<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 Exchange
- - --- Act of 1934
For the quarterly period ended October 3, 1998
---------------
OR
Transition report pursuant to Section 13 or 15 (d) of the Securities
- - --- Exchange Act of 1934
For the transition period from __________________ to ______________________
Commission file number 1-12164
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WOLVERINE TUBE INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0970812
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1525 Perimeter Parkway, Suite 210
Huntsville, Alabama 35806
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(Address of Principal executive offices) (Zip Code)
(256) 890-0460
--------------
(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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each class of common stock, as of
the latest practicable date:
Class Outstanding at November 6, 1998
----------- -------------------------------
Common Stock, par value $0.01 per share 14,040,660 shares
<PAGE> 2
WOLVERINE TUBE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income (unaudited) -
Three and Nine-Month Periods Ended October 3, 1998 and
September 27, 1997 ......................................... 2
Condensed Consolidated Balance Sheets (unaudited) -
October 3, 1998 and December 31, 1997 ...................... 3
Condensed Consolidated Statements of Cash Flows (unaudited) -
Nine-Month Periods Ended October 3, 1998 and
September 27, 1997 ......................................... 4
Notes to Condensed Consolidated
Financial Statements (unaudited) ........................... 5
. Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 10
PART II. Other Information
Item 1. Legal Proceedings........................................... 21
Item 6. Exhibits and Reports on Form 8-K............................ 21
</TABLE>
<PAGE> 3
WOLVERINE TUBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE - MONTH PERIOD ENDED: NINE - MONTH PERIOD ENDED:
--------------------------- ---------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales..................................................... $147,855 $159,380 $487,794 $511,038
Cost of goods sold............................................ 129,459 140,871 418,938 447,612
-------- -------- -------- --------
Gross profit.................................................. 18,396 18,509 68,856 63,426
Selling, general and administrative expenses.................. 6,128 5,243 18,677 16,239
Non-recurring and other charges............................... 11,867 -- 11,867 4,384
-------- -------- -------- --------
Income from operations........................................ 401 13,266 38,312 42,803
Other expenses:
Interest expense........................................... 1,808 1,602 4,596 5,984
Amortization and other, net................................ 134 152 569 400
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item......................................... (1,541) 11,512 33,147 36,419
Income tax provision (benefit)................................ (707) 4,223 11,738 13,230
-------- -------- -------- --------
Income (loss) before extraordinary item....................... (834) 7,289 21,409 23,189
Extraordinary item, net of income tax benefit of $2,782 ...... -- -- -- 4,738
-------- -------- -------- --------
Net income (loss)............................................. (834) 7,289 21,409 18,451
Less: preferred stock dividends............................... (70) (70) (210) (210)
-------- -------- -------- --------
Net income (loss) applicable to common shares................. $ (904) $ 7,219 $ 21,199 $ 18,241
======== ======== ======== ========
Earnings per common share - basic:
Income (loss) before extraordinary item.................... $(0.06) $ 0.51 $ 1.50 $ 1.64
Extraordinary item, net of income tax benefit.............. -- -- -- (0.34)
-------- -------- -------- --------
Net income (loss) per share................................ ($0.06) $ 0.51 $ 1.50 $ 1.30
======== ======== ======== ========
Basic weighted average number of common
shares................................................. 14,133 14,057 14,110 14,018
======== ======== ======== ========
Earnings per common share - diluted:
Income (loss) before extraordinary item.................... $ (0.06) $ 0.51 $ 1.48 $ 1.61
Extraordinary item, net of income tax benefit.............. -- -- -- (0.33)
-------- ------- -------- --------
Net income (loss) per share................................ $ (0.06) $ 0.51 $ 1.48 $ 1.28
======== ======= ======== ========
Diluted weighted average number of common and
common equivalent shares............................... 14,284 14,240 14,291 14,227
======== ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
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WOLVERINE TUBE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
OCTOBER 3, DECEMBER 31,
1998 1997
ASSETS ------------ -------------
Current assets: (UNAUDITED) (NOTE)
<S> <C> <C>
Cash and equivalents........................................................ $ 95,887 $ 15,096
Accounts receivable, net.................................................... 81,549 71,879
Inventories................................................................. 90,313 87,829
Prepaid expenses and other.................................................. 1,325 1,067
---------- ---------
Total current assets..................................................... 269,074 175,871
Property, plant and equipment, net............................................. 190,729 153,917
Deferred charges and intangible assets, net.................................... 87,203 87,937
Prepaid pensions............................................................... 7,194 7,197
---------- ---------
Total assets............................................................. $ 554,200 $ 424,922
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 32,184 $ 39,937
Accrued liabilities......................................................... 11,801 6,429
Deferred income taxes....................................................... 3,875 3,659
---------- ---------
Total current liabilities................................................ 47,860 50,025
Deferred income taxes.......................................................... 26,343 27,057
Long-term debt................................................................. 215,663 98,411
Postretirement benefit obligations............................................. 11,750 12,126
Accrued environmental remediation.............................................. 3,286 2,540
---------- ---------
Total liabilities........................................................ 304,902 190,159
Redeemable cumulative preferred stock, par value $1 per share; 20,000
Shares issued and outstanding at October 3, 1998 and
December 31, 1997 .......................................................... 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; 40,000,000 shares
authorized, 14,071,660 and 14,069,064 shares issued and outstanding at
October 3, 1998 and December 31, 1997, respectively........................ 141 141
Additional paid-in capital.................................................. 101,241 100,064
Retained earnings........................................................... 164,272 143,073
Accumulated currency translation adjustment................................. (16,791) (10,515)
Less treasury stock at cost................................................. (1,565) --
---------- ---------
Total stockholders' equity............................................... 247,298 232,763
---------- ---------
Total liabilities, redeemable cumulative preferred stock
and stockholders' equity................................................ $ 554,200 $ 424,922
========== =========
</TABLE>
Note: The Balance Sheet at December 31, 1997 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
<PAGE> 5
WOLVERINE TUBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
NINE - MONTH PERIOD ENDED:
--------------------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................ $ 21,409 $ 18,451
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................................... 13,172 12,881
Deferred income taxes.............................................. -- (411)
Non-cash portion of non-recurring charge........................... 8,174 3,533
Extraordinary loss on retirement of debt........................... -- 4,738
Changes in operating assets and liabilities:
Accounts receivable............................................... (11,592) (9,257)
Inventories....................................................... (2,930) 1,708
Prepaid expenses and other........................................ (958) (1,401)
Accounts payable.................................................. (6,972) 10,017
Accrued liabilities including pension, postretirement benefit
and environmental................................................ 5,083 (889)
----------- ----------
Net cash provided by operating activities............................. 25,386 39,370
INVESTING ACTIVITIES
Additions to property, plant and equipment............................ (24,565) (17,349)
Acquisition of business assets........................................ (33,280) (4,048)
Other................................................................. (24) (132)
----------- ----------
Net cash used by investing activities................................. (57,869) (21,529)
FINANCING ACTIVITIES
Financing fees........................................................ (1,686) (820)
Net borrowings (repayments) from revolving credit facility............ (31,999) 92,115
Issuance of common stock.............................................. 1,177 907
Premium and fees paid on retirement of debt........................... -- (5,517)
Principal payments on long-term debt and capitalized
lease obligations.................................................. (351) (98,440)
Proceeds from issuance of long-term debt.............................. 149,683 --
Purchase of treasury stock ........................................... (1,565) --
Dividends paid ....................................................... (210) (210)
----------- ----------
Net cash provided (used) by financing activities..................... 115,049 (11,965)
Effect of exchange rate on cash and equivalents....................... (1,775) (41)
----------- ----------
Net increase in cash and equivalents.................................. 80,791 5,835
Cash and equivalents beginning of period.............................. 15,096 2,967
----------- ----------
Cash and equivalents end of period.................................... $ 95,887 $ 8,802
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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WOLVERINE TUBE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 3, 1998
(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 consolidated 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 consolidated
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 nine-month period ended October 3, 1998 are not necessarily
indicative of the results of operations that may be expected for the year
ending December 31, 1998. 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, 1997. The Company uses its internal
operational reporting cycle for quarterly financial reporting.
In May 1998, the Company acquired a facility located in Jackson,
Tennessee, and the related welded tube manufacturing equipment and technology,
from a subsidiary of Korea-based Poongsan Corporation. The equipment at this
facility is being installed and tested, and commercial production is expected
to begin in January 1999. The aggregate purchase price was approximately $33
million.
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 $3,286,000
as of October 3, 1998, consisting primarily of $34,000 for estimated
remediation costs for the London and Fergus, Canada, facilities, $1,028,000 for
the Decatur, Alabama facility, $704,000 for the Greenville, Mississippi
facility, $750,000 for the Jackson, Tennessee facility and an aggregate of
$770,000 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 reasonably
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likely to have a material adverse effect on the Company's consolidated financial
condition, results of operations or liquidity.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------
Inventories are as follows: October 3, December 31,
1998 1997
- - ------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Finished products $20,687 $21,235
Work-in-progress 23,591 23,515
Raw materials and supplies 46,035 43,079
- - ------------------------------------------------------------------
$90,313 $87,829
==================================================================
</TABLE>
NOTE 4 - INTEREST EXPENSE, NET
Interest expense is net of interest income and capitalized interest of
$1,693,000 and $162,000 for the three-month periods ended October 3, 1998 and
September 27, 1997, respectively, and $2,582,000 and $537,000 for the
nine-month periods ended October 3, 1998 and September 27, 1997, respectively.
NOTE 5- LONG-TERM DEBT
The Company's $200 million Revolving Credit Facility (the "Facility"),
as amended, matures in full on April 30, 2002 and currently provides for a
floating base interest rate that is, at the Company's election, either (a) the
higher of the federal funds effective rate plus .50% and the prime rate or (b)
LIBOR plus a specified margin (determined with reference to the Company's ratio
of total debt to EBITDA and the Company's debt rating as determined by the
Standard & Poor's and Moody's Rating Services) of .25% to 1.00%. Commitment
fees on the unused available portion of the Facility range from .10% to .50%.
As of October 3, 1998, the Company had approximately $67 million in outstanding
borrowings and obligations under the Facility and approximately $133 million in
additional borrowing availability thereunder.
The Company is currently party to an interest rate swap agreement
which effectively fixes the interest rate on $65,000,000 in principal amount of
floating rate borrowings provided under the Facility at a rate of 6.82% plus
the specified margin of .25% to 1.00% . This agreement expires on May 7, 2002
and is based on 3-month LIBOR. This interest rate swap is accounted for as a
hedge; the differential to be paid as interest rates change is accrued and
recognized as an adjustment to interest expense.
In August 1998, the Company issued $150 million in principal amount of
7 3/8 % Senior Notes (the "Notes") due August 1, 2008. The Notes were issued
pursuant to an Indenture, dated as of August 4, 1998, between the Company and
First Union National Bank, as Trustee. The net proceeds from the sale of the
notes were applied to reduce borrowings by approximately $58 million under the
Facility. The remaining net proceeds will be used for capital expenditures,
potential future acquisitions, working capital and other general corporate
purposes. The Notes (i) have interest payment dates on February 1 and August 1
of each year, commencing February 1, 1999, (ii) are redeemable at the option of
the Company at a redemption price equal to the greater of (x) 100% of the
principal amount of the Notes to
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be redeemed or (y) the sum of the present value of the remaining scheduled
payments of principal and interest thereon from the redemption date to the
maturity date, discounted to the redemption date on a semiannual basis at a
rate based upon the yield of the specified treasury securities ("Treasury
rate") plus 25 basis points, plus, in each case, accrued interest thereon to
the date of redemption, (iii) are senior unsecured obligations of the Company
and are pari passu in right of payment with any existing and future senior
unsecured indebtedness of the Company, including borrowings under the Facility,
(iv) are guaranteed by certain of the Company's subsidiaries, and (v) are
subject to the terms of the Indenture, which contains certain covenants that
limit the Company's ability to incur indebtedness secured by certain liens and
to engage in sale/leaseback transactions.
NOTE 6 - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, Reporting Comprehensive Income ("Statement
130"). Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of Statement 130
had no impact on the Company's net income or stockholders' equity. Statement
130 requires unrealized gains or losses on the Company's foreign currency
translation adjustments, which prior to adoption of Statement 130 were reported
separately in stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of Statement 130. During the third quarters of 1998 and 1997,
total comprehensive income (loss) amounted to ($3,523,000) and $7,194,000,
respectively. For the first nine months of 1998 and 1997, total comprehensive
income amounted to $17,154,000 and $17,947,000, respectively.
NOTE 7 - NON - RECURRING CHARGES
During the third quarter of 1998, the Company recognized a
non-recurring pre-tax charge of $11,867,000 ($7,460,000 after tax). This charge
included $7.4 million of expenses related to the closing of the Company's
Greenville, Mississippi facility of which $5.6 million of expenses relate to
the write-off of impaired assets resulting primarily from the closing of this
facility; $2.7 million of expenses related to efficiency initiatives being
implemented at the Company's North Carolina facility; $0.9 million of expenses
related to the implementation of a salaried workforce reduction program and
$0.9 million of professional fees and other costs primarily associated with an
acquisition that was not completed. As the Greenville, Mississippi facility is
no longer operational, the net assets of this facility have been recorded at
their estimated net realizable value which is $0.7 million.
During the second quarter of 1997, the Company recognized a
non-recurring, pre-tax charge of $4,384,000 ($2,997,000 after tax). This charge
included $1.8 million of expenses related to the implementation of the
Company's 1997 Voluntary Early Retirement Program; $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
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NOTE 8 - EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three-month period ended: Nine-month period ended:
- - -----------------------------------------------------------------------------------------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
- - -----------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $ (834) $ 7,289 $ 21,409 $ 23,189
Extraordinary item, net of income tax benefit -- -- -- 4,738
- - ---------------------------------------------------------------------------------------------------------
Net income (loss) $ (834) 7,289 21,409 18,451
Preferred dividends (70) (70) (210) (210)
=========================================================================================================
Net income (loss) applicable to
Common shares $ (904) $ 7,219 $ 21,199 $ 18,241
=========================================================================================================
Basic weighted common
shares outstanding 14,133 14,057 14,110 14,018
Employee stock options 151 183 181 209
- - ---------------------------------------------------------------------------------------------------------
Diluted weighted average common
and common equivalent shares
outstanding 14,284 14,240 14,291 14,227
=========================================================================================================
Earnings per share-basic:
Income (loss) before extraordinary item $ (0.06) $ 0.51 $ 1.50 $ 1.64
Extraordinary items, net of income tax benefit -- -- -- (0.34)
- - ---------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ (0.06) $ 0.51 $ 1.50 $ 1.30
=========================================================================================================
Earnings per share-diluted:
Income (loss) before extraordinary item $ (0.06) $ 0.51 $ 1.48 $ 1.61
Extraordinary item, net income tax benefit -- -- -- (0.33)
- - ---------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ (0.06) $ 0.51 $ 1.48 $ 1.28
=========================================================================================================
</TABLE>
8
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NOTE 9- STOCK REPURCHASE PLAN
On September 17, 1998, the Board of Directors authorized the Company
to purchase up to 1,000,000 of the Company's outstanding common stock at market
prices from time to time through September 18, 1999. The aggregate purchase
price for such purchases of common stock shall not exceed $25,000,000. As of
October 3, 1998, the Company had repurchased 75,400 shares.
9
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WOLVERINE TUBE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three-Month Period Ended October 3, 1998 Compared to
Three-Month Period Ended September 27, 1997
For the three-month period ended October 3, 1998, consolidated net
sales were $147.9 million compared with $159.4 million in the three-month
period ended September 27, 1997. The decrease in sales for the three-month
period this year versus last year was primarily attributable to a significant
decrease in the average price of copper which was partially offset by an
increase in pounds of product shipped and an increase in fabrication charges.
Fabrication charges represent the amount charged by the Company for converting
raw materials into finished products. The cost of copper is generally passed
along to the Company's customers and is included in the costs of goods sold. The
average Comex price of copper was $0.75 per pound in the most recent three-month
period compared with $1.02 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 1998 increased by
5.6 million pounds to 87.5 million pounds compared with 81.9 million pounds in
the three-month period a year ago. Shipments of commercial tube products
increased 9.6% to 53.7 million pounds, primarily as a result of increased
shipments of industrial tube used in the residential air conditioning industry.
The increase in shipments of industrial tube was offset somewhat by reduced
shipments of technical tube products. Technical tube shipments decreased over
prior period levels as the Company has experienced lower than anticipated
demand for these products from major customers, especially those customers with
significant international sales. The Company's shipments of wholesale products
decreased by 1.8% to 18.9 million pounds during the third quarter. Shipments of
rod, bar and strip products increased 9.0% to 14.9 million pounds as shipments
of strip products to the Canadian mint increased as compared to the same period
in the prior year. The Company expects that the continued international
economic weakness, particularly in Asia, will continue to affect the demand for
technical tube in the remainder of 1998 and 1999.
Consolidated gross profit decreased 0.5% to $18.4 million in the
three-month period of 1998 compared to $18.5 million in the same period of
1997. The decrease is the result of the recognition of $2.1 million of
non-recurring charges recognized in cost of sales. These charges include $1.4
million of costs associated with the closing of the Company's Greenville,
Mississippi facility and $0.7 million of costs associated with efficiency
initiatives being implemented at the Company's North Carolina Facility.
Consolidated selling, general and administrative expenses for the
three-month period of 1998 were $6.1 million as compared to $5.2 million in the
three-month period in 1997. This increase was primarily the result of increased
employee benefits, marketing expenses, as well as increased professional fees.
10
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During the three-month period of 1998, the Company recognized a
non-recurring, pre-tax charge of $11.9 ($7.5 million after tax). This charge
included $7.4 million of expenses related to the closing of the Company's
Greenville, Mississippi facility of which $5.6 million of expenses relate to
the write-off of impaired assets resulting primarily from the closing of this
facility; $2.7 million of expenses related to efficiency initiatives being
implemented at the Company's North Carolina facility; $0.9 million of expenses
related to the implementation of a salaried workforce reduction program and
$0.9 million of professional fees and other costs primarily associated with an
acquisition that was not completed. As the Greenville, Mississippi facility is
no longer operational, the net assets of this facility which are held for sale
have been recorded at their estimated net realizable value.
Consolidated net interest expense for the three-month period in 1998
increased to $1.8 million from $1.6 million in the three-month period in 1997.
This increased is primarily the result of increased interest expense associated
with the Company's issuance of $150 million in principal amount of 7 3/8 %
Senior Notes in August 1998 (the "Notes") which was partially offset by
increased interest income generated from investing the remaining proceeds of the
Notes and increased capitalized interest associated with several capital
projects during the quarter.
The Company recognized a tax benefit of $0.7 million resulting from
the recognition of the non-recurring charges described above during the third
quarter of 1998. Excluding the effect of the tax benefit and the associated
non-recurring charges, the effective tax rate was 36.0% in the third quarter of
1998. The effective tax rate for the three-month period ended September 27, 1997
was 36.7%.
Excluding the non-recurring charges recognized in the three-month
period in 1998, consolidated net income was $8.0 million or $0.55 per diluted
share or $0.56 per basic share compared to $7.3 million or $0.51 per diluted
and basic share, in the three-month period a year ago.. Consolidated net income
(loss) for the three-month period in 1998 was ($0.8) million or ($0.06) per
diluted share and per basic share.
Nine-Month Period Ended October 3, 1998 Compared to
Nine-Month Period Ended September 27, 1997
For the nine-month period ended October 3, 1998, consolidated net
sales were $487.8 million compared with $511.0 million in the nine-month period
ended September 27, 1997. The decrease in sales for the nine-month period this
year versus last year was primarily attributable to a decrease in copper prices
which was partially offset by an increase in pounds of product shipped and an
increase in fabrication charges. The average Comex price of copper was $0.77
per pound in the most recent nine-month period compared with $1.09 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 nine-month period of 1998 increased by
25.0 million pounds to 279.6 million pounds compared with 254.6 million pounds
in the nine-month period a year ago. Shipments of commercial tube products
increased 9.2% to 173.9 million pounds, primarily as a result of increased
shipments of industrial tube used in the residential air conditioning industry
and increased shipments of technical tube. The Company's shipments of wholesale
products increased by 9.6% to 63.2
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million pounds in the nine-month period of 1998. Shipments of rod, bar and
strip products increased 13.1% to 42.5 million pounds as shipments of rod and
bar products to Canadian service centers increased and strip products to the
Canadian mint increased as compared to the same period in the prior year.
Consolidated gross profit increased 8.7% to $68.9 million in the
nine-month period of 1998 compared to $63.4 million in the nine-month period of
1997. This increase is primarily the result of increased shipments of
commercial products, which are generally the Company's highest margin products.
In addition, the increase in shipments of wholesale products resulted from an
increase in unit fabrication charges in the United States market, resulting in
increased gross profit for these products during the nine-month period in 1998
as compared to the nine-month period in 1997. In addition, the increase in
gross profit was offset by the $2.1 million of non-recurring charges recorded
in costs of sales in the nine-month period of 1998 as previously discussed.
Consolidated selling, general and administrative expenses for the
nine-month period of 1998 were $18.7 million as compared to $16.2 million in
the nine-month period in 1997. This increase was primarily the result of
increased employee benefits and marketing expenses, as well as increased
professional fees associated with among other things the Company's conversion
of its computer system.
During the nine-month period of 1998, the Company recognized a
non-recurring, pre-tax charge to operations of $11.9 million ($7.5 million
after taxes), as previously discussed.
During the nine-month period of 1997, the Company recognized a
non-recurring, pre-tax charge to operations of $4.4 ($3.0 million after taxes).
This one-time charge included $1.8 million of expenses related to the
implementation of the Company's 1997 Voluntary Early Retirement Program; $1.3
million of severance costs primarily associated with the departure of the
Company's former Chief Executive Officer; $0.6 million of professional fees and
other costs associated with an acquisition that was not completed; and $0.7
million of the costs of discontinuing the Poland operations of Small Tube
Manufacturing Corporation (a wholly-owned subsidiary of the Company).
Consolidated net interest expense for the nine-month period in 1998
decreased to $4.6 million from $6.0 million in the nine-month period in 1997.
This decrease is primarily the result of reduced interest expense achieved
through the Company's April 1997 refinancing and the related repayment of its
10 1/8% Senior Subordinated Notes due 2002 (the "10 1/8% Notes"), increased
interest income from investing the remaining proceeds of the Notes and increased
capitalized interest associated with several capital projects in 1998. This
decrease was partially offset by increased interest expense associated with the
Company's issuance of $150 million in principal amount of 7 3/8% Senior Notes
in August 1998. The Company incurred an extraordinary charge associated with
the early extinguishment of the 10 1/8% 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 nine-month period ended October 3, 1998
was 35.4%, compared with 36.3% in the nine-month period a year ago. The reduced
effective tax rate in the nine-month period in 1998 is the result of the
Company recognizing a tax benefit resulting from the recognition of the
non-recurring charges in the third quarter of 1998. Excluding the effect of the
tax benefit and the associated non-recurring charges, the effective tax rate
was 35.9% in the nine-month period of 1998.
12
<PAGE> 14
Excluding the non-recurring charges in the current year period and the
non-recurring charge and the extraordinary charge in the prior year period,
consolidated net income and diluted earnings per share for the nine- month
period of 1998 would have been $30.2 million or $2.10, compared to $26.2 million
or $1.83 per diluted share in the prior year period. Consolidated net income for
the nine-month period in 1998 was $21.4 million or $1.48 per diluted share,
compared to $18.5 million or $1.28 per diluted share, or $1.30 per basic share.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $25.4 million in the
first nine-months of 1998 compared $39.4 million in the first nine-months of
1997. The decrease in cash provided by operations in the first nine-months of
1998 was primarily due to increased accounts receivables and decreased accounts
payable which was partially offset by an increase in accrued liabilities. The
$11.6 million increase in net accounts receivable from December 31, 1997 is
primarily due to increased sales volume which was partially offset by decreases
in Comex copper prices over the prevailing prices at year end 1997.
In June 1998, the Company amended certain provisions of the Company's
$200 million Revolving Credit Facility (the "Facility"), which included (i)
increasing the amount of unsecured indebtedness that the Company may incur
while borrowings under the Facility are outstanding, (ii) waiving the
requirement that the proceeds of the Notes must be used to repay all the
outstanding borrowings under the Facility and (iii) raising the ratio of total
debt to EBITDA permitted while borrowings are outstanding under the Facility.
The Facility, as amended, matures in full on April 30, 2002 and currently
provides for a floating base interest rate that is, at the Company's election,
either (a) the higher of the federal funds effective rate plus .50% and the
prime rate or (b) LIBOR plus a specified margin (determined with reference to
the Company's ratio of total debt to EBITDA and the Company's debt rating as
determined by the Standard & Poor's and Moody's Rating Services) of .25% to
1.00%. Commitment fees on the unused available portion of the Facility range
from .10% to .50%. As of October 3, 1998, the Company had approximately $67
million in outstanding borrowings and obligations under the Facility and
approximately $133 million in additional borrowing availability thereunder.
In May 1998, the Company acquired a facility located in Jackson,
Tennessee, and the related welded tube manufacturing equipment and technology,
from a subsidiary of Korea-based Poongsan Corporation. The equipment at this
facility is being installed and tested and commercial production is expected to
begin in January 1999. The aggregate purchase price was approximately $33
million and was financed, in part, using borrowings under the revolving credit
facility.
During the third quarter of 1998, the Company implemented a work force
reduction program of approximately fifty salaried positions from various
locations and departments which was primarily aimed at reducing administrative
costs. Each terminated employee's severance pay was, in general, calculated in
accordance with a Severance Pay Plan (the "Severance Plan"), which provides
benefits to all eligible employees who have at least one year of service and
who are terminated for reasons other than cause. Severance benefits include
payment of all accrued vacations and two weeks pay at the employees current
base salary plus one week's pay for each full year of continuous service, not
to exceed 26 weeks. Acceptance of severance benefits constitutes a release of
all claims against the Company, except claims in
13
<PAGE> 15
accordance with the provisions of applicable benefit plans. The Company expects
to realize approximately $2.0 million in reduced salary and related expenses
per year as a result of this workforce reduction. Implementation of the work
force reduction program resulted in an approximate $0.9 million charge that was
included in the Company's non-recurring charge and recognized in the third
quarter of 1998. The primary components of the charge relating to the work
force reduction program included approximately $0.8 million relating to
severance and vacation pay and $0.1 million related to professional fees and
miscellaneous expenses resulting from the terminations.
During the third quarter of 1998, the Company implemented plans to
close the Greenville, Mississippi fabricated products facility. Customers of
this facility will be served by the Company's Ardmore, Tennessee; Altoona,
Pennsylvania; or Carrolton, Texas facilities. The closing of the facility was
completed in early November 1998 and the approximately 140 employees received
severance pay in accordance with the Severance Plan as well as receiving their
regular pay for sixty days subsequent to the notice of closure. The Company
expects to realize approximately $2.5 million in reduced salary and related
expenses per year as a result of the closure of this facility. Implementation
of the plan to close this facility has resulted in an approximate $8.7 million
charge, of which $7.3 million is included in non-recurring and other charges
and $1.4 million is included in cost of goods sold. Primary components of the
charge relating to closing the Greenville facility include $5.6 million related
to write down of impaired fixed assets, $1.6 million primarily related to
severance costs and $1.5 million primarily related to other asset write downs
and operating inefficiency's resulting from the closure of this facility.
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 counter parties to these over-the-counter agreements
will fail to perform by only entering into agreements with major international
financial institutions.
Capital expenditures were $24.6 million for the first nine-months of
1998 compared to $17.3 million for the first six-months of 1997. The Company
currently expects to spend approximately $35 million in the aggregate in 1998
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 Facility and the Notes.
During the nine-month period in 1998, the Company purchased 75,400
shares of the Company's common stock for $1.6 million. The shares were
purchased in accordance with a stock repurchase program authorized in the third
quarter of 1998 by the Company's Board of Directors. The program allows for the
purchase of up to 1,000,000 shares of common stock at market prices from time
to time through September 18, 1999. As of November 6, 1998, the Company has
purchased 254,800 shares of common stock under the repurchase program.
14
<PAGE> 16
SENIOR NOTES DUE 2008
In August 1998, the Company issued $150 million in principal amount of
the Notes. The Notes were issued pursuant to an Indenture, dated as of August
4, 1998 between the Company and First Union National Bank, as Trustee. The net
proceeds from the sale of the notes were applied to reduce borrowings by
approximately $58 million under the Facility. Of the remaining net proceeds,
the Company intends to use approximately $55 million for capital expenditures
during 1998 and 1999, and to use the balance of the net proceeds for potential
future acquisitions, working capital and other general corporate purposes.
Pending such uses, the Company will invest such proceeds in short-term
interest-bearing securities. The Notes (i) have interest payment dates on
February 1 and August 1 of each year, commencing February 1, 1999, (ii) are
redeemable at the option of the Company at a redemption price equal to the
greater of (x) 100% of the principal amount of the Notes to be redeemed or (y)
the sum of the present value of the remaining scheduled payments of principal
and interest thereon from the redemption date to the maturity date, discounted
to the redemption date on a semiannual basis at the Treasury Rate plus 25 basis
points, plus, in each case, accrued interest thereon to the date of redemption,
(iii) are senior unsecured obligations of the Company and are pari passu in
right of payment with any existing and future senior unsecured indebtedness of
the Company, including borrowings under the Facility, (iv) are guaranteed by
certain of the Company's subsidiaries, and (v) are subject to the terms of the
Indenture, which contains certain covenants that limit the Company's ability to
incur indebtedness secured by certain liens and to engage in sale/leaseback
transactions.
IMPACT OF YEAR 2000
The Company utilizes a number of computer software programs and
operating systems throughout its organization, including applications used in
order processing, shipping and receiving, accounts payable and receivable
processing, financial reporting and in various other administrative functions.
The Company recognizes the need to ensure that its operations will not be
adversely impacted by applications and processing issues related to the
upcoming calendar year 2000 (the "Year 2000 Issue"). The Year 2000 Issue is the
result of computer programs that have been written to recognize two digit,
rather than four digit, date codes to define the applicable year. To the extent
that the Company's software applications contain source codes that are unable
to appropriately interpret a code using "00" as the upcoming year 2000 rather
than 1900, the Company could experience system failures or miscalculations that
could disrupt operations and cause a temporary inability to process
transactions, send and process invoices or engage in similar normal business
activities.
Based on an assessment of its systems, the Company determined that it
will be required to modify or replace significant portions of its software so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. The Company presently believes that with modifications
to its existing software and certain conversions to new software, the Year 2000
Issue will not present significant operational problems for its computer
systems. In addition, the Company's systems and operations are dependent, in
part, on interaction with systems operated or provided by vendors or other
third-parties, and the Company is currently surveying those parties about their
progress
15
<PAGE> 17
in identifying and addressing problems that their computer systems may face in
connection with the Year 2000 Issue. The Company estimates that it has no
exposure for contingencies related to the Year 2000 Issue for the products it
has sold.
The Company's plan to address the Year 2000 Issue ("the Plan")
identifies exposure in three different areas: information technology, operating
equipment with embedded chips or software and third- party vendors. In addition,
the Plan involves the following four phases for each one of the exposure areas:
assessment, remediation, testing and implementation. With respect to information
technology, the Company has fully completed its assessment of this area. This
assessment indicated that most of the Company's significant information
technology systems could be affected, particularly the general ledger, billing,
payables and inventory systems. To date, the Company is 90% complete on the
remediation phase for the information technology area and expects to complete
software reprogramming and replacement no later than March 31, 1999. Once
software is reprogrammed or replaced, the Company begins testing and
implementation. These phases run concurrently for multiple systems. To date, the
Company has completed 50% of its testing and has implemented 50% of its
remediation systems. Completion of the testing phase for all significant systems
is expected by March 31, 1999, with all remediation and implementation of
systems expected to be fully tested and operational by June 30, 1999.
The Company is beginning the assessment and remediation phases for its
operating equipment with embedded chips or software. As the assessment phase
continues, the Company will begin to develop and implement any necessary
remediation efforts with the manufacturers or servicers of the operating
equipment. The target for completion of the remediation phase is March 31, 1999.
Testing of this equipment is more difficult than the testing of the information
technology systems. Testing and implementation of affected equipment is targeted
to be complete by June 30, 1999.
The assessment of third- party vendors or customers and their exposure
to the Year 2000 Issue is 100% complete for systems that directly interface
with the Company and 50% complete for all other material exposure. The Company
expects to complete surveying all third-parties by December 1998. The Company
has completed its remediation efforts on these systems and is 50% complete with
the testing and implementation phases. The Company expects to complete the
testing phase for systems interface work by April 30, 1999. The Company has
queried its significant suppliers that do not share information systems with
the Company (external agents). To date, the Company is not aware of any
external agent with a Year 2000 issue that would materially impact the
Company's results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that external agents will be Year 2000
compliant. The inability of external agents to complete their Year 2000
resolution processing a timely fashion could materially impact the Company.
The effect of non-compliance by external agents is not determinable by the
Company.
The Company is utilizing both internal and external resources to
reprogram, or replace, and test its software for Year 2000 modifications. The
total cost of the Year 2000 project is estimated at $5.5 million and is being
funded through operating cash flows. Of the total project cost, approximately
$5.3 million is attributable to the purchase of new software, which will be
capitalized. The remaining $0.2 million, which will be expensed as incurred, is
not expected to have a material effect on the results of operations. To date,
the Company has incurred approximately $2.8 million of costs related to the
assessment, remediation and implementation efforts in its Year 2000 modification
project, the development of the plan for the purchase
16
<PAGE> 18
of new systems and system modifications. The Company has engaged an independent
outside consultant ("the Consultant") to review the adequacy, completeness and
feasibility of the Plan. The consultant has made recommendations that the
Company is currently considering regarding improvements to the Plan. After the
Company completes the review and responds to these recommendations, the
Consultant will review the Company's responses to these recommendations and will
continue to monitor the Company's execution of the Plan. The Company currently
has no contingency plans in place in the event it does not complete all phases
of the Year 2000 remediation program. The Company plans to evaluate the status
of completion in March 1999 and determine whether such a plan is necessary.
The costs of the project and the timeframe in which the Company
believes it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third-party
modification plans and other factors. Specific factors that might result in
additional costs or time delays include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. Based upon
the Company's current estimates, the Company does not anticipate that the cost
of compliance with the Year 2000 Issue will be material to its business,
financial condition or results of operations; however, there can be no
assurance that the Company's systems, or those of its vendors, customers or
other third parties, will be made Year 2000 compliant in a timely manner or
that the impact of the failure to achieve such compliance will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
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 the Company sells its products, the impact of competitive products and
pricing, extraordinary fluctuations in the pricing and supply of the Company's
raw materials, volatility of commodities markets, 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.
ENVIRONMENTAL
The Company's facilities and operations are subject to extensive
environmental laws and regulations. During the nine-month period ended October
3, 1998, the Company spent approximately
17
<PAGE> 19
$0.3 million on environmental matters which include remediation costs,
monitoring costs and legal and other costs. The Company has a reserve of $3.3
million for environmental remediation costs which is reflected in the Company's
Condensed Consolidated Balance Sheet. The Company has approved and spent $0.4
million for capital expenditures relating to environmental matters during 1998.
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 prorata share of an
aggregate amount based upon the EPA's worst-cast cost scenario to remediate the
site. Under the current proposal, the Company's settlement amount is estimated
to be $390,000.
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 $1.0 million. 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 on the Company's
financial position, results of operations or liquidity.
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 an 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
18
<PAGE> 20
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 $380,000 and $1,180,000 to complete the
investigation and remediation of this site.
A 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 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 began in the third quarter of 1997 and are expected
to take approximately three years. However, there can be no assurance that
remediation efforts will be allowed to be discontinued after three years, and
operations, maintenance and other expenses of the remediation system may
continue for a longer period of time. Through October 3, 1998, applicable costs
of testing and remediation required at the Greenville facility have been shared
with the former owners of the facility pursuant to the terms of an Escrow
Agreement established at the time the facility was acquired. Subsequent to
October 3, 1998, the Company released the former owners of the facility from
liability related to the remediation of the Greenville Facility following the
receipt of a $145,000 settlement payment. The Company estimates the remaining
investigative and remedial costs could total $704,000 under the remediation
plan the Company adopted, but these costs could increase if additional
remediation is required.
Jackson, Tennessee
In connection with the Company's acquisition of its Jackson, Tennessee
facility (the "Jackson Facility"), a preliminary investigation disclosed soil
and or groundwater contamination at this site. The Company has performed a Phase
I Environmental Audit and identified the existence of volatile organic
contaminants; however, the extent of any such contamination has not been fully
determined. Investigation at the site is being conducted pursuant to a consent
order with the State of Tennessee by a prior owner of the property. Based on
currently available information, the Company preliminarily estimates that
remediation costs could amount up to $750,000. However, certain of the
remediation costs may be reimbursed pursuant to the terms of an indemnification
agreement between the Company and the previous owners of the Jackson Facility.
19
<PAGE> 21
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities." This statement provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities.
Statement No.133 requires all derivatives to be recorded on the balance sheet
at fair value and establishes special accounting for the following three
different types of hedges of changes in the fair value of assets and
liabilities of firm commitments; hedges of the variable cash flows of
forecasted transactions; and hedges of foreign currency exposures of net
investments in foreign operations. Though the accounting treatment and criteria
for each of the three types of hedges is unique, they all result in recognizing
offsetting changes in value or cash flows of both the hedge and hedged item in
earnings in the same period. Changes in the fair value of derivatives that do
not meet the criteria of one of these three categories of hedges are included
in earnings in the period of the change. Statement No. 133 is effective for
fiscal years beginning after June 15, 1999, but early adoption is allowed.
Adoption of this statement is not expected to have a material effect on the
Company's consolidated financial statements.
20
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material legal proceeding developments during the
three-month period ended October 3, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule (for SEC use only)
27.2 Financial Data Schedule (for SEC use only)
(b) Reports
The Company filed no reports on Form 8-K during the
three-month period ended October 3, 1998.
21
<PAGE> 23
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: November 16, 1998 By: /s/ James E. Deason
------------------------
James E. Deason
Executive Vice President
Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME OF WOLVERINE TUBE, INC. FOR THE
NINE MONTH PERIOD ENDED OCTOBER 3, 1998 AND THE CONDENSED CONSOLIDATED BALANCE
SHEET OF WOLVERINE TUBE, INC. AT OCTOBER 3, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-03-1998
<CASH> 95,887
<SECURITIES> 0
<RECEIVABLES> 81,549<F1>
<ALLOWANCES> 0
<INVENTORY> 90,313
<CURRENT-ASSETS> 269,074
<PP&E> 190,729<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 554,200
<CURRENT-LIABILITIES> 47,860
<BONDS> 215,663
2,000
0
<COMMON> 141
<OTHER-SE> 247,157
<TOTAL-LIABILITY-AND-EQUITY> 554,200
<SALES> 487,794
<TOTAL-REVENUES> 487,794
<CGS> 418,938
<TOTAL-COSTS> 418,938
<OTHER-EXPENSES> 31,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,596
<INCOME-PRETAX> 33,147
<INCOME-TAX> 11,738
<INCOME-CONTINUING> 21,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,409
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.48
<FN>
<F1>THE VALUES FOR THE TAGS RECEIVABLE AND PP&E ARE SHOWN NET OF THEIR RESPECTIVE
ALLOWANCE ACCOUNTS.
</FN>
</TABLE>
<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 NINE
MONTH PERIOD ENDED SEPTEMBER 27, 1997 AND THE CONDENSED CONSOLIDATED BALANCE
SHEET OF WOLVERINE TUBE, INC. AT SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-27-1997
<CASH> 8,802
<SECURITIES> 0
<RECEIVABLES> 88,242<F1>
<ALLOWANCES> 0
<INVENTORY> 72,168
<CURRENT-ASSETS> 170,291
<PP&E> 153,458<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 417,012
<CURRENT-LIABILITIES> 51,686
<BONDS> 94,347
2,000
0
<COMMON> 141
<OTHER-SE> 277,545
<TOTAL-LIABILITY-AND-EQUITY> 417,012
<SALES> 511,038
<TOTAL-REVENUES> 511,038
<CGS> 447,612
<TOTAL-COSTS> 447,612
<OTHER-EXPENSES> 21,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,984
<INCOME-PRETAX> 36,419
<INCOME-TAX> 13,230
<INCOME-CONTINUING> 23,189
<DISCONTINUED> 0
<EXTRAORDINARY> 4,738
<CHANGES> 0
<NET-INCOME> 18,451
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
<FN>
<F1>THE VALUES FOR THE TAGS RECEIVABLE AND PP&E ARE SHOWN NET OF THEIR
RESPECTIVE ALLOWANCE ACCOUNTS.
</FN>
</TABLE>
