<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Act of
- --- 1934
For the quarterly period ended June 28, 1997
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OR
Transition report pursuant to Section 13 or 15(d) of the Securities Act
- --- of 1934
For the transition period from to
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Commission file number 1-12164
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WOLVERINE TUBE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 63-0970812
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1525 Perimeter Parkway, Suite 210
Huntsville, Alabama 35806
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(205) 353-1310
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(Registrant's telephone number, including area code)
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 proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each class of common stock, as of
the latest practicable date:
Class Outstanding at July 25, 1997
---------------- --------------------------------
Common Stock, par value $0.01 per share 14,035,499 shares
<PAGE> 2
WOLVERINE TUBE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income (unaudited) -
Three and Six-Month Periods Ended June 28, 1997 and
June 29, 1996........................................................................ 2
Condensed Consolidated Balance Sheets (unaudited) -
June 28, 1997 and December 31, 1996.................................................. 3
Condensed Consolidated Statements of Cash Flows (unaudited) -
Six-Month Periods Ended June 28, 1997 and
June 29, 1996........................................................................ 4
Notes to Condensed Consolidated
Financial Statements (unaudited)..................................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................ 8
PART II Other Information
Item 1. Legal Proceedings.................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ................................ 18
Item 6. Exhibits and Reports on Form 8-K..................................................... 18
</TABLE>
<PAGE> 3
WOLVERINE TUBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED: SIX-MONTH PERIOD ENDED:
--------------------------- -------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES ....................................................... $178,082 $180,279 $351,658 $359,693
COST OF GOODS SOLD .............................................. 154,760 154,695 306,741 310,695
--------- --------- --------- ---------
GROSS PROFIT .................................................... 23,322 25,584 44,917 48,998
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .................... 5,590 6,144 10,996 11,204
NON-RECURRING CHARGE ............................................ 4,384 -- 4,384 --
--------- --------- --------- ---------
INCOME FROM OPERATIONS .......................................... 13,348 19,440 29,537 37,794
OTHER EXPENSES:
INTEREST EXPENSE ............................................. 1,958 2,328 4,382 4,631
AMORTIZATION AND OTHER, NET .................................. (6) 500 248 628
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ........................................... 11,396 16,612 24,907 32,535
INCOME TAXES .................................................... 4,333 6,178 9,007 11,838
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM ................................ 7,063 10,434 15,900 20,697
EXTRAORDINARY ITEM, NET OF INCOME TAX BENEFIT OF ................ 4,738 -- 4,738 --
--------- --------- --------- ---------
NET INCOME ...................................................... 2,325 10,434 11,162 20,697
LESS: PREFERRED STOCK DIVIDENDS ................................. (70) (70) (140) (140)
--------- --------- --------- ---------
NET INCOME APPLICABLE TO COMMON SHARES .......................... $2,255 $10,364 $11,022 $20,557
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY ITEM ................................ $0.49 $0.73 $1.11 $1.45
EXTRAORDINARY ITEM, NET OF INCOME TAX BENEFIT ................... (0.33) -- (0.33) --
--------- --------- --------- ---------
NET INCOME PER SHARE ............................................ $0.16 $0.73 $0.78 $1.45
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES ..................................... 14,200 14,141 14,220 14,179
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands,except share data)
ASSETS
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 31,
1997 1996
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<S> <C> <C>
CURRENT ASSETS: (UNAUDITED) (NOTE)
CASH AND EQUIVALENTS ...................................................... $7,240 $2,967
ACCOUNTS RECEIVABLE, NET .................................................. 96,659 79,128
INVENTORIES ............................................................... 71,834 73,525
PREPAID EXPENSES AND OTHER ................................................ 774 205
--------- ---------
TOTAL CURRENT ASSETS .................................................. 176,507 155,825
PROPERTY, PLANT AND EQUIPMENT, NET ......................................... 151,797 150,221
DEFERRED CHARGES AND INTANGIBLE ASSETS, NET ................................ 87,032 84,946
PREPAID PENSIONS ........................................................... 4,901 6,028
--------- ---------
TOTAL ASSETS .......................................................... $420,237 $397,020
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE .......................................................... $35,691 $27,318
ACCRUED LIABILITIES ....................................................... 3,248 11,231
DEFERRED INCOME TAXES ..................................................... 4,997 4,613
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TOTAL CURRENT LIABILITIES ............................................. 43,936 43,162
DEFERRED INCOME TAXES ...................................................... 25,446 25,857
LONG-TERM DEBT ............................................................. 113,675 100,473
POSTRETIREMENT BENEFIT OBLIGATIONS ......................................... 12,354 12,505
ACCRUED ENVIRONMENTAL REMEDIATION .......................................... 3,019 3,732
--------- ---------
TOTAL LIABILITIES ..................................................... 198,430 185,729
MINORITY INTEREST .......................................................... -- 69
REDEEMABLE CUMULATIVE PREFERRED STOCK, PAR VALUE $1 PER SHARE;
20,000 SHARES ISSUED AND OUTSTANDING AT JUNE 28, 1997 AND
DECEMBER 31, 1996 ......................................................... 2,000 2,000
STOCKHOLDERS' EQUITY:
CUMULATIVE PREFERRED STOCK, PAR VALUE $1 PER SHARE;
500,000 SHARES AUTHORIZED ................................................. -- --
COMMON STOCK, PAR VALUE $.01 PER SHARE; 20,000,000 SHARES
AUTHORIZED, 14,015,621 AND 13,980,517 SHARES ISSUED AND OUTSTANDING AT
JUNE 28, 1997 AND DECEMBER 31, 1996, RESPECTIVELY ......................... 140 140
ADDITIONAL PAID-IN CAPITAL ................................................ 99,035 98,870
RETAINED EARNINGS ......................................................... 128,537 117,515
ACCUMULATED CURRENCY TRANSLATION ADJUSTMENT ............................... (7,905) (7,303)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ............................................ 219,807 209,222
--------- ---------
TOTAL LIABILITIES, REDEEMABLE CUMULATIVE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY .............................................. $420,237 $397,020
========= =========
</TABLE>
Note: The Balance Sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
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WOLVERINE TUBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED:
------------------------
JUNE 28, JUNE 29,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME ........................................................... $11,162 $20,697
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION ..................................... 8,884 8,099
DEFERRED INCOME TAXES ............................................. 25 1,777
NON-CASH PORTION OF NON-RECURRING CHARGE .......................... 3,533 --
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT .......................... 4,738 --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE .............................................. (17,632) (12,159)
INVENTORIES ...................................................... 1,530 (11,446)
PREPAID EXPENSES AND OTHER ....................................... (581) (1,742)
ACCOUNTS PAYABLE ................................................. 6,427 3,078
ACCRUED LIABILITIES INCLUDING PENSION, POSTRETIREMENT BENEFIT
AND ENVIRONMENTAL ............................................... (6,058) 1,824
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................ 12,028 10,128
INVESTING ACTIVITIES
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT ........................... (14,445) (2,327)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ................................ (14,445) (2,327)
FINANCING ACTIVITIES
FINANCING FEES ....................................................... (820) --
BORROWINGS UNDER REVOLVING CREDIT FACILITY, NET ...................... 111,440 --
ISSUANCE OF COMMON STOCK ............................................. 177 999
PREMIUM AND FEES PAID ON RETIREMENT OF DEBT ......................... (5,517) --
PRINCIPAL PAYMENTS ON LONG-TERM DEBT AND
CAPITALIZED LEASE OBLIGATIONS ...................................... (98,401) (30)
DIVIDENDS PAID ....................................................... (140) (140)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................ 6,739 829
EFFECT OF EXCHANGE RATE ON CASH AND EQUIVALENTS ...................... (49) 4
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ...................... 4,273 8,634
CASH AND EQUIVALENTS BEGINNING OF PERIOD ............................. 2,967 5,494
--------- ---------
CASH AND EQUIVALENTS END OF PERIOD ................................... $7,240 $14,128
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries after
elimination of significant intercompany accounts and transactions. The
accompanying condensed financial statements have been prepared in accordance
with instructions to Form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying condensed financial statements (and all
information in this report) have not been examined by independent auditors; but,
in the opinion of management all adjustments, which consist of normal recurring
accruals necessary for a fair presentation of the results for the periods, have
been made. The results of operations for the three and six-month periods ended
June 28, 1997 are not necessarily indicative of the results of operations that
may be expected for the year ending December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
The Company uses it internal operational reporting cycle for quarterly
financial reporting.
NOTE 2 - CONTINGENCIES
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 $3,019,000 as
of June 28, 1997 consisting primarily of $57,000 for estimated remediation costs
for the London and Fergus facilities, $1,893,000 for the Decatur, Alabama
facility, $595,000 for the Greenville, Mississippi facility, and an aggregate of
$474,000 for the Ardmore, Tennessee facility and the Shawnee, Oklahoma 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 reasonable likely to have a material adverse effect on the Company's
consolidated financial condition, results of operations of liquidity.
5
<PAGE> 7
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INVENTORIES ARE AS FOLLOWS: June 28, 1997 December 31,
1996
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Finished Products $17,841 $13,626
Work-in-Progress 24,131 26,646
Raw materials and supplies 29,862 33,253
- --------------------------------------------------------------------------------
$71,834 $73,525
================================================================================
</TABLE>
NOTE 4 - INTEREST EXPENSE, NET
Interest expense is net of interest income and capitalized interest of
$252,000 and $339,000 for the three-month periods ended June 28, 1997 and June
29, 1996, respectively and $375,000 and $559,000 for the six-month periods ended
June 28, 1997 and June 29, 1996, respectively.
NOTE 5 - LONG-TERM DEBT
In April 1997, the Company completed a refinancing which consisted of
entering into a new five year $200 million unsecured credit agreement (the "New
Credit Agreement") to replace the Company's existing credit facility, as well as
a tender offer for the $99 million in outstanding principal amount of the
Company's 10 1/8% Senior Subordinated Notes due 2002 ("Notes"). The New Credit
Agreement (i) provides for an aggregate available revolving credit facility of
$200 million, including a $20 million sublimit available to Wolverine Tube
(Canada) Inc., (ii) matures in full in April 2002, and (iii) provides for an
interest rate, at the Company's election, at a floating base rate that is either
(a) the higher of the federal funds effective rate plus .50% or the prime rate
or (b) LIBOR plus a specified margin of .25% to .875%. Upon the consummation of
the refinancing, on April 30, 1997, the Company borrowed approximately $107
million under the New Credit Agreement, substantially all of which was used to
finance the purchase of the $98.225 million in Notes that were tendered in the
tender offer as well as related financing expenses. As of June 28, 1997, the
Company had approximately $89 million in additional borrowing availability under
the New Credit Agreement, and an aggregate of $775,000 in aggregate principal
amount of the Notes remain outstanding. Accordingly, during the second quarter
the Company recorded an extradordinary after tax charge of $4,738,000
($7,520,000 pre-tax) resulting from the early retirement of the Notes.
6
<PAGE> 8
NOTE 6 - INTEREST RATE INSTRUMENTS
On May 7, 1997, the Company entered into an interest rate swap agreement
with a certain lender providing bank financing. The agreement effectively fixed
the interest rate on $65,000,000 floating debt from the New Credit Agreement at
a rate of 6.82% plus the specified margin from the New Credit Agreement of .25%
to .875%. The interest rate swap expires on May 7, 2002 and is based on 3-month
LIBOR. This interest rate swap is accounted for as a hedge; accordingly, gains
and losses are recognized as interest expense.
NOTE 7 - NON RECURRING CHARGE
During the second quarter of 1997, the Company recognized a
non-recurring, pre-tax charge of $4,384,000 ($2,997,000 net of tax). This
charge included $1.8 million of expenses related to the implementation of the
Company's 1997 Voluntary Early Retirement Program (the "Plan"); $1.3 million of
severance costs primarily associated with the departure of the Company's former
Chief Executive Officer; $0.6 million professional fees and other costs
associated with an acquisition that was not completed; and $0.7 million of the
cost of discontinuing the Poland operations of Small Tube Manufacturing
Corporation (a wholly-owned subsidiary of the Company).
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three-Month Period Ended June 28, 1997 Compared to
Three-Month Period Ended June 29, 1996
For the three-month period ended June 28, 1997, consolidated net sales
were $178.1 million compared with $180.3 million in the three-month period ended
June 29, 1996. The decrease in sales for the three-month period this year versus
last year was attributable to a decrease in the price of copper, which was
partially offset by increased shipments and fabrication charges. The average
Comex price of copper was $1.14 per pound in the most recent three-month period
compared with $1.16 per pound in the same period a year ago. The primary impact
to Wolverine of lower copper prices is lower net sales and costs of goods sold.
The Company uses various strategies to minimize the effect of copper prices on
the Company's earnings.
Total pounds shipped for the three-month period of 1997 increased to
87.9 million pounds compared with 87.5 million pounds in the three-month period
a year ago. Shipments of commercial tube increased 1.3%, primarily as a result
of increased shipments of industrial tube to fittings manufacturers and
increased shipments of fabricated products from Tube Forming, Inc., which the
Company acquired in September 1996; however, shipments of industrial tube used
in residential air conditioning did not meet anticipated levels because the
residential air conditioning manufacturers generally did not reach their
expected production levels, and shipments of technical tube declined because
manufacturers of large commercial air conditioners reduced their production from
previous years' levels. Shipments of the Company's wholesale products increased
2.7% as a result of the Company increasing its offering of these products in the
United States. Shipments of rod, bar and strip products decreased 6.6%,
primarily due to decreased sales of strip products to the Canadian mint.
Consolidated gross profit decreased to $23.3 million in the three-month
period of 1997 compared to $25.6 million in the three-month period of 1996. The
decrease in gross profit is primarily the result of a shift in product mix to
products with lower margins within the commercial products line and an increase
in shipments of wholesale products which tend to have lower margins. In order
for the Company to manage weak market conditions, the Company utilized its
manufacturing capabilities and shifted production to lower margin products
within these two product categories for which there was a stronger market.
Consolidated selling, general and administrative expenses for the
three-month period of 1997 were $5.6 million as compared to $6.1 million in the
three-month period in 1996. This decrease was primarily the result of reduced
outside professional and legal expenses during the quarter and reduced salary
expense resulting from the implementation of the Company's 1997 Voluntary Early
Retirement Program.
8
<PAGE> 10
During the three-month period of 1997, the Company recognized a
non-recurring pre-tax charge to operations of $4.4 million ($3.0 million after
tax). This one-time charge to operations reflects $1.8 million of expenses
incurred in connection with the implementation of the Company's 1997 Voluntary
Early Retirement Program; $1.3 million of severance cost primarily associated
with the departure of the Company's former Chief Executive Officer; $0.6 million
of professional fees and others associated with an acquisition that was not
completed; and the $0.7 million of cost for discontinuing the Poland operations
of Small Tube Manufacturing Corporation (a wholly owned subsidiary of the
Company).
Consolidated net interest expense for the three-month period in 1997
decreased to $2.0 million from $2.3 million in the three-month period in 1996.
This decrease is primarily the result of reduced interest expense resulting from
the Company's refinancing of its 10 1/8% Senior Subordinated Notes due 2002
("Notes") during the three-month period in April 1997. The Company incurred an
extraordinary charge associated with the early extinguishment of the Notes. The
charge on the extinguishment, net of tax was approximately $4.7 million ($7.5
million pre-tax).
The effective tax rate for the three-month period ended June 28, 1997
was 38.0%, compared with 37.2% in the three-month period a year ago.
Consolidated net income for the three-month period in 1997 was $2.3
million or $0.16 per share, compared to $10.4 million or $0.73 per share in the
three-month period a year ago. Adjusting for the one-time tax charge of $3.0
million or $0.21 per share and the extraordinary charge of $4.7 million or $0.33
per share, consolidated net income and earnings per share for the three-month
period in 1997 would been $10.0 million or $0.70 per share.
Six-Month Period Ended June 28, 1997 Compared to
Six-Month Period Ended June, 29, 1996
For the six months ended June 28, 1997, consolidated net sales were
$351.7 million compared with $359.7 million in the six-month period ended June
29, 1996. The decrease in sales for the six-month period this year versus last
year was attributable to a decrease in the price of copper, which was partially
offset by increased shipments and fabrication charges. The average COMEX price
of copper was $1.13 per pound in the most recent six-month period compared with
$1.17 per pound in the same period a year ago. The primary impact to Wolverine
of lower copper prices is lowered net sales and a corresponding decrease in cost
of goods sold. The Company uses various strategies to minimize the effect of
copper prices and the Company's earnings.
Total pounds shipped for the six-month period of 1997 increased to
172.6 million compared with 172.5 million pounds in the six-month period a year
ago. Shipments of commercial tube decreased 2.0% primarily as a result of
decreased industrial tube used in residential air conditioning, because
residential air conditioning manufacturers generally did not reach their
expected production levels, as well as decreased technical tube shipments,
because the
9
<PAGE> 11
manufacturers of large commercial air conditioners reduced their production from
previous years' levels. The decline in shipments was offset somewhat by
increased shipments of fabricated products as a result of the acquisition of
Tube Forming, Inc. in September 1996. Shipments of wholesale products increased
13.2% as the Company increased its shipments into the United States. Rod, bar
and strip products decreased 8.2%, primarily as a result of decreased shipments
of strip products to the Canadian mint.
Consolidated gross profit decreased to $44.9 million in the six-month
period of 1997 compared to $49.0 million in the six-month period in 1996. This
decrease is primarily the result of decreased shipments of commercial products,
which are generally the Company's highest margin product, and a shift in product
mix to products with lower margins within the commercial products and an
increase in shipments of wholesale products which tend to have lower margins. In
order for the Company to manage weak market conditions, the Company utilized its
manufacturing capabilities and shifted production to lower margin products
within these two product categories for which there was a stronger market.
Consolidated selling, general and administrative expenses for the
six-month period of 1997 were $11.0 million compared to $11.2 million in the
six-month period of 1996.
During the six-month period of 1997, the Company recognized a one-time
pre-tax charge to operations of $4.4 million ($3.0 million after tax) as
described previously in the three-month period of 1997.
Consolidated net interest expenses for the six-month period in 1997 was
$4.4 million compared to $4.6 million in the six-month period in 1996. This
modest decrease is primarily due to reduced interest expense associated with the
Company's refinancing of debt in April 1997 which was partially offset by
reduced interest income during the six-month period of 1997 resulting from the
Company use of cash holdings in the third quarter of 1996 to purchase Tube
Forming, Inc. The Company incurred an extraordinary charge associated with the
early extinguishment of the Notes. The charge on the extinguishment net of tax
was $4.7 million ($7.5 million pre-tax).
The effective tax rate for the six-month period in 1997 was 36.2%
compared to 36.4% in the six-month period in 1996.
Consolidated net income for the six-month period in 1997 was $11.2
million or $0.78 per share, compared to $20.7 million or $1.45 per share in the
six-month period a year ago. Adjusting for the one-time after tax charge of $3.0
million or $0.21 per share and the extraordinary charge of $4.7 million or $0.33
per share, consolidated net income and earnings per share for the six-month
period in 1997 would have been $18.9 million or $1.32 per share.
10
<PAGE> 12
Liquidity and Capital Resources
Net cash provided by operating activities totaled $12.0 million in the
first six months of 1997 compared to $10.1 million in the first six months of
1996. The change was primarily due to the decrease in net income, deferred
taxes, accrued liabilities, the recognition of the one-time charge and the
extraordinary loss on retirement of debt in the six-month period of 1997
compared to the six-month period of 1996. The $6.0 million decrease in accrued
liabilities is primarily the result of timing difference in income tax payments
made during the six-month period of 1997. The $17.6 million increase in net
accounts receivable from December 31, 1996 is primarily due to increases in
COMEX copper prices over the prevailing prices at year end 1996.
On April 30, 1997, the Company entered into a new five-year $200
million unsecured credit agreement (the "New Credit Agreement") to replace the
Company's existing credit facility, as well as a tender offer for the $99
million in outstanding principal amount of the Notes. The New Credit Agreement
(i) provides for an aggregate available revolving credit facility of $200
million, including a $20 million sublimit facility available to Wolverine Tube
(Canada) Inc., (ii) matures in full in April 2002, and (iii) provides for an
interest rate, at the Company's selection, at a floating base rate that is
either (a) the higher of the federal funds effective rate plus .50% or the prime
rate or (b) LIBOR plus a specified margin of .25% to .875%. Upon the
consummation of the refinancing the Company borrowed approximately $107 million
under the New Credit Agreement, substantially all of which was used to refinance
the purchase of the $98.225 million in Notes that were tendered in the tender
offer and related refinancing expenses. As of June 28, 1997 the Company had
$111.4 million in outstanding borrowings under the New Credit Agreement,
approximately $89 million in additional borrowing availability thereafter, and
an aggregate of $775,000 in aggregate principal amount of the Notes remain
outstanding.
In the ordinary course of business the Company enters into various
types of transactions that involve contracts and financial instruments with
off-balance sheet risk. The Company enters into these financial instruments to
manage financial market risk, including foreign exchange risk, commodity price
risk for certain customers and interest rate risk. The Company is exposed to
loss on the forward contracts in the event of non-performance by the customer
whose orders are covered by such contracts. However, the Company does not
anticipate non-performance by such customers. The Company accounts for its
interest rate swap as a hedge, accordingly, gains and losses are recognized as
interest expense. The Company enters into these financial instruments utilizing
over-the-counter as opposed to exchange traded instruments. The Company
mitigates the risk that counterparties to these over-the-counter agreements will
fail to perform by only entering into agreements with major international
financial institutions.
Capital expenditures were $14.4 million for the first six months of
1997 and $2.3 million for the first six months of 1996. The Company currently
expects to spend approximately $20 million in 1997 under its existing capital
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 from the credit agreement.
11
<PAGE> 13
Upon review of current business and market conditions, the Company
elected to adopt the 1997 Voluntary Early Retirement Program (the "Plan"). This
Plan rewards certain eligible employees who elected on a voluntary basis to take
early retirement from the Company between March 26, 1997 and May 12, 1997. After
the execution of a binding Voluntary Early Retirement Agreement and General
Release by each eligible employee, the Company paid each such employee an early
retirement payment and provided certain other considerations. The payment was an
amount equal to four weeks' base pay plus one additional weeks' pay for each
year of service, up to a maximum of twenty-six weeks' total, less applicable
taxes and withholdings required by law. Twenty-six employees from various
locations and departments throughout the Company elected to participate in the
Plan. At the end of the second quarter the implementation of the Plan was
completed. The Company expects to realize approximately $2.0 million in reduced
salary and related expenses per year as a result of the Plan. Implementation of
the Plan resulted in an approximately $1.8 million charge that was included in
the Company's non-recurring charge and recognized in the second quarter of 1997.
The primary components of the charge relating to the Plan include approximately
$1.0 million relating to severance and vacation pay and $0.6 million of
increased pension expense resulting from these early retirements.
The Company continues to experience unusually weak demand for its
tubular products used in the commercial and residential air conditioning market.
The unanticipated availability of reclaimed chlorofluorocarbons ("CFC's") at
reasonable prices has slowed the rate of replacing large commercial air
conditioners using CFC refrigerants. In addition, the record levels of
manufacturer and distributor residential inventories, compounded by a cool
spring and early summer, has softened demand for the Company's high margin
residential air conditioner products. In addition, wholesale products
experienced price decreases due to a slowdown in product demand and increases in
foreign competition. In order to manage these weak markets, the Company
exercised its flexibility and shifted manufacturing to lower margin products.
These markets are very volatile and are subject to rapid change. However, if
these market conditions persist throughout the third quarter of 1997, the
Company could experience a decrease in fabrication charges of 15-18 percent,
compared to the third quarter of 1996.
Safe Harbor Statement under The Private Securities Litigation Reform Act of 1995
Certain of the statements and subject areas contained herein 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, volitility of commodities markets, unanticipated developments in the
12
<PAGE> 14
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.
Environmental
The Company's facilities and operations are subject to extensive
environmental laws and regulations. During the six-month period ended June 28,
1997, the Company spent approximately $0.6 million on environmental matters
which include remediation costs, monitoring costs and legal and other costs. The
Company has a reserve of $3.0 million for environmental remediation costs which
is reflected in the Company's Condensed Consolidated Balance Sheet. The Company
has approved $3.0 million for capital expenditures relating to environmental
matters during 1997, of which $1.1 has been spent through June 28, 1997. 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.
Oklahoma City, Oklahoma
The Company is one of a number of Potentially Responsible Parties
(PRP's) 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 PRP's 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 PRP's, 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 $800,000.
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
$1.9 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. 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
13
<PAGE> 15
following the receipt of the settlement payment. The Company is currently
awaiting comments and approval from the EPA on a Corrective Measures Study
("CMS") that Henley had submitted to the EPA regarding the Burial Site. The cost
to the Company to comply with the CMS, as currently presented, will not have an
adverse effect in the Company's financial position or results of operations.
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 Westminster 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 PCB's above permissible limits at the New Westminster
Property and in an adjacent tidal flat of the Fraser River. Additional findings
include traces of PCB's 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 New Westminster Property.
The Company currently has no obligation to remediate the soil
contamination at its Montreal property under current Quebec statutes. The traces
of PCB's 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 condensed consolidated
financial statements.
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 Westminster Property. In
14
<PAGE> 16
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 assumes 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
Westminster 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
organic compounds, in soils of 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 Remedial 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 $820,000 and $1,384,000 to complete the investigation and
remediation of this site, of which approximately $701,531 has been spent.
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
15
<PAGE> 17
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 groundwater 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. The pilot study program concluded on June 1, 1997. The Company entered
into a final consent agreement with the MDEQ on July 15, 1997. Remediation
efforts will begin in the third quarter of 1997 and are expected to continue for
approximately three years. The remaining total investigative and remedial costs
could total $1,190,000, under the remediation plan the Company 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 the shared amount would be the sole responsibility of Wolverine.
Other
The Company has been identified by the EPA as one of a number of
(PRP's") 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.
16
<PAGE> 18
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate earnings per
share for all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in an increase in primary earnings per share for
the three-month periods ended June 29, 1996 of $0.02 per share. Additionally,
the impact is expected to result in an increase in primary earnings per share
for the six-month periods ended June 28, 1997 and June 29, 1996 of $0.01 and
$0.05 per share, respectively.
17
<PAGE> 19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There was no material legal proceeding developments during the
three-month period ended June 28, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 1997, the Company held its Annual Meeting of Stockholders.
The matters voted upon at the meeting and the results of these votes are as
follows:
1. Election of Directors Votes For Votes Withheld
--------- --------------
Donald C. Blasius 10,831,866 461,998
Gregory M. Trickey 10,832,166 461,698
2. Amendment and Restatement of the 1993 Equity Incentive Plan
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
9,190,488 1,942,724 160,652
3. Appointment of Ernst & Young, LLP as Independent Auditors
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
11,267,163 11,310 15,391
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings per Share
27 Financial Data Schedule (for SEC use only)
(b) Reports
On March 31, 1997, the Company filed a Form 8-K which contained a
press release that the Company issued on March 31, 1997 announcing
that its Board of Directors had appointed John M. Quarles to serve
as Interim Chief Executive Officer.
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Wolverine Tube, Inc.
--------------------
(registrant)
Dated: August 8, 1997 By: /s/ James E. Deason
------------------------------
James E. Deason
Executive Vice President
Chief Financial Officer
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Number Page Number
-------------- -----------
<S> <C> <C>
11 -- Computation of Earnings per Share
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 11
WOLVERINE TUBE, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three-month period ended: Six-month period ended:
------------------------- -----------------------
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income before extraordinary
item ........................................ $7,063 $10,434 $15,900 $20,697
Extraordinary item, net of
tax ......................................... (4,738) -- (4,738) --
Preferred dividends ......................... (70) (70) (140) (140)
-------- -------- -------- --------
Net income applicable to common
shares ...................................... 2,255 10,364 11,022 20,557
======== ======== ======== ========
Weighted average common shares
outstanding ................................. 14,016 13,736 14,000 13,705
Common equivalent shares
outstanding ................................. 184 405 220 474
======== ======== ======== ========
Weighted average common and
common equivalent shares
outstanding ................................. 14,200 14,141 14,220 14,179
======== ======== ======== ========
Income before extraordinary
item ........................................ $.49 $.73 $1.11 $1.45
Extraordinary item .......................... (.33) -- (.33) --
======== ======== ======== ========
Net income per common share ................. $.16 $.73 $.78 $1.45
======== ======== ======== ========
</TABLE>
- ----------------------------
(1) Represents shares issuable upon the exercise of stock options based
upon the treasury stock method using the average market share. 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME OF WOLVERINE TUBE INC. FOR THE SIX
MONTHS ENDED JUNE 28, 1997, AND THE CONDENSED CONSOLIDATED BALANCE SHEET OF
WOLVERINE INC. DUE AT JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-28-1997
<CASH> 7,240
<SECURITIES> 0
<RECEIVABLES> 96,659<F1>
<ALLOWANCES> 0
<INVENTORY> 71,834
<CURRENT-ASSETS> 176,507
<PP&E> 151,797<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 420,237
<CURRENT-LIABILITIES> 43,936
<BONDS> 113,675
140
0
<COMMON> 2,000
<OTHER-SE> 219,667
<TOTAL-LIABILITY-AND-EQUITY> 420,237
<SALES> 351,658
<TOTAL-REVENUES> 351,658
<CGS> 306,741
<TOTAL-COSTS> 306,741
<OTHER-EXPENSES> 15,628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,382
<INCOME-PRETAX> 24,907
<INCOME-TAX> 9,007
<INCOME-CONTINUING> 15,900
<DISCONTINUED> 0
<EXTRAORDINARY> 4,738
<CHANGES> 0
<NET-INCOME> 11,162
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
<FN>
<F1>THE VALUES FOR THE TAGS RECEIVABLES AND PP&E ARE SHOWN NET OF THEIR
RESPECTIVE ALLOWANCE ACCOUNTS.
</FN>
</TABLE>
