Deason
Title: Executive Vice President,
Finance and Administration
/s/ John M. Quarles
- ---------------------------
John M. Quarles
12
<PAGE> 1
EXHIBIT 10.2
SEVERANCE AGREEMENT
AGREEMENT, dated as of September 16, 1996 by and between Wolverine
Tube, Inc., a Delaware corporation ("Wolverine"), and Thomas B. Roller an
individual residing at 10900 Wilmington Drive, Carmel, Indiana 46033 (the
"Executive").
W I T N E S S E T H:
WHEREAS, Wolverine recognizes the Executive's expertise in connection
with his employment by Wolverine or its subsidiaries or affiliates
(collectively, the "Company"); and
WHEREAS, the Company desires to provide the Executive with severance
benefits or the opportunity for continued employment in a different position if
the Executive's employment in his current position is terminated for the
reasons set forth herein and the Executive refrains from engaging in certain
activities in the event his employment is terminated, upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Termination of Employment.
(a) Termination for Cause; Resignation Without Good Reason.
(i) If the Executive's employment is terminated by the Company for
Cause, as defined in Section 1(a)(ii) hereof, or if the Executive resigns from
his employment hereunder, other than for Good Reason, as defined in Section
1(a)(iii) hereof, the Executive shall be entitled to only (A) severance
benefits as provided by the Company procedure and practice and (B) payment of
the pro rata portion of the Executive's salary through and including the date
of termination or resignation.
(ii) For purposes of this Agreement, termination for "Cause" shall
mean termination of the Executive's employment by the Company because of (A)
the Executive's conviction for, or guilty plea to, a felony or a crime
involving moral turpitude, (B) the Executive's commission of an act of
substantial personal dishonesty in connection with his employment by the
Company, (C) a substantial breach of fiduciary duty in connection with his
employment with the Company which shall include, but not be limited to, (1)
investment in any person or organization with the knowledge that such person or
organization has or proposes to have dealings with the Company, such person or
organization competes with the Company, or the Company is considering an
investment in such person or organization. (The reference to
<PAGE> 2
"organization" excludes federal credit unions, publicly owned insurance
companies and corporations the stock of which is listed on a national
securities exchange or quoted on NASDAQ if the direct and beneficial stock
ownership of the Executive, including members of his immediate family, is not
more than one percent (1%) of the total outstanding stock of such corporation);
(2) a loan (including a guaranty of a loan) from or to any person or
organization having or proposing any dealings with the Company or in
competition with the Company; (3) participation directly or indirectly in any
transaction involving the Company other than as an officer or employee of the
Company; (4) acceptance from any person or organization having or proposing any
dealings with the Company or in competition with the Company of any gratuity,
gift, entertainment or favor which exceeds either nominal value or common
courtesies which are generally accepted business practice; or (5) service as an
officer, director, partner or employee of, or consultant to, any person or
organization having or proposing dealings with the Company or in competition
with the Company; or (D) the Executive's willful and repeated failure, after
written notice, to execute the written policies of the Company as established
by the Board of Directors of the Company (the "Board").
(iii) For purposes of this Agreement, resignation for "Good Reason"
shall mean the resignation of the Executive after (A) notice in writing is
given to him of his relocation, without the Executive's consent, to a place of
business more than 35 miles from the location of the Executive's place of
business as of the date hereof, (B) a reduction in the Executive's benefits or
pay or (C) a substantial adverse alteration occurs in the nature or status of
the Executive's responsibilities from those in effect on the date hereof,
disregarding change in title only.
(iv) The date of termination for Cause shall be the date of receipt by
the Executive of written notice of such termination. The date of resignation
without Good Reason shall be the date of receipt by the Company of a written
notice of such resignation.
(b) Termination Without Cause; Resignation for Good Reason.
(i) If the Executive's employment is terminated by the Company Without
Cause, or if the Executive resigns from his employment for Good Reason, subject
to the Executive's continuing compliance with Section 2 of this Agreement, the
Executive shall be entitled to receive the following benefits:
(A) The Company shall pay to the Executive (x) in the event of such
termination or resignation within one (1) year following a Change in
Control, as defined in Section 1(b)(v) hereof, an amount equal to two (2)
year's salary; or (y) in all other such events, an amount equal to one (1)
year's salary; in either case to be paid at the rate in effect immediately
prior to the Severance Date (as defined
2
<PAGE> 3
in Section 1(b)(iii)) plus pay at the same rate for all vacation time
accrued during the calendar year in which the Severance Date occurs, with
such payment either, at Executive's option:
(X) as a lump sum within 30 days after the Severance Date, or
(Y) as a series of payments in accordance with the Company's
normal payroll procedures following the Severance Date.
(B) The Company shall reimburse the Executive for any costs incurred
by the Executive in electing COBRA continuation coverage under only the
Company's medical plan and maintaining life insurance coverage comparable
to that maintained for him by the Company for the period from the
Severance Date until the earlier to occur of:
(X) the date which is 12 months after the Severance Date (24
months if Section 1(b)(i)(A)(X) applies, or
(Y) the date on which the Executive is covered under the medical
plan of another employer.
(ii) The Executive shall have no further right under this Agreement or
otherwise to receive any bonus or other Compensation with respect to the year
in which such termination or resignation occurs and later years.
(iii) The date of termination of employment without Cause shall be the
date specified in a written notice of termination to the Executive and the date
of resignation for Good Reason shall be the date of receipt by the Company of
written notice of resignation (both such dates hereinafter referred to as the
"Severance Date").
(iv) Termination of the Executive's employment as a result of his
death or disability (if such Executive is eligible for benefits under the
Company's long-term disability plan) shall not constitute a termination by the
Company without cause for purposes of this Agreement.
(v) For purposes of this Agreement, "Change in Control" shall mean:
(A) The Company is merged, consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such transaction are held in the aggregate by the
holders of Voting Stock (as that term is
3
<PAGE> 4
hereafter defined) of the Company immediately prior to such
transaction;
(B) The Company sells or otherwise transfers all or substantially all
of its assets to another corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such sale or transfer is held in the aggregate by
the holders of Voting Stock of the Company immediately prior to such sale
or transfer;
(C) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that (x) any person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities representing 15% or more of the combined
voting power of the then-outstanding securities entitled to vote generally
in the election of directors of the Company ("Voting Stock"), or (y) any
person has, during any period, increased the number of shares of Voting
Stock beneficially owned by such person by an amount equal to or greater
than 15% of the outstanding shares of Voting Stock; provided, however,
that transfers of shares of Voting Stock between a person and the
affiliates or associates (as such terms are defined under Rule 12b-2 or
any successor rule or regulation promulgated under the Exchange Act) of
such person shall not be considered in determining any increase in the
number of shares of Voting Stock beneficially owned by such person;
(D) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has
occurred or will occur in the future pursuant to any then-existing
contract or transaction; or
(E) If, during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Directors of the
Company cease for any reason to constitute at least a majority thereof;
provided, however, that for purposes of this clause (v) each Director who
is first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two-thirds of the Directors of the
Company (or a committee thereof) then still in office who were Directors
of the Company at the beginning of any such period will be deemed to have
been a Director of the Company at the beginning of such period.
4
<PAGE> 5
Notwithstanding the foregoing provisions of Sections(C) or (D) unless
otherwise determined in a specific case by majority vote of the Board, a
"Change in Control" shall not be deemed to have occurred for purposes of
Sections(C) or (D) solely because (1)the Company, (2)an entity in which
the Company directly or indirectly beneficially owns 50% or more of the
voting securities (a "Subsidiary"), or (3)any employee stock ownership
plan or any other employee benefit plan of the Company or any Subsidiary
either files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule
14A (or any successor schedule, form or report or item therein) under the
Exchange Act disclosing beneficial ownership by it of shares of Voting
Stock, whether in excess of 15% or otherwise, or because the Company
reports that a change in control of the Company has occurred or will occur
in the future by reason of such beneficial ownership.
2. Secrecy. The Executive recognizes that the services performed by him are
special, unique and extraordinary in that, by reason of his employment, he may
acquire confidential information and trade secrets concerning the operation of
the Company, the use or disclosure of which could cause the Company substantial
loss and damages which could not be readily calculated and for which no remedy
at law would be adequate.
Accordingly, the Executive covenants and agrees with the Company that he
will not at any time, except in performance of the Executive's obligations to
the Company, or with the prior written consent of the Company pursuant to the
authority granted by a resolution of the Board, directly or indirectly,
disclose any secret or confidential information that he may learn or has
learned by reason of his association with the Company or use any such
information. The term "confidential information" includes, without limitation,
information not previously disclosed to the public or to the trade by the
Company's management with respect to the Company's products, facilities and
methods, trade secrets and other intellectual property, systems, procedures,
manuals, confidential reports, products price lists, customer lists, financial
information (including the revenues, costs or profits associated with any of
the Company's products), business plans, prospects, employee or employees,
compensation, or opportunities but shall exclude any information already in the
public domain which has been disclosed to the public during the normal course
of the Company's business.
The Company shall be entitled to obtain a temporary restraining order
and/or a preliminary or permanent injunction restraining the Executive from
engaging in activities prohibited by this Section 2 or such other relief as may
be required to specifically enforce any of the covenants in this Section 2.
5
<PAGE> 6
3. Amendment; Waiver. This Agreement may not be modified, amended or waived in
any manner except by an instrument in writing signed by both parties hereto;
provided, however, that any such modification, amendment or waiver on the part
of the Company shall have been previously approved by the Board. The waiver by
either party of compliance with any provision of this Agreement by the other
party shall not operate or be construed as a waiver of any other provision of
this Agreement, or of any subsequent breach by such party of a provision of
this Agreement.
4. Withholding. Payments to the Executive of all compensation contemplated
under this Agreement shall be subject to all applicable legal requirements with
respect to the withholding of taxes and similar deductions.
5. Governing Law. All matters affecting this Agreement, including the validity
thereof, are to be governed by, and interpreted and construed in accordance
with, the laws of the State of Alabama applicable to contracts executed in and
to be performed in that State. Nothing in this agreement shall affect the
rights of either party under state or federal laws affecting employment.
6. Notices. Any notice hereunder by either party to the other shall be given in
writing by personal delivery or certified mail, return receipt requested. If
addressed to the Executive, the notice shall be delivered or mailed to the
Executive at the address first set forth above, or if addressed to the Company,
the notice shall be delivered or mailed to Perimeter Corporate Park, Suite 210,
1525 Perimeter Parkway, Huntsville, Alabama 35806, or such address as the
Company or the Executive may designate by written notice at any time or from
time to time to the other party. A notice shall be deemed given, if by personal
delivery, on the date of such delivery or, if by certified mail, on the date
shown on the applicable return receipt.
7. Supersedes Previous Agreements. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements and writings with respect
to the subject matter hereof, all such other negotiations, commitments,
agreements and writings will have no further force or effect, and the parties
to any such other negotiation, commitment, agreement or writing will have no
further rights or obligations thereunder.
8. Counterparts. This Agreement may be executed by either of the parties hereto
in counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
9. Headings. The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused the Agreement to be signed by
its officer pursuant to the authority of its Board, and the Executive has
executed this Agreement, as of the day and year first written above.
WOLVERINE TUBE, INC.
By: /s/ John M. Quarles
--------------------------------------
Name: John M. Quarles
Title: Chairman
EXECUTIVE
/s/ Thomas B. Roller
-----------------------------------------
Thomas B. Roller
7
<PAGE> 1
EXHIBIT 10.3
WOLVERINE TUBE, INC.
1996 KEY MANAGER BONUS PLAN
I. PURPOSE
The Key Manager Bonus Plan (the Plan) is designed to provide an
incentive for top management personnel to increase corporate earnings
and to attract and retain qualified management employees.
II. ADMINISTRATION
The Plan is under the direction of the President and CEO of Wolverine
Tube, Inc. with the approval of the Board of Directors. Payment to the
participants will be recommended by the President of Wolverine Tube,Inc.
and approved by the Compensation Committee of the Board.
III. THE PLAN
A Bonus Pool will be earned dependent upon the Company's EBIT (earnings
before interest, taxes, LIFO adjustments and nonrecurring charges)
earnings in excess of the Operating EBIT budget as approved for 1996 of
$78,042,000.
In defining Operating EBIT, it is agreed that events beyond the control
of operating management will be isolated (added or removed) from EBIT
earnings prior to the calculation of the bonus pool. Examples of
uncontrollable events will include a gain or loss on LIFO inventory
valuation, a plant closure, a write-down on assets, financing costs,
and/or other Board action that affects the meaningful performance of
management, whether recommended by management or otherwise.
Upon reaching the above level of EBIT earnings, the next $1,250,000 of
earnings, or part thereof, will be assigned to the bonus pool. To
smooth the accrual of these funds, an amount equal to 2.2% of earned
EBIT should be expensed each month.
Should the annual Operating EBIT budget be achieved, and the $1,250,000
pool is expensed, $.10 of every $1.00 of additional EBIT is assigned to
the bonus pool. These funds will be accrued at the rate of 10% of
additional EBIT income.
Example of Calculation: ($000)
<TABLE>
<CAPTION>
EBIT Income EBIT Income Pool as a %
Before Bonus Bonus Pool After Pool of EBIT
------------ ---------- ----------- -----------
<S> <C> <C> <C>
$78,042 -0- $78,042 -0-
79,292 1,250 78,042 1.6%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
EBIT Income EBIT Income Pool as a %
Before Bonus Bonus Pool After Pool of EBIT
------------ ---------- ----------- -----------
<S> <C> <C> <C>
80,542 1,375 79,167 1.7%
81,792 1,500 80,292 1.8%
83,042 1,625 81,417 2.0%
84,292 1,750 82,542 2.1%
85,542 1,875 83,667 2.2%
</TABLE>
In other words, the basic bonus pool of $1,250,000 (or part thereof)
must be earned in addition to the approved budget. Thereafter, 10% of
each EBIT dollar of earnings goes to the bonus pool. There is no cap.
Up to 15% of the earned bonus pool may be used to reward
nonparticipating employees who contribute significantly to the
Company's performance. Such recommendations will be made by the unit
management (in increments of $500), and approved by the President.
The balance of the bonus pool will be distributed among the approved
participants based on their contribution to the unit's success, as
recommended by the chief operating officer of each unit (in increments
of $1,000) and approved by the President.
IV. ELIGIBILITY
The Compensation Committee of the Board determines eligibility for
participation in the Plan.
Eligibility for participation for those employees who are hired during
the year will be decided by the Compensation Committee of the Board. If
participation is approved, then any award will be prorated according to
the length of time employed.
Transferees between operating units remain eligible.
V. PAYMENT
Bonus awards will be paid prior to the 15th of March of the following
year. An approved participant is eligible for a bonus payment if
he/she is either an active employee, on leave of absence, or retired at
the time of bonus payment, at the option of the President.
An employee who dies prior to the time of bonus payment will be paid a
bonus prorated in accordance with the time worked for the Company
during the year. The bonus will be paid to the employee's spouse, if
living; otherwise to his/her estate.
2
<PAGE> 3
The following shall not be eligible to receive bonus payments under
the Plan:
a) A person who has been demoted from a key manager position.
b) A person who quit or whose employment has been terminated at
or prior to the time of bonus payment, including one whose
employment has been terminated but who is receiving severance
payments from the Company at the time of bonus payment.
VI. Although the Corporation expects and intends to continue the Plan, it
reserves the right to amend, suspend, or even discontinue the Plan at any time.
Proposed by:
/s/ John M. Quarles
------------------------------
John M. Quarles
Chairman, President and
Chief Executive Officer
Approved:
/s/ John L. Duncan
- ------------------------------
John L. Duncan
Chairman, Compensation Committee
3
<PAGE> 1
EXHIBIT 10.4
WOLVERINE TUBE, INC.
LONG-TERM INCENTIVE PLAN
The Wolverine Tube, Inc. Long-Term Incentive Plan (the LTIP) is designed to
reward selected senior executives for sustained, outstanding, company-wide
performance over four-year periods.
PARTICIPATION
This plan applies to the Chief Executive Officer (CEO) and selected senior
executives whom the CEO shall designate and who are approved for participation
by the Compensation Committee and the Board of Directors of the company.
INCENTIVE BASIS
The plan is composed of one element: Earnings Before Interest and Taxes (EBIT)
Return on Total Capital (ROTC), with Total Capital defined as the sum of
average Shareholders' Equity plus Long and Short-Term Debt and Notes Payable.
The LTIP performance goal will be set at the beginning of each four-year
performance period and progress toward this goal will be announced
periodically.
MEASUREMENT
The company's ROTC will be measured annually and, for purposes of the LTIP,
averaged over the full, four-year performance period to produce a single number
which is the simple average ROTC for the entire LTIP period. Each LTIP
performance period will be four years, and new LTIPs will begin at the start of
every fiscal year. Hence, the overall program has an overlapping or "rolling
plans" structure, with a new plan rolling out every year.
The LTIP will begin accumulating funds for payout once Wolverine's average ROTC
for the four-year period from fiscal year 1996 through 1999 exceeds 16%.
Target LTIP payments will be earned at 21% average ROTC for the full period,
and payments which are double the size of target awards will be earned at 26%
average ROTC. All performance points between 16%, 21% and 26% ROTC will have
differing payout values which should be mathematically interpolated. For
results above 26%, the same mathematical interpolation technique should be used
to determine the payout values, since the program is not capped.
<PAGE> 2
INDIVIDUAL AND AGGREGATE EARNINGS OPPORTUNITIES UNDER THE LTIP
According to the formula described immediately above, the executive participants
in the LTIP will earn threshold payments at 16% average ROTC, target payments at
21%, and twice target at 26%. Opportunities, expressed as a percent of the
individual's average salary for the full four-year period is as shown below:
<TABLE>
<CAPTION>
PAYMENT PERCENT OF SALARY AT:
-----------------------------
THRESHOLD TARGET TWICE TARGET
--------- ------ ------------
<S> <C> <C>
30.5% 40.0% 80.0%
</TABLE>
PAYMENT
Payments will be made as soon as is practical after the company's audited
financial statements have been prepared after the close of the fourth fiscal
year in the LTIP performance period. The payments will be made fully in cash.
-2-
<PAGE> 1
Exhibit 11
WOLVERINE TUBE, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net income applicable to common shares $39,303 $31,956 $24,765
======= ======= =======
Weighted average common shares outstanding 13,772 13,605 13,087
Common equivalent shares outstanding 424 513 556
------- ------- -------
Weighted average common and common
equivalent shares outstanding(1) 14,196 14,118 13,643
======= ======= =======
Net income per common share $ 2.77 $ 2.26 $ 1.82
======= ======= =======
</TABLE>
- ------------------
(1) Represents shares issuable upon the exercise of stock options calculated
based upon the treasury stock method using the average market price. As
fully diluted shares outstanding are the same as primary shares
outstanding for all periods presented, net income per common share on a
fully-diluted basis is not separately presented.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF WOLVERINE TUBE, INC.
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- --------------------------------------------------------------------------------
<S> <C>
Wolverine Tube (Canada)Inc. Canada
STPC Holding, Inc. Delaware
Small Tube Manufacturing Corporation Delaware
Wolverine Tube International Limited Virgin Islands of the United States
TFI Holdings, Inc. Delaware
TF Investors, Inc. Delaware
Tube Forming, LP Delaware
Wolverine Finance Company Tennessee
Wolverine Europe (EURL) France
Wolverine Asia, Ltd. Hong Kong
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement
(Form S-8 No. 33-73550) pertaining to the 1993 Equity Incentive Plan of
Wolverine Tube, Inc.; (ii) the Registration Statement (Form S-8 No. 33-73490)
pertaining to the 1993 Stock Option Plan for Outside Directors of Wolverine
Tube, Inc.; and, (iii) the Registration Statement (Form S-8 No. 33-87687)
pertaining to the Savings Plan of Wolverine Tube, Inc. of our report dated
February 5, 1997, with respect to the consolidated financial statements of
Wolverine Tube, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1996.
Our audits also included the financial statement schedule of Wolverine Tube,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Birmingham, Alabama
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME OF WOLVERINE TUBE, INC. FOR THE TWELVE MONTH
PERIOD ENDED DECEMBER 31, 1996, AND THE CONSOLIDATED BALANCE SHEET OF WOLVERINE
TUBE, INC. AT DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,967
<SECURITIES> 0
<RECEIVABLES> 79,128
<ALLOWANCES> 0<F1>
<INVENTORY> 73,525
<CURRENT-ASSETS> 155,825
<PP&E> 150,221
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 397,020
<CURRENT-LIABILITIES> 43,162
<BONDS> 100,473
0
2,000
<COMMON> 140
<OTHER-SE> 209,082
<TOTAL-LIABILITY-AND-EQUITY> 397,020
<SALES> 699,863
<TOTAL-REVENUES> 699,863
<CGS> 606,157
<TOTAL-COSTS> 606,157
<OTHER-EXPENSES> 23,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,321
<INCOME-PRETAX> 61,375
<INCOME-TAX> 21,792
<INCOME-CONTINUING> 39,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,583
<EPS-PRIMARY> 2.77
<EPS-DILUTED> 2.77
<FN>
<F1>The values for the tags Receivable and PP&E are shown net of their respective
allowance accounts.
</FN>
</TABLE>
