<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the fiscal year ended December 31, 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
WOLVERINE TUBE, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0970812
---------------------- --------------------------------
(State of Incorporation) (IRS Employer Identification No.)
1525 Perimeter Parkway, Suite 210
Huntsville, Alabama 35806
- ------------------------------------ -----
(Address of principle executive offices) (Zip Code)
(256) 353-1310
--------------
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
Common Stock, $0.01 Par Value New York Stock Exchange
----------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant as of March 15, 1999, was approximately
$175,000,000 based upon the closing price reported for such date on the New
York Stock Exchange. For purposes of this disclosure, shares of Common Stock
held by persons who hold more than 5% of the outstanding shares of Common Stock
and shares held by executive officers and directors of the registrant have been
excluded because such persons may be deemed to be affiliates. This
determination is not necessarily conclusive.
Indicate the number of shares outstanding of each class of Common Stock, as of
the latest practicable date:
Class Outstanding as of March 15, 1999
----- --------------------------------
Common Stock, $0.01 Par Value 14,147,600 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the annual stockholders meeting
to be held May 20, 1999, are incorporated by reference into Part III.
<PAGE> 2
FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I
Item 1. Business............................................................................................1
Item 2. Properties.........................................................................................12
Item 3. Legal Proceedings..................................................................................14
Item 4. Submission of Matters to a Vote of Security Holders................................................15
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters....................................................................16
Item 6. Selected Financial Data............................................................................17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................19
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk....................................................................................31
Item 8. Financial Statements and Supplementary Data........................................................31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures...........................................................31
PART III
Item 10. Directors and Executive Officers of the Registrant.................................................32
Item 11. Executive Compensation.............................................................................32
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................................................32
Item 13. Certain Relationships and Related Transactions.....................................................32
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................................................33
</TABLE>
<PAGE> 3
PART I
ITEM 1 BUSINESS
INTRODUCTION
Wolverine Tube, Inc. ("Wolverine" or the "Company") is a leading North American
manufacturer and distributor of copper and copper alloy tube, and other tubular
products, and believes that it offers the broadest product line of any North
American tube manufacturer. The Company also manufactures and distributes
copper and copper alloy rod, bar and strip products. The Company believes that
in 1998 it was the largest North American producer of copper and copper alloy
tube for commercial products.
Copper's unique attributes--thermal conductivity, ease of bending and joining,
and resistance to erosion and corrosion--make it an attractive material for a
broad range of applications in a large number of diverse industries. The
Company's focus is on custom-engineered, high value-added copper and copper
alloy tube, which enhances performance and energy efficiency in many
applications. Customers include commercial and residential air conditioning and
refrigeration equipment manufacturers, appliance manufacturers, automotive
manufacturers, industrial equipment manufacturers, utilities and other power
generating companies, refining and chemical processing companies and plumbing
wholesalers.
HISTORY AND STRUCTURE
The Company is the successor to a business founded in Detroit in 1916. In 1987,
the Company was purchased through a leveraged acquisition of substantially all
the assets of the seamless copper tube business of The Henley Group, Inc. and
its Canadian affiliates by an investor group that included the then-existing
management of the Company. In 1988, the Company's wholly-owned subsidiary,
Wolverine Tube (Canada) Inc. ("Wolverine Canada"), acquired substantially all
of the assets of Noranda Metal Industries Limited, a Canadian company. In
January 1991, Genstar Capital Corporation ("Genstar") acquired a controlling
interest in the Company. At that time, Genstar owned 72.8% of the Common Stock
with the balance of the Common Stock owned by the management of the Company
(the "Management Stockholders") and certain other investors.
In August 1993, the Company and certain stockholders engaged in an initial
public offering of 6,555,000 shares of Common Stock. Of those shares, 3,280,000
were sold by Wolverine and 3,275,000 were sold by certain stockholders. Net
proceeds to the Company were approximately $46.4 million.
In November 1994, the Company completed its acquisition of Small Tube Products
Company, Inc. ("STP"), a fabricated copper and copper alloy products
manufacturer based in Altoona, Pennsylvania, by means of a merger of a
wholly-owned subsidiary of the Company with and into STP. The Company acquired
all of the outstanding stock of STP in exchange for $54.6 million in cash and
400,000 shares of Wolverine Common Stock. As a result of the merger, STP became
a wholly-owned subsidiary of Wolverine and was renamed "STPC Holding, Inc."
1
<PAGE> 4
In September 1995, the Company completed a secondary public offering of
4,882,700 shares of Common Stock (the "Secondary Stock Offering") in which
Genstar and its affiliates sold substantially all of their shares of Common
Stock. No additional shares of Common Stock were issued by the Company in
conjunction with the Secondary Stock Offering.
In September 1996, the Company completed the acquisition of Tube Forming, Inc.,
a manufacturer of value-added copper fabricated products based in Carrollton,
Texas, for $34.6 million in cash.
In May 1998, the Company acquired a 240,000 square foot welded tube
manufacturing facility located in Jackson, Tennessee, and the related equipment
and technology, from Korea-based Poongsan Corporation, for approximately $35.4
million in cash.
The Company, a Delaware corporation, was organized in 1987. The Company's
principle executive offices are located at 1525 Perimeter Parkway, Suite 210,
Huntsville, Alabama 35806, and its telephone number is (256) 353-1310.
PRODUCTS
COMMERCIAL PRODUCTS
The Company includes in the commercial products category several types of
technically sophisticated tube and fabricated tubular products that it sells
directly to equipment manufacturers and that are generally custom designed and
manufactured. Because of the high level of added value, profitability tends to
be higher for commercial products than for the Company's other products.
The Company's commercial products include:
Industrial Tube. Small (as small as .01") and medium diameter copper tube used
primarily by residential air conditioning, appliance and refrigeration
equipment manufacturers is known as "industrial" tube. Industrial tube is made
to customer specifications for equipment manufacturing. The Company's
industrial tube products include coils in lengths of up to one mile (to permit
economical transport to customers for further processing), smooth straight
tube, internally enhanced tube with internal surface ridges to increase heat
transfer in air conditioning coils, and very small diameter capillary tube (for
control valve applications).
Technical Tube. Technical tube is used to increase heat transfer in large
commercial air conditioners, heat exchangers for power generating and chemical
processing plants, water heaters, swimming pool and spa heaters and large
industrial equipment oil coolers. Small, wedge-like grooves (fins) on the outer
surface, together with internal enhancements of technical tube, increase
surface area and refrigerant agitation, thereby increasing heat transfer
efficiency. The Company was the first to develop integral finned tube, in which
the fins are formed directly from the wall of the tube, and holds many patents
in that area.
Copper Alloy Tube. Copper alloy tube (principally copper mixed with nickel) is
manufactured for certain severe uses and corrosive environments such as
condenser tubes and heat exchangers
2
<PAGE> 5
in power generating plants, chemical plants, refineries and ships. The
Company's copper alloy tube products include smooth and surface enhanced tube
produced from a variety of alloys, U-bends for heat exchangers and the
Company's patented Korodense(R) corrugated heat transfer tube. Also included in
the alloy tube category are surface enhanced titanium and steel tube produced
by the Company from smooth tube supplied by outside sources.
Fabricated Products. Fabricated products encompass a wide variety of copper,
copper alloy and aluminum tubing for a myriad of different applications. Tubing
can be supplied in various cut lengths, long straight lengths or coils.
Specialty fabricated parts, sub-assemblies and components (such as return bends
and manifolds) are also produced. Capabilities include cutting, bending,
swaging, flaring, end-finishing and brazing, which can be applied to a wide
range of products.
WHOLESALE PRODUCTS
Wholesale products include plumbing tube and refrigeration service tube.
Plumbing tube and refrigeration service tube are produced in standard sizes and
lengths primarily for plumbing, air conditioning and refrigeration service
applications. Many major competitors manufacture the most common 3/4" and 1/2"
diameter plumbing tube. These products are considered commodity products
because price and delivery are the primary competitive factors. Plumbing tube
and refrigeration service tube are sold primarily through wholesalers.
ROD, BAR AND STRIP PRODUCTS
Copper and Copper Alloy Rod and Bar. Copper and copper alloy rod and bar
products include a broad range of copper and copper alloy solid products,
including round, rectangular, hexagonal and specialized shapes. Brass rod and
bar are used by industrial equipment and machinery manufacturers for valves,
fittings and plumbing goods. Copper bars are used in electrical distribution
systems and switchgear.
Copper and Copper Alloy Strip. Copper and copper alloy strip products are used
primarily by automotive, hardware and electrical equipment manufacturers, by
roofing contractors and by mints for coins. Copper and copper alloy strip
products are sold directly to manufacturers and to service centers that keep an
inventory of standard sizes.
PHASEOUT OF CFCS
In September 1987, the United States, Canada and many other countries signed
The Montreal Protocol on Substances that Deplete the Ozone Layer (the "Montreal
Protocol"). As originally drafted, the Montreal Protocol provided for the
limitation on production and consumption of chlorofluorocarbons ("CFCs") over
various periods of time. On November 15, 1990, the President of the United
States signed The Clean Air Act Amendments of 1990 (the "1990 Amendments").
Title VI, Section 604 of the Clean Air Act (the "Act") requires the phaseout of
CFCs (other than methyl chloroform) by the year 2000. On November 23, 1992, the
fourth meeting of the parties to the Montreal Protocol was convened in
Copenhagen. At that meeting the parties agreed, among other things, to
accelerate the phaseout of CFC production to January 1, 1996. On December 10,
1993, the United States Environmental Protection Agency (the
3
<PAGE> 6
"EPA") promulgated regulations requiring domestic producers to cease
production of CFCs by January 1, 1996.
The 1990 Amendments, the Montreal Protocol and the EPA regulations generally
contain exceptions for essential uses of CFCs and permit recycling. CFCs are
used as refrigerants in major air conditioning and refrigeration applications
(other than household air conditioning and refrigeration units, which rely
exclusively on hydrochlorofluorocarbon-22). Alternatives to CFCs include
hydrofluorocarbons ("HFCs"), hydrochlorofluorocarbons ("HCFCs"), and, to a
lesser extent, ammonia. HFCs and HCFCs are generally less efficient
refrigerants than CFCs.
The Company has benefited and expects to continue to benefit from the CFC
phaseout as existing large commercial air conditioners ("chillers") are
replaced over the next five to seven years with units utilizing alternative
refrigerants. Based upon data from the EPA and the Air Conditioning and
Refrigeration Institute ("ARI"), the Company estimates that there are
approximately 130,000 large industrial chillers worldwide, including 80,000
large industrial chillers in North America, that are affected by the 1990
Amendments and the Montreal Protocol. Industry sources estimate that as of
December 31, 1998, there were approximately 51,000 large industrial chillers in
North America that have not been replaced or retrofitted. These chillers are
used to regulate the temperature and humidity in offices, hotels, shopping
centers and other large buildings.
The Company expects demand for its high value-added, energy efficient tubes to
increase as manufacturers produce more energy efficient and lower operating
cost units and as existing chillers are replaced in response to the ban on
production of CFCs. There can be no assurance that this anticipated demand will
materialize, or that the Company will not face increased competition, with an
adverse effect on profitability, from other manufacturers in this high
value-added segment. In addition, new refrigerants or technologies that are not
compatible with copper tube may be developed in response to the requirements of
the 1990 Amendments, the Montreal Protocol and the EPA regulations. The
development of any such new refrigerant or technology could have a material
adverse effect on the Company's business, operating results or financial
condition. Furthermore, there can be no assurance that the use of reclaimed
CFCs to a greater extent than anticipated will not continue, causing a slower
pace of replacement and retrofitting of chillers currently using CFCs.
MARKETS
Major markets for each of the Company's product lines are set forth below:
PRODUCTS MAJOR MARKETS
Commercial Products
Industrial Tube Residential and small commercial
air conditioning manufacturers,
appliance manufacturers,
automotive manufacturers,
industrial equipment
manufacturers, refrigeration
equipment manufacturers and
redraw mills (which further
process the tube).
4
<PAGE> 7
Technical Tube Commercial air conditioning
manufacturers, power and process
industry heat exchanger
manufacturers, water, swimming
pool and spa heater
manufacturers and oil cooler
manufacturers.
Copper Alloy Tube Utilities and other power
generating companies, refining
and chemical processing
companies, heat exchanger
manufacturers and shipbuilders.
Fabricated Products Consumer appliance, air
conditioning and refrigeration,
automotive, heavy equipment,
marine, building and heating
industries.
Wholesale Products Plumbing wholesalers and
refrigeration service
wholesalers.
Rod, Bar and Strip Products Electrical equipment and
automotive parts
manufacturers, coin mints,
locomotive and other industrial
equipment manufacturers, metal
service centers and rerollers
(which further process the
product).
KEY CUSTOMERS
York International accounted for 10% of the Company's consolidated net sales in
1998 and 11% of the Company's consolidated net sales in 1996. No customer
accounted for as much as 10% of the Company's consolidated net sales in 1997.
BACKLOG
A significant part of the Company's sales are based on short-term purchase
orders. For this reason, the Company does not maintain a backlog and believes
that backlog is not necessarily a meaningful indicator of future results. A
significant and increasing amount of the Company's sales result from
"partnership" relationships wherein the Company provides a high degree of
specialized service and generally becomes the largest supplier of a customer's
copper tube requirements. Under these arrangements, the Company's customers
provide forecasts of their requirements, against which purchase orders are
periodically released. While these relationships do not involve long-term
supply or purchase contracts from either party, they have provided the Company
with an increased degree of order flow predictability.
SALES AND MARKETING
The Company generally uses a direct field sales force rather than the
agent-based approach used by many of its competitors. The Company believes its
direct sales force forms a critical link in the communication between the
Company and its customers. This link is particularly important in the high
value-added product segments, in which the Company often works with customers
in their product enhancement and new product development efforts.
5
<PAGE> 8
North America. The sales force in North America consists of sales officers and
field marketing representatives who are responsible for selling and servicing
accounts for the entire product line. The sales force also consists of regional
managers located in Dallas, Texas and London, Ontario. The sales force in North
America is coordinated by the Vice President of Sales, who is located in the
Company's offices in Decatur, Alabama.
International. The Company's overseas export sales are carried out both
directly with major overseas customers and through foreign agents. These sales
are coordinated by the Vice President of International Operations from the
Company's offices in Huntsville, Alabama. The Company has sales, marketing and
business development offices in Lyon, France, Leeds, England and Hong Kong.
For information concerning the amount of sales, gross profit and certain other
financial information about foreign and domestic operations see Note 16 of the
Notes to Consolidated Financial Statements.
COMPETITION
While no single company competes with Wolverine in all of the Company's product
lines, the Company faces significant competition in each of its product lines.
The Company has numerous competitors, some of which are larger and have greater
financial resources than the Company. Cerro Copper Products Co., Inc. ("Cerro"),
Industrias Nacobre S.A. de C.V., Kobe Copper Products Inc., Mueller Industries
Inc., Olin Corporation, Outokumpu American Brass Company, Wieland-Werke
Metallwerke and others compete with the Company in one or more product lines.
There can be no assurance that the Company will be able to compete successfully
or that competition will not have an adverse effect on the Company's business
operating results or financial condition. Minimal product differentiation among
competitors in the Company's wholesale and rod, bar and strip product lines
creates a pricing structure for these products resembling "commodity" pricing
(i.e., a pricing structure where customers differentiate between products almost
exclusively on price). In these product areas, certain of the Company's
competitors have significantly larger market shares than the Company, and tend
to be the industry pricing leaders. If the Company's competitors in these
product lines were to significantly reduce prices, the Company's business,
operating results or financial condition could be adversely affected.
The Company currently faces limited competition for certain high value-added
commercial products. If other companies, or some of the Company's existing
customers, begin or expand operations in these product categories, the
Company's business, operating results or financial condition could be adversely
affected. Because the Company competes primarily on the basis of the technical
advantages of its commercial products, technical improvements by competitors
could reduce the Company's competitive advantage in these product lines and
thereby adversely affect the Company's business, operating results or financial
condition. The Company could also be adversely affected if new technologies
emerge in the refrigeration industry, or other consumer industries, including
technologies developed in response to the elimination of CFCs, which would
reduce or eliminate the need for copper and copper alloy tube. Certain of the
Company's products, such as plumbing tube, compete with products made of
alternative substances, such as polybutylene plastic. A substantial increase in
the price of copper could
6
<PAGE> 9
decrease the relative attractiveness of copper products in cases where an
alternative exists and thereby adversely affect the Company's business,
operating results or financial condition.
MANUFACTURING
The manufacture of seamless tube and tubular products consists of casting,
extruding, drawing, forming and finishing processes. In most cases, the raw
material is first cast into a solid cylindrical shape or "billet". The billet
is then heated to a high temperature, a hole is pierced through the center of
the cylinder, and the cylinder is then extruded under high pressure into a
tube. At one of the Company's facilities, the raw material is cast directly
into a tubular product. The tube is either drawn to smaller sizes or reduced on
a forging machine and then drawn to smaller sizes. The outside and/or inside
surface can be enhanced to achieve the desired heat transfer qualities.
Depending on customer needs, bending, annealing (heating to restore
flexibility), coiling or other operations may be required to finish the
product.
Virtually all of the tube produced by the Company is seamless as opposed to
welded tube, with the exception of the tube manufactured at the Company's
Jackson, Tennessee location. Welded tube is made from a flat strip that is
rolled and welded together at the edges.
RAW MATERIALS, SUPPLIERS AND PRICING
The Company's principal raw materials are copper, nickel, zinc and tin. In
1998, the Company purchased approximately 357.8 million pounds of metal,
approximately 88% of which was copper. The Company contracts for its copper
requirements with a variety of sources, including producers, merchants,
brokers, dealers and industrial suppliers. The Company's raw materials are
available from a variety of sources, and the Company does not believe that the
loss of any one source would materially affect its business, operating results
or financial condition.
The key elements of the Company's copper procurement and product pricing
strategies are the assurance of a stable supply and the avoidance of exposure
to metal price fluctuations. The price of copper purchased by the Company is
based on fluctuating market prices, usually with the COMEX price as a
benchmark. The Company generally has an "open pricing" option under which the
Company may set the price of all or a portion of the metal subject to a
purchase contract at any time up to the last COMEX trading day (usually two
days before the end of the month) of the last month in the contract period.
In the majority of cases, the price to the customer contains two components:
(i) a metal charge based on the market value of the metal content on the date
of shipment of the product to the customer; and (ii) a fixed fabrication
charge. In other cases, the Company quotes a firm price to the customer which
covers both the metal price and the fabrication charge. In either case, the
Company minimizes its exposure to metal price fluctuations through various
strategies. Generally, at the time the metal price for the customer is
established, the Company prices an equivalent amount of metal under its open
pricing arrangements with its suppliers. It is the Company's policy not to
attempt to profit from fluctuations in copper prices by taking commodity risks
or speculative commodity positions.
7
<PAGE> 10
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are devoted to new product
development and manufacturing process improvements. To further support the
Company's advancements in product and process development, the Company recently
completed construction of the 21,000 square foot Technology Center in Decatur,
Alabama. The Technology Center supports the engineering and testing of
specialized products and enhancement of the Company's custom-engineering
processes through which the Company customizes products to the particular
specifications of its customers. The Company's research and development is
conducted primarily at the Technology Center.
Heat transfer products, including the Company's line of "Turbo" products,
accounted for over 30% of commercial product gross profit in 1998. Turbo
products include Turbo-A, the Company's internally enhanced tube, Turbo-B and
Turbo-C, the proprietary line of enhanced surface boiling and condenser tube
for chillers. Demand for enhanced tube products is driven by the need for
improved energy efficiency. New product development will continue to be
concentrated in the heat transfer area. The Company is involved in several
industry, university and government sponsored research projects relating to
CFC-alternative refrigerants as well as more energy efficient tube for the
power and petrochemical industries. The ARI has chosen the Company's tube as
the "standard" to measure the efficiency of alternative refrigerants. See
"Phaseout of CFCs."
The Company's research and development expense was $1.5 million, $1.4 million
and $1.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company uses its extensive manufacturing facilities and
personnel to assist in manufacturing process research and development efforts.
In addition, the Company engages in new product development efforts with
certain of its major customers.
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to extensive environmental
regulations imposed by federal, state, provincial and local authorities in the
United States and Canada with respect to emissions to air, discharges to
waterways, and the generation, handling, storage, transportation, treatment and
disposal of waste materials. In addition, the Company has incurred, and in the
future may incur, liability under environmental statutes and regulations with
respect to the contamination of sites owned or operated by the Company
(including contamination caused by prior owners and operators of such sites)
and the off-site disposal of hazardous substances.
The Company believes its operations are in substantial compliance with the
terms of all applicable environmental laws and regulations as currently
interpreted. However, the Company expects that future regulations and changes
in the text or interpretation of existing regulations may subject the Company's
operations to increasingly stringent standards. While the precise effect of
these changes on the Company cannot be estimated, compliance with such
requirements may make it necessary, at costs which may be substantial, to
retrofit existing facilities with additional pollution-control equipment and to
undertake new measures in connection with the storage, transportation,
treatment and disposal of by-products and wastes.
8
<PAGE> 11
The Company has a reserve of $3.0 million for environmental remediation costs.
This reserve is reflected in the Company's December 31, 1998 Consolidated
Balance Sheet and does not anticipate any recovery for amounts indemnified by
other parties. The total cost of environmental assessment and remediation
depends on a variety of regulatory, technical and factual issues, some of which
cannot be anticipated. While the Company believes that the reserve, under
existing laws and regulations, is adequate to cover presently identified
environmental remediation liabilities, there can be no assurance that such
amount will be adequate to cover the ultimate costs of these liabilities, or
the costs of environmental remediation liabilities that may be identified in
the future. See "Item 3--Legal Proceedings" and "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Environmental."
EMPLOYEES
As of December 31, 1998, the Company had a total of 3,316 employees. None of the
United States or the London, Ontario employees are represented by a union. A
majority of the hourly employees at the Montreal and Fergus plants are unionized
and are covered by collective bargaining agreements that expire in 1999. As a
whole, the Company believes its relations with its employees are good.
PATENTS AND TRADEMARKS
The Company owns a number of patents (in the United States and other
jurisdictions) on its products and related manufacturing processes, as well as
trademarks, and has granted licenses with respect to some of such patents and
trademarks. While the Company believes that its patents and trademarks have
competitive value, it does not consider the Company's success as a whole to be
dependent on its patents, patent rights or trademarks.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain of the statements and subject areas contained herein in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not based on 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, volatility of commodities markets, unanticipated
developments in the areas of environmental compliance, unanticipated
developments in the process of assessing and addressing issues related to the
Year 2000 issue, and other risks and
9
<PAGE> 12
uncertainties identified from time to time in the Company's reports filed with
the Securities and Exchange Commission.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to each
executive officer of the Company:
<TABLE>
<CAPTION>
Name Age Positions with the Company
- ---- --- -------------------------
<S> <C> <C>
Dennis J. Horowitz 52 President, Chief Executive Officer and Director
James E. Deason 51 Executive Vice President, Chief Financial Officer, Secretary and
Director
Dale G. Barnhart 46 Senior Vice President, Fabricated Products
Keith I. Weil 41 Senior Vice President, Tubing Products
Johann R. Manning, Jr. 38 Vice President, Human Resources and General Counsel
</TABLE>
Mr. Horowitz has been the President and Chief Executive Officer and a director
of the Company since March 1998. Prior to joining the Company, Mr. Horowitz
served as Corporate Vice President and President of the Americas of AMP
Incorporated ("AMP"), a high-technology electrical connector and interconnection
systems company, since September 1994. Prior to joining AMP, Mr. Horowitz was
employed for over fourteen years at Philips Electronics North America
Corporation ("Philips"), a diverse electronics manufacturer, where he served
from October 1993 to August 1994 as President and Chief Executive Officer of
Philips Technologies and previously served as President and Chief Executive
Officer of Philips Magnavox CATV Systems and President and Chief Executive
Officer of Philips Discrete Products Division. Mr. Horowitz also serves as a
Director of Aerovox Incorporated, Superconductor Technologies, Inc., and Amonix,
Inc.
Mr. Deason has been the Executive Vice President, Chief Financial Officer and
Secretary of the Company since September 1994 and a director of the Company
since October 1995. Prior to joining the Company, Mr. Deason, a Certified
Public Accountant, was most recently a partner with Ernst & Young LLP in
Birmingham, Alabama.
Mr. Barnhart has been the Senior Vice President, Fabricated Products of the
Company since December 1998. Prior to accepting this position he served as
Senior Vice President, Marketing and Sales for the Company since January, 1997.
Prior to joining the Company in 1997, Mr. Barnhart was employed by Copeland
Corporation for thirteen years, where he held the positions of Vice President,
Sales and Marketing and Vice President, Business Development.
Mr. Weil has been the Senior Vice President, Tubing Products, of the Company
since December, 1998. Prior to joining the Company he had been a Global Business
Executive and General Manager Consumer/Commercial for AMP since 1996. Prior to
1996, Mr. Weil was
10
<PAGE> 13
employed by Philips for fourteen years in positions that included President of
Graner Company (a division of Philips), General Manager of Philips Circuit
Assemblies and Vice President of Marketing for Philips Broadband.
Mr. Manning has been Vice President of Human Resources and General Counsel of
the Company since May 1998. Prior to joining the Company, Mr. Manning served as
Senior Counsel for Mercedes-Benz U.S. International, Inc. ("Mercedes-Benz"), a
vehicle manufacturer, since March 1998. Prior to joining Mercedes-Benz, Mr.
Manning was employed for over eight years with Genuine Parts Company, a
diversified wholesale distribution company where he held various positions
including Vice President of Human Resources and Corporate Counsel for its
Motion Industries, Inc. Subsidiary.
11
<PAGE> 14
ITEM 2 PROPERTIES
UNITED STATES FACILITIES
The Company owns and operates manufacturing facilities in Decatur, Alabama;
Ardmore and Jackson, Tennessee; Booneville, Mississippi; Roxboro, North
Carolina; Shawnee, Oklahoma; and Carrollton, Texas. The Altoona, Pennsylvania
facility is partially owned and partially leased from a local industrial
development agency for $3,500 per year in perpetuity. The Company also has a
50,000 square foot facility in Greenville, Mississippi and a 65,000 square foot
facility in Carrollton, Texas that are not being utilized for production and
are currently being held for sale. The Company's corporate offices are
comprised of approximately 9,200 square feet in a leased facility in
Huntsville, Alabama.
The following table describes each of the Company's United States manufacturing
facilities:
<TABLE>
<CAPTION>
Number of
Property Plant Size Year Employees at
Location Size (acres) (square feet) Opened Dec. 31, 1998 Description
-------- ------------ ------------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Decatur, AL 166 590,442 1948 943 Produces each of the Company's tube product
lines. A significant portion of production
is industrial, technical and copper alloy
tube. Produces smooth feedstock tube for
the Ardmore and Booneville facilities.
Also houses a portion of the corporate
staff.
Shawnee, OK 51 309,450 1974 511 Produces each of the Company's copper tube
product lines. Capable of producing
feedstock tube for the Ardmore and
Booneville facilities.
Jackson, TN 51 240,000 1998 63 Produces welded copper and copper alloy
enhanced surface tube.
Roxboro, NC 33 231,700 1994 96 Produces technical copper tube, plumbing
tube and refrigeration service tube.
Altoona, PA 32 169,000 1956 310 A redraw facility that produces higher
margin commercial products such as
capillary tube and specialty fabricated
components.
Carrollton, TX 8 165,000 1987 249 A redraw facility that produces
higher-margin commercial products such as
specialty fabricated parts, return bends
and manifolds.
Booneville, MS 30 152,200 1989 171 Processes feedstock tube from Decatur
facility into enhanced surface industrial
tube and technical copper tube.
Ardmore, TN 6 56,724 1974 85 A redraw facility that produces higher
margin commercial products such as
capillary tube and specialty fabricated
components.
</TABLE>
12
<PAGE> 15
CANADIAN FACILITIES
The Company owns and operates manufacturing facilities in London and Fergus,
Ontario and Montreal, Quebec. The following table describes each of the
Company's Canadian manufacturing facilities:
<TABLE>
<CAPTION>
Number of
Property Plant Size Year Employees at
Location Size (acres) (square feet) Opened Dec. 31, 1998 Description
-------- ------------ ------------- ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Montreal, Quebec 25 424,000 1942 417 Produces plumbing tube and refrigeration
service tube, copper alloy tube and copper
and copper alloy rod and bar.
London, Ontario 45 195,000 1958 309 Produces plumbing tube, refrigeration
service tube and industrial tube. Also
houses Corporate offices for Wolverine Tube
(Canada) Inc.
Fergus, Ontario 26 150,000 1968 124 Produces copper and copper alloy strip.
</TABLE>
OTHER FACILITIES
The Shanghai, China facility is leased from the Shanghai Waigaoqiao Free Trade
Zone 3-U Development Co., Ltd. for a twelve year term (through 2010) for
approximately $400,000 per year. The following table describes the Company's
Shanghai, China facility:
<TABLE>
<CAPTION>
Number of
Property Plant Size Year Employees at
Location Size (acres) (square feet) Opened Dec. 31, 1998 Description
-------- ------------ ------------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Shanghai, China 3 60,000 1998 38 Produces technical copper tube from
feedstock supplied by local copper tube
facilities.
</TABLE>
13
<PAGE> 16
ITEM 3 LEGAL PROCEEDINGS
The Company's facilities and operations are subject to extensive environmental
laws and regulations, and the Company is currently involved in various
proceedings relating to environmental matters as described under "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental." The Company is not involved in any legal proceeding
that it believes could have a material adverse effect upon its business,
operating results or financial condition.
14
<PAGE> 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matters were submitted to a vote of security holders by the Company during
the final quarter of the fiscal year covered by this report.
15
<PAGE> 18
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "WLV." On March 15, 1999, the Company had 300 stockholders of record and
the closing price of the Company's Common Stock was $19 7/16.
The following table sets forth, for the periods indicated, the range of high
and low reported sale prices for the Company's Common Stock on the New York
Stock Exchange for each quarter of fiscal years 1998 and 1997:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1998: High Low
<S> <C> <C>
First Quarter $40 7/8 $28 11/16
Second Quarter $42 1/2 $36
Third Quarter $40 1/2 $20
Fourth Quarter $25 $18 11/16
<CAPTION>
Fiscal Year Ended December 31, 1997: High Low
<S> <C> <C>
First Quarter $39 1/4 $24 1/4
Second Quarter $31 $24 1/2
Third Quarter $32 7/8 $26 1/2
Fourth Quarter $33 $28 1/4
</TABLE>
The Company did not declare or pay cash dividends on its Common Stock during
the years ended December 31, 1998 or 1997. The Company does not currently plan
to pay cash dividends on the Common Stock. Any future determination to pay cash
dividends will depend on the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors. The Company intends to retain earnings to support the
growth of the Company's business.
Under the terms of the Company's Cumulative Preferred Stock, the Company must
pay all accrued dividends on outstanding Cumulative Preferred Stock prior to
making any cash dividend payments on Common Stock. See Note 11 of the Notes to
Consolidated Financial Statements. In addition, the Company's credit agreement
with a group of banks permits the Company to pay dividends on the Common Stock
only if certain financial and other tests are met. See "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
16
<PAGE> 19
ITEM 6 SELECTED FINANCIAL DATA
The historical consolidated financial data presented below for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 were derived from the audited
consolidated financial statements of the Company, and should be read in
conjunction therewith and with the information set forth under "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
Statement of Income Data: 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $617,512 $667,686 $699,863 $664,605 $525,619
Cost of goods sold 534,799 585,060 606,157 580,749 459,043
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 82,713 82,626 93,706 83,856 66,576
Selling, general and administrative expenses 25,453 22,081 21,903 23,391 17,877
Non-recurring charges (a) 11,867 4,384 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Income from operations 45,393 56,161 71,803 60,465 48,699
Other expenses:
Interest expense, net 6,566 7,367 9,321 9,038 6,728
Amortization and other, net 838 712 1,107 1,604 1,376
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 37,989 48,082 61,375 49,823 40,595
Income tax expense 13,352 17,506 21,792 17,587 15,550
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 24,637 30,576 39,583 32,236 25,045
Extraordinary item, net of income tax benefit -- (4,738) -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 24,637 $ 25,838 $ 39,583 $ 32,236 $ 25,045
=======================================================================================================================
Net income applicable to common shares (b) $ 24,357 $ 25,558 $ 39,303 $ 31,956 $ 24,765
=======================================================================================================================
Earnings per common share-basic:
Income before extraordinary item $ 1.74 $ 2.16 $ 2.85 $ 2.35 $ 1.89
Extraordinary item -- (0.34) -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net income per share $ 1.74 $ 1.82 $ 2.85 $ 2.35 $ 1.89
=======================================================================================================================
Basic weighted average common shares 14,025 14,022 13,772 13,605 13,087
=======================================================================================================================
Earnings per common share-diluted:
Income before extraordinary item $ 1.72 $ 2.13 $ 2.77 $ 2.26 $ 1.82
Extraordinary item -- (0.33) -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net income per share $ 1.72 $ 1.80 $ 2.77 $ 2.26 $ 1.82
=======================================================================================================================
Diluted weighted average common and common
equivalent shares 14,186 14,232 14,196 14,118 13,643
=======================================================================================================================
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
Other Data: 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per pound amounts)
<S> <C> <C> <C> <C> <C>
Pounds Shipped 357,480 339,313 349,297 313,145 303,813
Depreciation and amortization $17,320 $16,796 $16,346 $15,790 $12,891
Capital expenditures 34,694 21,598 8,540 15,805 34,382
Average COMEX price of copper per pound (c) 0.75 1.04 1.06 1.35 1.07
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
Balance Sheet Data: 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets $549,418 $424,922 $397,020 $357,225 $340,552
Total long-term debt 215,689 98,411 100,473 100,547 100,715
Redeemable cumulative preferred stock 2,000 2,000 2,000 2,000 2,000
Stockholders' equity 236,963 232,763 209,222 164,526 128,719
</TABLE>
(a) During 1998, the Company recognized a non-recurring, pre-tax charge of
approximately $11.9 million ($7.5 million after tax). This charge
included $7.4 million in expenses related to the closing of the
Company's Greenville, Mississippi facility; $2.7 million in expenses
related to efficiency initiatives being implemented at the Company's
North Carolina facility; $0.9 million in expenses related to the
implementation of a salaried workforce reduction program; and $0.9
million in professional fees and other costs primarily associated with
an acquisition that was not completed.
During 1997, the Company recognized a non-recurring, pre-tax charge of
approximately $4.4 million ($3.0 million 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; $0.6 million of professional fees and other costs
associated with an acquisition that was not completed; and $0.7
million of costs for discontinuing Poland operations of Small Tube
Manufacturing Corporation (a wholly-owned subsidiary of the Company).
(b) Reflects the payment of preferred stock dividends and accretion of
preferred stock redemption requirements.
(c) Source: Metals Week.
18
<PAGE> 21
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following general factors should be considered in analyzing the Company's
results of operations:
COMPONENTS OF COST OF GOODS SOLD
A substantial portion of the Company's cost of goods sold reflects the cost of
raw material, principally copper. These costs, which fluctuate with the markets
for such raw material, are generally passed along to the Company's customers.
Accordingly, the levels of the Company's net sales and costs of goods sold are
affected by the rise and fall of copper prices, even in the absence of
increases or decreases in business activity. Such increases or decreases cause
variations in the Company's gross margin (gross profit as a percentage of net
sales), but have little direct impact on the Company's levels of gross profit.
VARIABILITY OF WHOLESALE PRODUCT GROSS PROFIT
Gross profit attributable to sales of the Company's wholesale products has
fluctuated and may continue to fluctuate substantially from period to period.
In 1998, 1997 and 1996, gross profit from sales of these products was $6.4
million, $2.8 million, and $7.9 million, respectively. Gross profit derived
from the sale of wholesale products is mainly affected by changes in selling
prices. Selling prices for these products are affected by general economic
conditions (especially the rate of housing starts), industry competition and
manufacturing capacity, industry production levels and other market factors,
all of which are beyond the control of the Company.
IMPACT OF PRODUCT MIX
The Company's products range from higher value-added and higher margin
commercial products to commodity-type products such as wholesale tube products
and rod, bar and strip products. The Company's overall profitability from
period to period is affected by the mix in sales within these categories. The
Company has substantial sales in Canada, and its product mix in that market, as
compared to the United States market, reflects a much higher percentage of
commodity type products, such as wholesale tube and rod, bar and strip
products. The results of Canadian operations reflect both this different
product mix and the impact of Canadian market and economic trends, which can be
independent of United States trends.
CYCLICAL AND SEASONAL NATURE OF DEMAND
Because the Company primarily supplies component parts, the Company's
operations are affected by changes in its customers' markets. Demand in certain
industries to which the Company sells its products is cyclical. In particular,
sales of plumbing tube and refrigeration service tube are affected by changes
in residential construction rates. Demand in certain industries to which the
Company sells, including the residential air conditioning industry, is also
19
<PAGE> 22
seasonal. Sales to the residential air conditioning market are generally
greater in the first and second quarters of the year and lower in the third and
fourth quarters because manufacturers typically increase inventories in the
early part of the year in anticipation of summer air conditioning sales and
housing starts. In addition, sales of industrial tube are affected adversely in
years with unusually cool summers.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Consolidated net sales for the year ended December 31, 1998 were $617.5 million,
a decrease of 7.5% from net sales of $667.7 million in 1997. Pounds shipped
increased by 5.4% in 1998 to 357.5 million from 339.3 million in 1997. Net sales
reflect a decrease in the price of copper, the Company's main raw material. The
average COMEX copper price for 1998 was $0.75 per pound, compared with $1.04 per
pound in 1997.
Shipments of commercial tube products increased 4.1% in 1998 over 1997,
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
experienced lower than anticipated demand for these products from major
customers, especially those customers with significant international sales.
Shipments of the Company's wholesale products increased 4.5% as a result of
increased participation by the Company in the United States market. Rod, bar
and strip product shipments increased 11.8% as compared to a year ago,
primarily as a result of increased shipments of strip products to the Canadian
mint. The Company expects that the continued international economic weakness,
particularly in Asia, will continue to affect the demand for technical tube in
1999. Pounds shipped in the United States were 227.8 million in 1998,
representing an increase of 1.5% over 1997. Pounds shipped in Canada in 1998
were 129.7 million, a 12.3% increase over 1997.
Consolidated gross profit increased 0.1% in 1998 to $82.7 million from $82.6
million in 1997. Excluding the effect of the $2.1 million non-recurring charge,
consolidated gross profit was $84.8 million in 1998. This charge includes $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 Roxboro, North Carolina
facility. Gross profit from United States operations decreased by 5.9% to $65.5
million from $69.6 million in 1997 due to the factors outlined above. Gross
profit from Canadian operations increased by 32.3% to $17.2 million from $13.0
million in 1997, principally due to the factors outlined above.
Consolidated selling, general and administrative expenses for the year ended
December 31, 1998 increased 15.4% to $25.5 million, compared with $22.1 million
in 1997. This increase was primarily the result of increased employee benefits,
marketing expenses and professional fees.
During the year ended December 31, 1998, the Company recognized a non-recurring,
pre-tax charge ("the 1998 non-recurring charge") of approximately $11.9 million
($7.5 million after tax). This charge included $7.4 million in expenses related
to the closing of the Company's Greenville, Mississippi facility, of which $5.6
million of
20
<PAGE> 23
expenses related to the write-off of impaired assets resulting primarily from
the closing of this facility; $2.7 million in expenses related to efficiency
initiatives being implemented at the Company's North Carolina facility; $0.9
million in expenses related to the implementation of a salaried workforce
reduction program; and $0.9 million in 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 is being held for sale, have been recorded at their
estimated net realizable value.
During the year ended December 31, 1997, the Company recognized a non-recurring
pre-tax charge ("the 1997 non-recurring charge") to operations of approximately
$4.4 million ($3.0 million after tax). This one-time charge to operations
included $1.8 million of expenses related to the implementation of the Company's
1997 Voluntary Early Retirement Program; $1.3 million in severance costs
primarily associated with the departure of the Company's former Chief Executive
Officer; $0.6 million in professional fees and other costs associated with an
acquisition that was not completed; and $0.7 million in costs for discontinuing
the Poland operations of Small Tube Manufacturing Corporation (a wholly-owned
subsidiary of the Company).
As a result of increased selling, general and administrative expenses and the
recognition of the 1998 non-recurring charge, consolidated income from
operations decreased by 19.2% to $45.4 million in 1998, from $56.2 million in
1997. Excluding the effect of the non-recurring charges in 1998, and the 1997
non-recurring charge in the prior year period, income from operations was $59.4
million in 1998 and $60.5 million in 1997. United States income from operations
decreased by 31.7% to $30.8 million in 1998 from $45.1 million in 1997, and
Canadian income from operations increased by 31.5% to $14.6 million in 1998 from
$11.1 million in 1997.
Consolidated net interest expense decreased by 10.9% to $6.6 million in 1998
from $7.4 million in 1997. This decrease was 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
from the issuance of $150 million in principal amount of 7 3/8% Senior Notes
due 2008 in August 1998 (the "Senior 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 Senior
Notes. 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 year ended December 31, 1998 was 35.2%, compared
to 36.4% for the year ended December 31, 1997. The reduced effective tax rate in
1998 was the result of the Company recognizing a tax benefit associated with the
non-recurring charges in 1998. Excluding the effect of the tax benefit
associated with the non-recurring charges in 1998, the effective tax rate would
have been 35.7% in 1998.
Excluding the non-recurring charges in the current year period and the 1997
non-recurring charge and the extraordinary item in the prior year period,
consolidated net income and diluted earnings per share for 1998 would have been
$33.5 million and $2.34, respectively, compared to $33.6 million and $2.34,
respectively, in the prior year period. Consolidated net income in 1998 was
21
<PAGE> 24
$24.6 million, or $1.72 per diluted share, compared to $25.8 million or $1.80
per diluted share in 1997.
YEAR ENDED DECEMBER 31, 1997, COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Consolidated net sales for the year ended December 31, 1997, were $667.7
million, a decrease of 4.6% from net sales of $699.9 million in 1996. Pounds
shipped decreased by 2.9% in 1997 to 339.3 million from 349.3 million in 1996.
The decrease in net sales reflects a decrease in the price of copper, the
Company's main raw material, and in pounds shipped. The average COMEX copper
price for 1997 was $1.04 per pound, compared with $1.06 per pound in 1996. Net
sales were also impacted by a decrease in fabrication charges to customers for
wholesale and rod, bar and strip products which were offset by increased
fabrication charges in the commercial product line.
Shipments of commercial tube decreased 5.8% in 1997 from 1996, primarily as a
result of decreased shipments of industrial tube used in the residential air
conditioning industry, as well as a 3.4% decrease in technical tube shipments.
The decrease in shipments of industrial tube was principally attributable to a
decline in orders from customers in the residential air conditioning industry,
which generally did not meet its anticipated levels of production for 1997, and
the decrease in technical tube shipments was primarily because the
manufacturers of large commercial air conditioners reduced their production
from the previous years' levels. The decline in commercial shipments was offset
somewhat by a 10.8% increase in shipments of fabricated products, primarily
resulting from the acquisition of Tube Forming, Inc. in September 1996.
Shipments of the Company's wholesale products increased 5.8% as a result of
increased participation by the Company in the United States market. Rod, bar
and strip product shipments decreased 2.3%, primarily as a result of a decline
in shipments of strip products. Pounds shipped in the United States were 223.9
million in 1997, representing an increase of 4.8% from 1996. Canadian pounds
shipped in 1997 were 115.4 million, 14.9% less than 1996.
Consolidated gross profit decreased 11.8% for 1997 to $82.6 million from $93.7
million in 1996. This decline was primarily the result of the decreased
shipments of commercial products, which are generally the Company's highest
margin products, and a shift in product mix within the commercial product
category. In addition, the fabrication price charged to customers for the
Company's wholesale products decreased 24.8%, which resulted in decreased gross
profit. Consolidated gross margin decreased to 12.4% in 1997, from 13.4% in
1996.
Gross profit from United States operations decreased by 7.9% to $69.9 million,
from $75.6 million in 1996, due to the factors outlined above. Gross profit
from the Canadian operations decreased by 28.2% to $13.0 million from $18.1
million in 1996, principally due to decreased wholesale product fabrication
charges and reduced pounds shipped.
Consolidated selling, general and administrative expenses for the year ended
December 31, 1997 were $22.1 million, compared with $21.9 million in 1996.
During the year ended December 31, 1997, the Company recognized the pre-tax 1997
non-recurring charge to operations of approximately $4.4 million ($3.0 million
after tax). This one-time charge to operations included $1.8 million of expenses
related to the
22
<PAGE> 25
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 costs for discontinuing the Poland operations of Small Tube
Manufacturing Corporation (a wholly-owned subsidiary of the Company).
As a result of decreased gross profit, slightly increased selling, general and
administrative expenses and the recognition of the 1997 non-recurring charge,
consolidated income from operations decreased by 21.7% to $56.2 million in 1997,
from $71.8 million in 1996. United States income from operations decreased by
21.3% to $45.1 million, from $57.3 million, and Canadian income from operations
decreased by 23.4% to $11.1 million in 1997, from $14.5 million in 1996.
Consolidated net interest expense decreased by 20.4% to $7.4 million in 1997
from $9.3 million in 1996. This decrease is primarily due to reduced interest
expense resulting from the Company's refinancing of debt outstanding under its
10 1/8% Notes in April 1997, but was partially offset by reduced interest income
resulting from a reduced amount of cash holdings during 1997 as a result of the
Company's use of cash to purchase Tube Forming, Inc. in the third quarter of
1996. During the year ended December 31, 1997, the Company incurred an
extraordinary charge associated with the early extinguishment of the 10 1/8%
Notes for unamortized debt issuance cost, professional fees and prepayment
premium. The charge on the extinguishment net of tax was approximately $4.7
million ($7.5 million pre-tax).
The effective tax rate for the year ended December 31, 1997 was 36.4%, compared
to 35.5% for the year ended December 31, 1996. Upon an evaluation of the
Company's income tax position during the period ended December 31, 1996, the
tax provision was reduced to reflect the settlement of certain tax issues.
For the year ended December 31, 1997, net income was $25.8 million, or $1.80
per diluted share, compared with $39.6 million, or $2.77 per diluted share, for
the year ended December 31, 1996. Excluding the non-recurring charge and the
extraordinary charge relating to the extinguishment of the 10 1/8% Notes, net
income was $33.6 million or $2.34 per diluted share, for the year ended
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is the Company's primary source of
liquidity and totaled $35.8 million, $46.7 million and $39.4 million for the
years ended December 31, 1998, 1997 and 1996, respectively. The decrease in 1998
from 1997 was primarily due to decreased net income, net of non-recurring
charges and increased inventories. The decrease in accounts receivable from
December 31, 1998 to 1997 is primarily due to decreased sales activity and
reduced COMEX copper prices over the prevailing prices at year end 1997.
The ratio of current assets to current liabilities was 4.7 in 1998 and 3.5 in
1997. The current ratio increased in 1998 over 1997 primarily as a result of
increased cash and equivalents resulting from the issuance of the Senior Notes
in 1998, and increased inventories resulting from, among other things, the
addition of the Shanghai, China and Jackson, Tennessee facilities.
23
<PAGE> 26
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 Senior 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 0.50% 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 0.25% to
1.00%. Commitment fees on the unused available portion of the Facility range
from 0.10% to 0.50%. As of December 31, 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 began in January 1999.
The aggregate purchase price was approximately $35.4 million, and was financed
in part from borrowings under the 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 employee's 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 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 workforce reduction program resulted in an approximate
$0.9 million charge that was included in the Company's 1998 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 workforce
reductions.
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 Carrollton, Texas facilities. The closing of this facility was
completed in early November 1998, and the approximately 140 employees received
severance pay in accordance with the Severance Plan and also received their
regular pay for 60 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
24
<PAGE> 27
closure of this facility. Implementation of the plan to close this facility has
resulted in an approximate $8.8 million charge, of which $7.4 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 included $5.6 million related to the 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
inefficiencies resulting from the closure of this facility.
In the first quarter of 1997, the Company adopted 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 consideration. 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 pay, 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 of 1997, 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 approximate $1.8 million charge that was included in the
Company's 1997 non-recurring charge and was 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, $0.6 million
in increased pension expense and $0.2 million for professional fees and
miscellaneous expenses resulting from these early retirements.
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
attempts to mitigate 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 $34.7 million in 1998, $21.6 million in 1997 and $8.5
million in 1996. The Company currently expects to spend approximately $27
million in 1999 under its capital improvement program. The Company's 1999
capital improvement program includes asset replacement, environmental
compliance and asset improvement items. The Company believes that it will be
able to satisfy its existing working capital needs, interest obligations and
capital expenditure requirements with cash flow from operations and funds
available under the Facility.
25
<PAGE> 28
SENIOR NOTES DUE 2008
In August 1998, the Company issued $150 million in principal amount of the
Senior Notes. The Senior 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 Senior Notes were applied to reduce
borrowings by approximately $58 million under the Facility. Of the remaining net
proceeds, the Company intends to use the remainder for capital expenditures and
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 Senior Notes (i) have interest payments 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 (a) 100% of the principal amount of the Senior Notes to be redeemed,
or (b) 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 a recent assessment of its systems, the Company has 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 pose 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 in identifying and addressing problems that their computer
systems may face in connection with the Year 2000 Issue. The Company believes
that it has no exposure for contingencies related to Year 2000 Issue for the
products it has sold.
26
<PAGE> 29
The Company's plan to address the Year 2000 Issue (the "Plan") identifies
exposure in three 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 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 92% complete on the remediation phase
for the information technology area and expects to complete software
reprogramming and replacement no later than June 30, 1999. Once software is
reprogrammed or replaced, the Company will begin testing and implementation.
These phases run concurrently for multiple systems. To date the Company has
completed 55% of its testing and has implemented 50% of its remediation systems.
Completion of the testing phase for all significant systems is expected by
September 30, 1999, with all remediation and implementation of systems expected
to be fully tested and operational by October 1, 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 and implementation of affected equipment is expected to be
complete by June 30, 1999.
The assessment of third-party vendors and customers and their exposure to the
Year 2000 Issue is 100% complete for systems that directly interface with the
Company and 80% complete for all other material exposure. The Company expects to
complete surveying of all third-parties by May 1999, has completed remediation
efforts on these systems and is 80% complete with the testing and implementation
phases. The testing phase of the systems interface work is expected to be
complete by April 30, 1999. The Company has queried its significant suppliers
that do not share any 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. The Company, however, 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 in 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 $4.3 million in costs related to the assessment,
remediation and implementation efforts in its Year 2000 modification project,
the development of the plan for the purchase of new systems and systems
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
27
<PAGE> 30
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
that it does not complete all phases of the Year 2000 remediation program. The
Company plans to evaluate the status of completion in April 1999 and develop
contingency planning.
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 on 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.
ENVIRONMENTAL
The Company's facilities and operations are subject to extensive environmental
laws and regulations. During the year ended December 31, 1998, the Company
spent approximately $0.3 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 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 business,
financial condition or results of operations.
OKLAHOMA CITY, OKLAHOMA
The Company is one of a number of Potentially Responsible Parties ("PRPs")
named by the United States Environmental Protection Agency (the "EPA") with
respect to the soil and groundwater contamination at the Double Eagle Refinery
Superfund site in Oklahoma City, Oklahoma. The costs associated with the
cleanup of this site will be entirely borne by the PRP group (the "Group"), as
the site owner has filed for bankruptcy protection. In March 1993, twenty-three
PRPs named with respect to the soil contamination of the site, including the
Company, submitted a settlement offer to the EPA. Settlement negotiations
between the Group and the EPA are continuing, and a settlement and consent
order is currently being contemplated among the PRPs, the EPA and the State of
Oklahoma which would provide for each PRPs liability to be limited to a prorata
share of an aggregate amount based on the EPA's worst-case cost scenario to
remediate the site. Under the current proposal the Company's settlement amount
is estimated to be $390,000.
28
<PAGE> 31
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 business,
financial condition or results of operations.
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, Tennessee facility (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 available information, the Company
preliminarily estimates that it will cost between $374,000 and $1,174,000 to
complete the investigation and remediation of this site.
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 the 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, 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 MDEQ on July 15, 1997. Remediation efforts began
in the third quarter of 1997 and are expected to continue for 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
29
<PAGE> 32
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 Greenville
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 $431,000 under the remediation plant 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 upon
currently available information, the Company preliminarily estimates that
remediation costs could total $750,000. Certain of the remediation costs,
however, may be reimbursed pursuant to the terms of an indemnification
agreement between the Company and the previous owners of the Jackson Facility.
OTHER
The Company has been identified by the EPA as one of a number of PRPs at
Superfund sites in Athens, Alabama and in Criner, Oklahoma. The Company
believes that its potential liability with respect to these Superfund sites is
not material. There can be no assurance, however, that the Company will not be
named a PRP at additional Superfund sites in the future, or that the costs
associated with any such 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 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: 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
30
<PAGE> 33
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.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. This
Statement of Position provides guidance on the financial reporting of start-up
costs and organizational costs, and requires these costs to be expensed as
incurred. This Statement of Position applies to all non-governmental entities
and, in general, is effective for financial statements for fiscal years
beginning after December 15, 1998. Initial application of this Statement of
Position should be reported as the cumulative effect of a change in accounting
principle, and entities are not required to report the pro forma effects of
retroactive application. The Company will adopt this Statement of Position in
the first quarter of 1999 and will accordingly recognize a pre-tax expense of
approximately $6.0 to $8.0 million as a cumulative effect of the change in
principle.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information required by this item is contained in "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in the Notes to Consolidated Financial Statements contained in "Item
8--Financial Statements and Supplementary Data."
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Income--For the years ended December 31,
1998, 1997 and 1996. F-1
Consolidated Balance Sheets--December 31, 1998 and 1997. F-2
Consolidated Statements of Stockholders' Equity--For the years ended
December 31, 1998, 1997 and 1996. F-3
Consolidated Statements of Cash Flows--For the years ended December 31,
1998, 1997 and 1996. F-4
Notes to Consolidated Financial Statements. F-5
Report of Ernst & Young LLP, Independent Auditors. F-25
</TABLE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
No changes in or disagreements with accountants on accounting and financial
disclosure matters existed during the most recent two years.
31
<PAGE> 34
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
The information required by this item with respect to directors is incorporated
by reference from the information under the caption "Election of Directors"
contained in the Company's definitive proxy statement for the 1999 Annual
Meeting of Stockholders. The required information concerning executive officers
of the Company is contained in Part I of this report.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" in the Company's
definitive proxy statement for the 1999 Annual Meeting of Stockholders.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" in the Company's definitive proxy statement for the 1999
Annual Meeting of Stockholders.
ITEM 13 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information contained under the caption "Certain Transactions" in the Company's
definitive proxy statement for the 1999 Annual Meeting of Stockholders.
32
<PAGE> 35
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Index to exhibits, financial statements and schedules.
(1) The following consolidated financial statements for the Company and
Report of Independent Auditors are included beginning on page F-1
hereof:
Consolidated Statements of Income--For the years ended December 31,
1998, 1997 and 1996.
Consolidated Balance Sheets--December 31, 1998 and 1997.
Consolidated Statements of Stockholders' Equity--For the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows--For the years ended December
31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.
(2) The following consolidated financial statement schedule of the Company
is included on page S-1 hereof:
SCHEDULE II Valuation and Qualifying Accounts
(3) Exhibits required by Item 601 of Regulation S-K:
The following exhibits are included in this Form 10-K:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Second Amendment to the Credit Agreement
10.2* Form of Change in Control, Severance and
Non-Competition Agreement for Executive
Officers
10.3* Non-Qualified Option Agreement No. 2
between the Company and Dennis Horowitz
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule (for SEC use only)
</TABLE>
The following exhibits are incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1998:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Restated Certificate of Incorporation (as amended through
May 1, 1998)
</TABLE>
33
<PAGE> 36
<TABLE>
<S> <C>
4.1 Indenture, dated as of August 4, 1998, between the
Company and First Union National Bank as Trustee
10.1 First Amendment and Limited Waiver to Credit
Agreement, dated as of June 26, 1998, by and among the
Company, Wolverine Tube (Canada), nc., and the lenders
named therein
</TABLE>
The following exhibits are incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 4, 1998:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.2* Consulting Agreement, dated May 8, 1998, by and between
the Company and John M. Quarles
</TABLE>
The following exhibit is incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 27,
1997:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.2 By-Laws of the Company, as amended
</TABLE>
The following exhibits are incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 29, 1997:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1* Agreement and General Release, dated April 1, 1997,
between the Company and Thomas B. Roller
10.3 Credit Agreement, dated as of April 30, 1997, among the
Company, the lenders named therein, Credit Suisse First
Boston as Administrative Agent and Mellon N.A., as
Documentary Agent
</TABLE>
The following exhibits are incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1* Employment Agreement, dated as of September 16, 1996,
between the Company and John M. Quarles
</TABLE>
34
<PAGE> 37
<TABLE>
<S> <C>
10.4* Long Term Incentive Plan
</TABLE>
The following exhibit is incorporated by reference to the Company's
Registration Statement on Form 8-A, filed on February 22, 1996:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
1 Rights Agreement, dated as of February 13, 1996, between
the Company and Society National Bank, as Rights Agent
</TABLE>
The following exhibit is incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1* Amendment No. 1 to Employment Agreement, dated
December 7, 1995, between the Company and John M. Quarles
</TABLE>
The following exhibits are incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.13* Form of Indemnity Agreement
10.19* Supplemental Executive Retirement Plan
</TABLE>
The following exhibit is incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 1, 1994:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.18* Employment Agreement between the Company and John M.
Quarles
</TABLE>
The following exhibit is incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 2, 1994:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.15 Form of Non-Qualified Stock Option Agreement under
the Company's 1993 Equity Incentive Plan
</TABLE>
35
<PAGE> 38
The following exhibits are incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 33-65148):
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.4 The Company's 1991 Stock Option Plan
10.5 Form of Non-Qualified Stock Option Agreement under
the Company's 1991 Stock Option Plan
10.7 The Company's 1993 Equity Incentive Plan
10.8 The Company's 1993 Stock Option Plan for Outside Directors
</TABLE>
* Identifies each exhibit that is a "management contract or
compensatory plan or arrangement" required to be included as an
exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three month period
ended December 31, 1998.
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on the 25th day of March, 1999.
WOLVERINE TUBE, INC.
By: /s/ James E. Deason
---------------------------------
Name: James E. Deason
Title: Executive Vice President, Chief Financial Officer,
Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
By: /s/ Dennis J. Horowitz
---------------------------------- President, Chief Executive March 25, 1999
Dennis J. Horowitz Officer and Director (Principal
Executive Officer
By: /s/ James E. Deason
---------------------------------- Executive Vice President, Chief March 25, 1999
James E. Deason Financial Officer, Secretary and
Director (Principal Financial Officer
and Principal Accounting Officer)
By: /s/ Jan K. Ver Hagen
---------------------------------- Chairman and Director March 25, 1999
Jan K. Ver Hagen
By: /s/ W. Barnes Hauptfuhrer
---------------------------------- Director March 25, 1999
W. Barnes Hauptfuhrer
By: /s/ Thomas P. Evans
---------------------------------- Director March 25, 1999
Thomas P. Evans
By: /s/ John L. Duncan
---------------------------------- Director March 25, 1999
John L. Duncan
By: /s/ Charles E. Thompson
---------------------------------- Director March 25, 1999
Charles E. Thompson
By: /s/ Chris A. Davis
---------------------------------- Director March 25, 1999
Chris A. Davis
By: /s/ Gail O. Neuman
---------------------------------- Director March 25, 1999
Gail O. Neuman
</TABLE>
37
<PAGE> 40
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 617,512 $ 667,686 $ 699,863
Cost of goods sold 534,799 585,060 606,157
- -------------------------------------------------------------------------------------------------------
Gross profit 82,713 82,626 93,706
Selling, general and administrative expenses 25,453 22,081 21,903
Non-recurring charges (Note 17) 11,867 4,384 --
- -------------------------------------------------------------------------------------------------------
Income from operations 45,393 56,161 71,803
Other expenses:
Interest expense, net (Note 6) 6,566 7,367 9,321
Amortization and other, net 838 712 1,107
- -------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 37,989 48,082 61,375
Income taxes (Note 10) 13,352 17,506 21,792
- -------------------------------------------------------------------------------------------------------
Income before extraordinary item 24,637 30,576 39,583
Extraordinary item, net of income tax benefit of $2,782
(Note 6) -- (4,738) --
- -------------------------------------------------------------------------------------------------------
Net income 24,637 25,838 39,583
Less preferred stock dividends (280) (280) (280)
- -------------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 24,357 $ 25,558 $ 39,303
=======================================================================================================
Earnings per common share--basic:
Income before extraordinary item $ 1.74 $ 2.16 $ 2.85
Extraordinary item -- (0.34) --
- -------------------------------------------------------------------------------------------------------
Net income per common share--basic $ 1.74 $ 1.82 $ 2.85
=======================================================================================================
Basic weighted average number of common shares (Note 18) 14,025 14,022 13,772
=======================================================================================================
Earnings per common share--diluted:
Income before extraordinary item $ 1.72 $ 2.13 $ 2.77
Extraordinary item -- (0.33) --
- -------------------------------------------------------------------------------------------------------
Net income per common share--diluted $ 1.72 $ 1.80 $ 2.77
=======================================================================================================
Diluted weighted average number of common and common
equivalent shares (Note 18) 14,186 14,232 14,196
=======================================================================================================
</TABLE>
See accompanying notes.
F-1
<PAGE> 41
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 78,899 $ 15,096
Accounts receivable, net 66,231 71,879
Inventories (Note 2) 108,134 87,829
Prepaid expenses and other 1,094 1,067
- ----------------------------------------------------------------------------------------------------------------
Total current assets 254,358 175,871
Property, plant and equipment, net (Note 4) 197,708 153,917
Deferred charges and intangible assets, net (Note 5) 87,984 87,937
Assets held for resale (Note 3) 2,989 --
Prepaid pensions (Note 7) 6,379 7,197
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 549,418 $ 424,922
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 38,653 $ 39,937
Accrued liabilities 12,584 6,429
Deferred income taxes (Note 10) 3,018 3,659
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 54,255 50,025
Deferred income taxes (Note 10) 25,903 27,057
Long-term debt (Note 6) 215,689 98,411
Postretirement benefit obligation (Note 8) 11,606 12,126
Accrued environmental remediation (Note 9) 3,002 2,540
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 310,455 190,159
Commitments and contingencies (Notes 9 and 14)
Redeemable cumulative preferred stock, par value $1 per share; 20,000
shares issued and outstanding at December 31, 1998 and 1997 (Note 11) 2,000 2,000
Stockholders' equity
Cumulative preferred stock, par value $1 per share; 500,000 shares
authorized (Note 11) -- --
Common stock, par value $.01 per share; 40,000,000 shares
authorized, 14,147,060 and 14,069,064 shares issued as of
December 31, 1998 and 1997, respectively (Notes 12 and 13) 141 141
Additional paid-in capital 101,514 100,064
Retained earnings 167,430 143,073
Accumulated other comprehensive income (15,494) (10,515)
Treasury stock at cost (16,628) --
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 236,963 232,763
- ----------------------------------------------------------------------------------------------------------------
Total liabilities, redeemable cumulative preferred stock and
stockholders' equity $ 549,418 $ 424,922
================================================================================================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 42
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except number of shares)
<TABLE>
<CAPTION>
Redeemable Accumulated Total
Cumulative Additional Other Stock-
Preferred Stock Common Stock Paid-In Retained Comprehensive Treasury holders'
Shares Amount Shares Amount Capital Earnings Income Stock Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 20,000 $2,000 13,669,603 $137 $ 93,189 $ 78,212 ($ 7,012) $ -- $ 164,526
Comprehensive income:
Net income -- -- -- -- -- 39,583 -- -- 39,583
Translation adjustments -- -- -- -- -- -- (291) -- (291)
---------
Comprehensive income 39,292
---------
Common stock issued -- -- 310,914 3 2,702 -- -- -- 2,705
Tax benefit from stock options -- -- -- -- 2,979 -- -- -- 2,979
exercised
Preferred stock dividends -- -- -- -- -- (280) -- -- (280)
Purchase of treasury stock -- -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 20,000 2,000 13,980,517 140 98,870 117,515 (7,303) -- 209,222
Comprehensive income:
Net income -- -- -- -- -- 25,838 -- -- 25,838
Translation adjustments -- -- -- -- -- -- (3,212) -- (3,212)
---------
Comprehensive income 22,626
---------
Common stock issued -- -- 88,547 1 715 -- -- -- 716
Tax benefit from stock options -- -- -- -- 479 -- -- -- 479
exercised
Preferred stock dividends -- -- -- -- -- (280) -- -- (280)
Purchase of treasury stock -- -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 20,000 2,000 14,069,064 141 100,064 143,073 (10,515) -- 232,763
Comprehensive income:
Net income -- -- -- -- -- 24,637 -- -- 24,637
Translation adjustments -- -- -- -- -- -- (4,979) -- (4,979)
---------
Comprehensive income 19,658
---------
Common stock issued -- -- 77,996 -- 1,177 -- -- -- 1,177
Tax benefit from stock options -- -- -- -- 273 -- -- -- 273
exercised
Preferred stock dividends -- -- -- -- -- (280) -- -- (280)
Purchase of treasury stock -- -- -- -- -- -- -- (16,628) (16,628)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 20,000 $2,000 14,147,060 $141 $101,514 $ 167,430 ($15,494) ($16,628) $236,963
==================================================================================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 43
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 24,637 $ 25,838 $ 39,583
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 14,635 14,116 14,127
Amortization 2,685 2,680 2,219
Deferred income taxes (1,375) 520 4,708
Non-cash portion of non-recurring charges 8,174 3,533 --
Extraordinary loss on retirement of debt -- 4,738 --
Loss on sale of equipment 88 -- --
Changes in operating assets and liabilities, net of
effect from purchase of subsidiaries:
Accounts receivable, net 3,946 6,219 4,752
Inventories (20,989) (14,606) (17,171)
Prepaid expenses and other (2,125) (1,670) (224)
Accounts payable (460) 10,652 (10,339)
Accrued liabilities, including pension,
postretirement benefit and environmental 6,551 (5,351) 1,775
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 35,767 46,669 39,430
INVESTING ACTIVITIES
Additions to property, plant and equipment (34,694) (21,598) (8,540)
Purchase of subsidiaries -- -- (34,614)
Acquisition of business assets (35,431) (4,210) --
Other (385) (496) (1,233)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (70,510) (26,304) (44,387)
FINANCING ACTIVITIES
Financing fees (1,829) (820) (8)
Net borrowing (repayment) from revolving credit facility (31,999) 97,000 --
Issuance of common stock 1,177 716 2,705
Premium and fees paid on retirement of debt -- (5,517) --
Principal payments on long-term debt (374) (99,213) (68)
Proceeds from issuance of long-term debt 149,683 -- --
Purchase of treasury stock (16,628) -- --
Dividends paid on preferred stock (280) (280) (280)
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 99,750 (8,114) 2,349
Effect of exchange rate on cash and equivalents (1,204) (122) 81
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 63,803 12,129 (2,527)
Cash and equivalents at beginning of year 15,096 2,967 5,494
- -----------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 78,899 $ 15,096 $ 2,967
=====================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Interest paid $ 5,275 $ 9,321 $ 10,594
Income taxes paid $ 12,977 $ 13,721 $ 15,758
NONCASH FINANCING ACTIVITIES:
Tax benefit from stock options exercised $ 273 $ 479 $ 2,979
</TABLE>
See accompanying notes.
F-4
<PAGE> 44
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements include the accounts of
Wolverine Tube, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
The Company is engaged in the manufacturing and distribution of copper and
copper alloy tubular products as well as rod, bar and strip products. The
Company's focus is developing and manufacturing high value added products used
in engineered applications which require tubular products that have superior
heat transfer capability. The Company's major customers are primarily located in
North America and include the residential and commercial building industries,
plumbing wholesalers, air conditioning and refrigeration manufacturers,
utilities and automobile manufacturers, refining and chemical processing
companies and industrial manufacturers. Sales are made under normal terms and
generally do not require collateral.
CASH AND EQUIVALENTS
The Company considers all highly liquid financial instruments with a maturity of
three months or less at the time of purchase to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Approximately 71% and 73%
of the total amounts of consolidated inventories at December 31, 1998 and 1997
are stated on the basis of last-in, first-out (LIFO) method. The remaining
inventories, which primarily include supplies, are valued using the average cost
method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided on the
straight-line method over the following periods:
<TABLE>
<S> <C>
Furniture and fixtures 2-9 years
Tooling 3-10 years
Building and improvements 3-39 years
Machinery and equipment 5-25 years
</TABLE>
F-5
<PAGE> 45
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment losses are recorded on long-lived assets used in operations where
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by these assets are less than their carrying amount.
INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Property, plant and equipment, inventories, prepaid pension,
postretirement benefit obligations and certain other accrued liabilities are the
primary sources of these temporary differences.
DEFERRED CHARGES AND INTANGIBLE ASSETS
Debt issuance costs are deferred and amortized over the term of the debt to
which they relate using the interest method. Intangible assets consist of
patents and goodwill. Patents are amortized on the straight-line method over
their estimated lives. Excess cost over the fair value of net assets acquired
(or goodwill) generally is amortized on a straight-line basis over 40 years. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. Negative operating results, negative cash flows from
operations, among other factors, could be indicative of the impairment of
goodwill. If this review indicates that goodwill will not be recoverable, the
Company's carrying value of the goodwill would be reduced.
EARNINGS PER COMMON SHARE
Basic net income per share is based on the weighted average number of common
shares outstanding and net income reduced by preferred dividends. Diluted net
income per share is based on the weighted average number of common shares
outstanding plus the effect of dilutive employee stock options and net income
reduced by preferred dividends.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods are used by the Company in estimating fair value
disclosures for financial instruments:
Cash and equivalents: the carrying amount reported in the consolidated balance
sheets for cash and equivalents approximates its fair value.
Financing arrangement, long-term debt and redeemable cumulative preferred stock:
The carrying amount of the Company's borrowings under its financing arrangement
approximates its fair value. The fair value of the Company's long-term debt and
derivative financial instruments are based upon quoted market price. The fair
value of the Company's redeemable cumulative preferred stock is based upon its
dividend rate and call provisions. The fair value of the Company's long-term
debt and redeemable cumulative preferred stock was $143,880,000 and $2,215,000,
respectively, at December 31, 1998.
F-6
<PAGE> 46
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that pertain to current operations and relate to
future revenues are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations, that do not contribute to future
revenues, are expensed. Liabilities are recognized for remedial activities when
the cleanup is probable and the cost can be reasonably estimated.
MARKET RISK
The Company is exposed to various market risks, including interest rates,
foreign currency exchange rates and derivative commodity instruments. Market
risk is the potential loss arising from adverse changes in market rates and
prices. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. The Company enters into
financial instruments to manage and reduce the impact of changes in interest
rates, foreign currency and commodity prices.
INTEREST RATE SWAPS
The Company enters into interest-rate swap agreements to modify the interest
characteristics of its outstanding debt. Each interest-rate swap agreement is
designated as a hedge with the principal balance and term of a specific debt
obligation. These agreements involve the exchange of amounts based on a fixed
interest rate for amounts based on variable interest rates over the life of the
agreement, without an exchange of the notional amount upon which the payments
are based. The differential to be paid as interest rates change is accrued and
recognized as an adjustment of interest expense related to the debt (the accrual
accounting method). The fair value of the swap agreements and changes in the
fair value as a result of changes in market interest rates are not recognized in
the financial statements. At December 31, 1998, the Company was a party to one
interest rate swap agreement. The estimated fair value of this interest rate
swap was a net payable of $3.2 million at December 31, 1998. A 1% decrease in
the 30-day LIBOR rate would increase the amount paid to approximately $5.2
million.
Gains and losses on terminations of interest-rate swap agreements are deferred
as an adjustment to the carrying amount of the outstanding debt and amortized as
an adjustment to interest expense related to the debt over the remaining term of
the original contract life of the terminated swap agreement. In the event of the
early extinguishment of a designated debt obligation, any realized or unrealized
gain or loss from the swap would be recognized in income coincident with the
extinguishment gain or loss. 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.
FOREIGN CURRENCY FORWARDS
The Company sometimes uses foreign exchange contracts to reduce its exposure to
foreign currency risk associated with purchasing contracts denominated in
foreign currency. A forward foreign exchange contract obligates the Company to
exchange predetermined amounts of specified foreign currencies at specified
exchange rates on specified dates or to make an equivalent U.S. dollar payment
equal to the value of such exchange.
F-7
<PAGE> 47
These contracts are designated and effective as hedges and discounts or premiums
(the difference between the spot exchange rate and the forward exchange rate at
inception of the contract) are accreted or amortized to other operating expenses
over the contract lives using the straight-line method while realized and
unrealized gains and losses resulting from changes in the spot exchange rate
(including those from open, matured, and terminated contracts), net of related
taxes, are included in the cumulative translation adjustment account in
stockholders' equity (the deferral accounting method). 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. At December 31, 1998, the Company was not a party to any material
contract relating to foreign currency forward agreements.
DERIVATIVE COMMODITY INSTRUMENTS
In connection with the purchase of certain raw materials, principally copper, on
behalf of certain customers for future manufacturing requirements, the Company
has entered into commodity forward contracts as deemed appropriate for these
customers to reduce the risk of future price increases. These forward contracts
are accounted for as hedges and, accordingly, gains and losses are deferred and
recognized in cost of sales as part of the product cost. At December 31, 1998,
the Company had entered into contracts hedging certain future commodity
purchases through December 31, 2000, of approximately $42.1 million. The
estimated fair value of these outstanding contracts was approximately $37.5
million at December 31, 1998. The effect of a 10% adverse change in commodity
prices at December 31, 1998 would change the estimated fair value of these
outstanding contracts to $33.7 million The Company is exposed to loss on the
forward contracts in the event of non-performance by the customers whose orders
are covered by such contracts. However, the Company has not closed any contracts
prior to the execution of the underlying sale transactions nor have any of the
underlying sale transactions failed to occur.
STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, encourages but does not require companies to record compensation
costs for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the method
prescribed in Accounting Principles Board Option No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. The Company grants stock
options for a fixed number of shares to employees with an exercise price equal
to the fair value of the shares at the date of grant. Accordingly, the Company
recognizes no compensation for stock option grants.
TRANSLATION TO U.S. DOLLARS
Assets and liabilities of the Company denominated in foreign currency are
translated to U.S. dollars at rates of exchange at the balance sheet date.
Income statement items are translated at average exchange rates during the
period. Translation adjustments arising from changes in exchange rates are
included in the accumulated currency translation adjustment component of
stockholders' equity. Realized exchange gains and losses are included in income.
F-8
<PAGE> 48
RESEARCH AND DEVELOPMENT COSTS
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The amounts charged to expense were $1.5 million, $1.4
million and $1.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
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: 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.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 Reporting on the Costs of Start-Up Activities. This
Statement of Position provides guidance on the financial reporting of start-up
costs and organizational costs, and requires these costs to be expensed as
incurred. This Statement of Position applies to all non-governmental entities
and, in general, is effective for financial statements for fiscal years
beginning after December 15, 1998. Initial application of this Statement of
Position should be reported as the cumulative effect of a change in accounting
principle, and entities are not required to report the pro forma effects of
retroactive application. The Company will adopt this Statement of Position in
the first quarter of 1999 and will accordingly recognize a pre-tax expense of
approximate $6.0 to $8.0 million as a cumulative effect of the change in
principle.
F-9
<PAGE> 49
2. INVENTORIES
Inventories are as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Finished products $ 22,740 $21,235
Work-in-process 28,401 23,515
Raw materials and supplies 56,993 43,079
- ----------------------------------------------------------------------------------------------------------------
$108,134 $87,829
================================================================================================================
</TABLE>
The reserves for LIFO included in inventories at December 31, 1998 and 1997 are
($18,996,000) and ($11,102,000), respectively.
3. ASSETS HELD FOR RESALE
During 1998, the Company recognized that excess manufacturing capacity existed
in the Company's Greenville, Mississippi fabricated products facility and that
certain action would be required to reduce this excess capacity. It was decided
by management that operations at the Greenville, Mississippi facility would
cease and certain assets related to this operation would be either transferred
to other facilities or sold. Also during 1998 the Company completed the
relocation of the Carrollton, Texas fabricated products facility. The new,
larger facility is also located in Carrollton, Texas, and will accommodate
additional growth.
The net assets of the unoccupied Greenville, Mississippi and Carrollton, Texas
facilities have been recorded at $0.7 million and $2.3 million, respectively,
which are the estimated net proceeds based on an independent assessment of the
market value of these assets. The Company is currently marketing these assets
that are held for resale.
4. PROPERTY PLANT AND EQUIPMENT
Property, Plant and Equipment are as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Land and improvements $ 11,942 $ 10,673
Building and improvements 46,062 39,763
Machinery and equipment 207,696 171,263
Construction-in-progress 22,314 11,534
- ---------------------------------------------------------------------------------------------------------
288,014 233,233
Less accumulated depreciation (90,306) (79,316)
- ---------------------------------------------------------------------------------------------------------
$ 197,708 $ 153,917
=========================================================================================================
</TABLE>
F-10
<PAGE> 50
5. DEFERRED CHARGES AND INTANGIBLE ASSETS
Deferred Charges and Intangible Assets are as follows at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred debt issuance costs $ 2,650 $ 821
Goodwill 93,113 93,090
Patents and other 5,155 4,234
- --------------------------------------------------------------------------------------------------------
100,918 98,145
Less accumulated amortization (12,934) (10,208)
- --------------------------------------------------------------------------------------------------------
$ 87,984 $ 87,937
========================================================================================================
</TABLE>
6. FINANCING ARRANGEMENTS AND LONG TERM DEBT
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 an offering of senior 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 0.25% to
1.00%. Commitment fees on the unused available portion of the Facility range
from .10% to .50%. As of December 31, 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 originally entered into the Facility in April 1997 to replace the
Company's then 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 (the "10 1/8% Notes"). Upon consummation of the
refinancing on April 30, 1997, the Company borrowed approximately $107 million
under the Facility, substantially all of which was used to finance the purchase
of the $98.225 million in 10 1/8% Notes that were tendered as well as related
financing expenses. Accordingly, the Company recorded an extraordinary after-tax
charge of $4,738,000 ($7,520,000 pre-tax) resulting from the early retirement of
the 10 1/8% Notes. On October 31, 1997, the balance of $775,000 in aggregate
principal amount of the 10 1/8% Notes that had remained outstanding was called
for redemption by the Company at 103.8%, pursuant to the terms of the 10 1/8%
Notes.
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
F-11
<PAGE> 51
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 "Senior Notes") due August 1, 2008. The Senior 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
Senior Notes were applied to reduce borrowings under the Facility by
approximately $58 million. The remaining net proceeds will be used for capital
expenditures, potential future acquisitions, working capital and other general
corporate purposes. The Senior Notes (i) have interest payment dates of 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 (a) 100%
of the principal amount of the Senior Notes to be redeemed, or (b) 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 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 contain
certain covenants that limit the Company's ability to incur indebtedness secured
by certain liens and to engage in sale/leaseback transactions.
The Company has a non interest bearing loan agreement with the government of
Canada. As of December 31, 1998 and 1997, the Company had outstanding advances
of $980,000 and $1,399,000, respectively. The loan is being repaid in four
annual installments which commenced in 1998.
The Company's credit agreements contain covenants that include requirements to
maintain certain financial ratios and certain other restrictions and
limitations, including the restrictions on payment of dividends by the Company,
limitations on the issuance of additional debt, limitations on investments and
contingent obligations, the redemption of capital stock and the sale or transfer
of assets.
Interest expense is net of interest income and capitalized interest of
$2,792,000 and $1,816,000 in 1998, and $383,000 and $381,000 in 1997, and
$954,000 and $184,000 in 1996, respectively.
7. RETIREMENT AND PENSION PLANS
U.S. PLANS
The Company has established trusteed, noncontributory defined benefit pension
plans covering the majority of all U.S. employees fulfilling minimum age and
service requirements. Benefits are based upon years of service with the Company
and the average of the employee's highest five years of compensation during the
last ten years of employment with the Company. The Company contributes annual
amounts that fall within the range determined to be deductible for federal
income tax purposes.
F-12
<PAGE> 52
Certain assumptions utilized in accounting for the U.S. defined benefit plans
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.5% 7.75%
Rate of increase in compensation 4.0-4.25 4.0-4.25 4.0-4.25
Expected return on plan assets 9.0 9.0 9.0
</TABLE>
A summary of the components of net periodic pension cost for the U.S. defined
benefit plans for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 3,556 $ 3,266 $ 3,194
Interest cost 7,331 6,768 6,226
Expected return on plan assets (9,620) (8,020) (7,102)
Amortization of prior service cost 133 50 50
Effect of special termination benefits -- 509 --
- ---------------------------------------------------------------------------------------------------------
$ 1,400 $ 2,573 $ 2,368
=========================================================================================================
</TABLE>
The following table sets forth a reconciliation of the benefit obligation for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Benefit obligation at the beginning of the year $ 98,570 $ 87,745
Service costs 3,556 3,266
Interest costs 7,331 6,768
Amendments 1,160 --
Actuarial loss 7,364 4,094
Benefits paid (4,093) (3,812)
Special termination benefits -- 509
- ----------------------------------------------------------------------------------------------------------
Benefit obligation at the end of the year $ 113,888 $ 98,570
==========================================================================================================
</TABLE>
The following table sets forth a reconciliation of the plan assets for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Fair value of plan assets at the beginning of the year $ 108,632 $ 89,708
Actual return on plan assets 19,915 18,185
Company contribution 749 4,551
Benefits paid (4,093) (3,812)
- ----------------------------------------------------------------------------------------------------------------
Fair value of plan assets at the end of the year $ 125,203 $ 108,632
================================================================================================================
</TABLE>
The following table sets forth the funded status of the plan and the amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Funded status $ 11,315 $ 10,062
Unrecognized net actuarial (gain) (7,841) (4,912)
Unrecognized pension service costs 1,629 604
- --------------------------------------------------------------------------------------------------------------
Prepaid pension obligation $ 5,103 $ 5,754
==============================================================================================================
</TABLE>
Plan assets at December 31, 1998 were invested in common stocks (55%),
fixed-income securities (42%) and cash equivalents (3%).
The Company has 401(k) plans covering substantially all U.S. employees. The
Company provides a 30%-50% match for the first 5% to 7.5% of the employee's
salary contributed to the
F-13
<PAGE> 53
plans. The amount of expense recorded by the Company with respect to these plans
for the years ended December 31, 1998, 1997 and 1996 was $1,928,000, $1,317,000
and $1,010,000, respectively.
The Wolverine Tube, Inc. Supplemental Benefit Restoration Plan (the "Restoration
Plan") is a defined benefit pension plan, which is non-funded and provides
benefits to certain eligible executives of the Company. The benefits provided
under the Restoration Plan are identical to the benefits provided by the
Retirement Plan. During 1998, 1997 and 1996, the Company incurred expenses of
$123,000, $261,000 and $148,000, respectively, relating to the Restoration Plan.
At December 31, 1998, the Restoration Plan had accrued pension costs of
$720,000.
CANADIAN PLANS
The Company sponsors a defined contribution profit-sharing retirement plan for
the London, Ontario facility employees who are required to contribute 4% of
regular wages, subject to a maximum contribution limit specified by Canadian
income tax regulations. Employer contributions are determined based on the
facility's operating results, which will not be less than the greater of 1% of
regular earnings of participants up to 10% of an adjusted net income as defined
in the agreement. Employer contributions to this plan were $585,000 in 1998,
$630,000 in 1997 and $750,000 in 1996.
The Company has established noncontributory defined benefit pension plans
covering substantially all employees at the Montreal, Quebec and Fergus, Ontario
facilities. The Company contributes the actuarially determined amounts annually
into the plans. Benefits for the hourly employees at the Montreal, Quebec and
Fergus, Ontario facilities are based on years of service and a negotiated rate.
Benefits for salaried employees are based on years of service and the employee's
highest annual average compensation over five consecutive years.
Significant assumptions utilized in accounting for the Salaried Employees,
Canadian Operational Employees and Quebec Operational pension plans for the
years ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Canadian Quebec
Salaried Operational Operational
Employees Employees Employees
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.0% 7.0%
Rate of increase in compensation 3.0 N/A N/A
Expected long-term rate of return on plan assets 8.0 8.0 8.0
</TABLE>
A summary of the components of net periodic pension cost for the Salaried
Employees, Canadian Operational Employees and Quebec Operational Employees
pension plans for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 488 $ 515 $ 523
Interest cost 1,114 1,135 1,052
Expected return on plan assets (1,544) (1,481) (1,378)
Amortization of prior service cost 35 35 31
Amortization of net actuarial gain (45) (18) (23)
- ------------------------------------------------------------------------------------------------
$ 48 $ 186 $ 205
================================================================================================
</TABLE>
F-14
<PAGE> 54
The following table sets forth a reconciliation of the benefit obligation for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Benefit obligation at the beginning of the year $ 16,939 $ 16,255
Service costs 488 515
Interest costs 1,114 1,135
Amendments 69 --
Actuarial loss 13 5
Benefits paid (794) (830)
Foreign currency exchange rate changes (1,121) (141)
- --------------------------------------------------------------------------------------------------------------
Benefit obligation at the end of the year $ 16,708 $ 16,939
==============================================================================================================
</TABLE>
The following table sets forth a reconciliation of the plan assets for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Fair value of plan assets at the beginning of the year $ 21,072 $ 19,641
Actual return on plan assets 1,451 2,888
Company contribution 45 178
Benefits paid (794) (830)
Foreign currency exchange rate changes (1,394) (805)
- --------------------------------------------------------------------------------------------------------------
Fair value of plan assets at the end of the year $ 20,380 $ 21,072
==============================================================================================================
</TABLE>
The following table sets forth the funded status of the plan and the amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Funded status $ 3,672 $ 4,133
Unrecognized net actuarial (gain) (2,255) (2,575)
Unrecognized pension service costs 579 533
- ------------------------------------------------------------------------------------------------------------
Prepaid pension obligation $ 1,996 $ 2,091
============================================================================================================
</TABLE>
Plan assets at December 31, 1998 were invested in common stock (50%), fixed
income securities (42%) and cash equivalents (8%).
8. POSTRETIREMENT BENEFIT OBLIGATION
In addition to the Company's U.S. defined benefit pension plan, the Company
sponsors a defined benefit health care plan and life insurance plan that
provides postretirement medical benefits and life insurance to substantially all
full-time U.S. employees who have worked ten years after age 50, and widows of
employees who die while employed after age 55 and have at least five years of
service with the Company. This plan is contributory, with retiree contributions
adjusted annually.
Net periodic postretirement benefit cost for the years ended December 31
includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 306 $ 328 $ 363
Interest cost 443 486 $ 537
Amortization of deferred gain (781) (773) (669)
- -------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost ($ 32) $ 41 $ 231
=================================================================================================
</TABLE>
F-15
<PAGE> 55
The change in benefit obligation for the years ended December 31 includes the
following components:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Benefit obligation at the beginning of the year $ 6,807 $ 7,510
Service cost 306 328
Interest cost 443 486
Participants' contributions 46 44
Actuarial gain (580) (1,098)
Benefits paid (533) (463)
- ------------------------------------------------------------------------------------------------------------
Benefit obligation at the end of the year $ 6,489 $ 6,807
============================================================================================================
</TABLE>
The following table sets forth the funded status of the plan and the amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Funded status $ 6,489 6,807
Unrecognized net actuarial gain 5,117 5,319
- -----------------------------------------------------------------------------------------------------------
Net accrued postretirement benefit obligation $11,606 $12,126
============================================================================================================
</TABLE>
The assumed rate of annual increase in the per capita cost of covered benefits
(i.e. health care cost trend rate) is 5% for 1998 and is assumed to remain at
that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rate by one percentage point in each year would have
resulted in an increase in the postretirement medical benefit obligation at
December 31, 1998 of $335,000, and an increase in the aggregate of the service
cost and interest cost components of net periodic postretirement benefit cost
for 1998 of $48,000. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.00% and 7.50% at December
31, 1998 and 1997, respectively.
9. ENVIRONMENTAL REMEDIATION
The Company is subject to extensive U.S. and Canadian federal, state, provincial
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment. The Company
has received various communications from regulatory authorities concerning
certain environmental matters and has currently been named as a potentially
responsible party ("PRP") at various waste disposal sites. The Company believes
that its potential liability with respect to these waste disposal sites is not
material.
The Company had accrued environmental remediation costs of $3,002,000 at
December 31, 1998, consisting primarily of $34,000 for estimated remediation
costs for the London and Fergus facilities, $1,023,000 for the Decatur facility,
$431,000 for the Greenville facility, $750,000 for the Jackson facility and an
aggregate of $764,000 for the Ardmore facility and the Shawnee facility (with
respect to the Double Eagle Refinery site). Based on information currently
available, the Company believes that the costs of these matters are not
reasonably likely to have a material effect on the Company's business, financial
condition or results of operations.
F-16
<PAGE> 56
10. INCOME TAXES
The components of income before income taxes and extraordinary item for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
U.S. $24,151 $38,193 $47,014
Canadian 13,838 9,889 14,361
- -----------------------------------------------------------------------------------------------------
$37,989 $48,082 $61,375
=====================================================================================================
</TABLE>
The provision for income taxes for the years ended December 31 consists of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
U.S. Federal $ 10,402 $ 12,627 $12,340
Canadian 4,062 3,252 3,309
State 263 1,107 1,435
- ---------------------------------------------------------------------------------------------------------
14,727 16,986 17,084
Deferred:
U.S. (1,728) 587 3,913
Canadian 353 (67) 795
- ---------------------------------------------------------------------------------------------------------
(1,375) 520 4,708
- ---------------------------------------------------------------------------------------------------------
$ 13,352 $ 17,506 $21,792
=========================================================================================================
</TABLE>
The components of net deferred tax amounts recognized in the consolidated
balance sheets at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities
Basis of property, plant and equipment $28,302 $30,080
Inventory valuation 5,017 5,287
Prepaid pension 2,601 2,443
Other 21 22
- -----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 35,941 37,832
Deferred tax assets:
Environmental remediation 1,157 960
Pension obligation 270 144
Postretirement benefits obligation 4,352 4,547
Other 1,241 1,465
- -----------------------------------------------------------------------------------------------------------
Total deferred tax assets 7,020 7,116
- -----------------------------------------------------------------------------------------------------------
Net deferred tax liability $28,921 $30,716
===========================================================================================================
</TABLE>
The Company's effective tax rate differs from the applicable U.S. federal
statutory rate for the periods ended December 31 due to the following:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State and local taxes, net of federal benefit 0.7 2.3 1.5
Effect of difference in U.S. and Canadian rates (1.1) (0.6) (0.3)
Permanent differences 0.9 0.7 0.1
Other (0.3) (1.0) (0.8)
- --------------------------------------------------------------------------------------------------------------------
35.2% 36.4% 35.5%
====================================================================================================================
</TABLE>
F-17
<PAGE> 57
The Internal Revenue Service is conducting an examination of the Company's U.S.
federal income tax returns for the years 1993 through 1994. The Company believes
that it has made an adequate provision for these matters and that such matters
will not have a material adverse effect on its business, financial condition or
results of operations.
11. CUMULATIVE PREFERRED STOCK
The Company has 500,000 shares authorized for issuance of $1 par value
cumulative preferred stock. Of these shares, there are currently 20,000 shares
of cumulative preferred stock issued and outstanding which must be redeemed by
the Company on March 1, 2002, if not earlier, for $100 per share plus accrued
and unpaid dividends. The cumulative preferred stock provides for annual
dividends at the rate of $14 per share. The dividends accrue quarterly whether
declared or not, and compound quarterly at 14% per annum to the extent unpaid.
At December 31, 1998 and 1997, all accrued dividends had been paid.
The cumulative preferred stock is entitled to a preference, in liquidation, in
the amount of $100 per share, plus any accrued and unpaid dividends and any
related interest. The owners of the cumulative preferred stock are not entitled
to any voting rights, except that in the event that six consecutive quarterly
dividends are not paid, the holders of the cumulative preferred stock are
entitled to vote separately as a class to elect 20% of the directors of the
Company. There are also certain restrictions against the declaration or payment
of dividends on common stock or the acquisition of common stock by the Company
if it is in default on any dividends or redemption payments on the cumulative
preferred stock. Additionally, amendment of the Company's Articles of
Incorporation or changes in the number of authorized stock ranking on a parity
with the preferred stock must be approved by the holders of the cumulative
preferred stock.
12. COMMON STOCK
All holders of common stock are entitled to receive dividends when and if
declared by the Company's Board of Directors (the "Board"), provided that all
dividend requirements of the cumulative preferred stock have been paid.
Additionally, the payment of dividends on the Company's common stock is
restricted under the terms of the Company's various financing agreements. To
date, no dividends have been paid to the holders of the common stock and there
are no immediate plans to institute a dividend.
The Board has adopted a Stockholder Rights Plan designed to protect the Company
and its stockholders from coercive, unfair or inadequate takeover bids. Pursuant
to the Rights Plan, a dividend of one Preferred Share Purchase Right ("Right")
was declared for each share of Common Stock outstanding at the close of business
on February 23, 1996. The Rights are generally not exercisable until ten days
after a person or group acquires, or commences a tender offer that could result
in the party acquiring, 15% of the outstanding shares of Common Stock. Each
Right, should it become exercisable, will enable the owner to buy one
one-thousandth of a share of newly created Series A Junior Participating
Preferred Stock at an exercise price of $175, and, in certain circumstances, to
purchase shares of Common Stock at a substantially reduced price. The Board is
generally entitled to redeem the Rights at $0.01 per Right at any time prior to
the date they become exercisable. The Rights will expire on February 23, 2006.
F-18
<PAGE> 58
On September 17, 1998, the Board authorized the Company to purchase up to
1,000,000 shares 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 December 31, 1998,
the Company had repurchased 784,200 shares.
13. STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Options Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123 ("Statement 123"),
Accounting for Stock-Based Compensation, requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB 25,
no compensation expense is recognized because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997 and 1996, respectively: risk free interest rates of 5.29%, 6.32% and 6.34%;
volatility factors of the expected market price of the Company's common stock of
0.331 and a weighted-average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The effects of
applying Statement 123 for proforma disclosure may not likely be representative
of the effects on reported proforma net income in future years. The Company's
pro forma information for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net income applicable to common shares:
As reported $ 24,357 $ 25,558 $ 39,303
Pro forma 21,743 24,670 38,684
Diluted earnings per share:
As reported $ 1.72 $ 1.80 $ 2.77
Pro forma 1.54 1.74 2.75
==============================================================================================================
</TABLE>
The 1993 Equity Incentive Plan (the "1993 Equity Plan") provides for the
issuance of stock options, restricted shares, stock appreciation rights, phantom
shares and other additional awards to key executives and
F-19
<PAGE> 59
employees. The maximum number of additional shares issuable under the 1993
Equity Plan is 1,225,000 at a price no less than fair market value at the date
of grant. Options granted under the 1993 Equity Plan vest 20% on each
anniversary thereafter and terminate on the 10th anniversary of the date of
grant. Options granted under prior plans remain outstanding but are governed by
the provisions of the 1993 Equity Plan.
The 1993 Stock Option Plan for Outside Directors (the "1993 Directors' Plan")
provides for the issuance of stock options to outside directors at the fair
market value on the date of grant. A maximum of 105,000 shares are issuable
under the 1993 Directors' Plan. The initial options granted vest at 33.3% per
year and all subsequent options granted will vest immediately and terminate on
the 10th anniversary of the date of grant. All initially granted options must be
held one year before being exercised.
The weighted-average exercise price of options outstanding at the beginning of
the 1998, granted during the year, exercised during the year, forfeited during
the year and outstanding at the end of the year is $24.64, $36.78, $15.46,
$35.28 and $29.84, respectively. The weighted average fair value of options
granted in 1998 was $10.76. The weighted average remaining life for options
outstanding at December 31, 1998 is 7.4 years.
The number of options outstanding, weighted-average exercise price,
weighted-average remaining contractual life, vested options and the
weighted-average exercise price of vested options outstanding at December 31,
1998, which were issued prior to August 1993, were 136,837, $6.08, 3.6 years,
136,837 and $6.08, respectively. The number of options outstanding,
weighted-average exercise price, weighted-average remaining contractual life,
vested options and the weighted-average exercise price of vested options
outstanding at December 31, 1998, which were issued after August 1993, were
754,250, $34.15, 8.0 years, 205,117 and $31.08, respectively.
F-20
<PAGE> 60
The Company's stock option plans are summarized as follows:
<TABLE>
<CAPTION>
1993 1993 Equity Weighted-Average
Directors' Plan Incentive Plan Option Price Exercise Price
- -------------------------------------------------------------------------------------------------------------
(Number of Shares)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 19,000 760,834 $ 4.44 - $34.25 $ 12.01
Granted 8,000 178,500 $35.38 - $41.13 $ 36.35
Exercised -- (310,914) $ 4.44 - $25.25 $ 8.70
Forfeited -- (13,454) $ 4.44 - $25.25 $ 19.43
- -------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 27,000 614,966 $ 4.44 - $41.13 $ 20.62
Granted 13,000 177,750 $25.63 - $37.25 $ 35.70
Exercised -- (88,547) $ 4.44 - $25.25 $ 8.91
Forfeited -- (93,046) $ 4.44 - $37.25 $ 33.85
- -------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 40,000 611,123 $ 4.44 - $41.13 $ 24.64
Granted 14,000 343,450 $20.00 - $40.25 $ 36.78
Exercised (8,000) (69,996) $ 4.44 - $37.25 $ 15.46
Forfeited -- (39,490) $20.88 - $37.88 $ 35.28
- -------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1998 46,000 845,087 $ 4.44 - $40.25 $ 29.84
=============================================================================================================
Exercisable at:
December 31, 1996 18,666 167,947 $ 4.44 - $36.88 $ 12.60
December 31, 1997 22,667 235,585 $ 4.44 - $30.88 $ 15.83
December 31, 1998 27,667 314,287 $ 4.44 - $40.25 $ 21.07
</TABLE>
14. COMMITMENTS
Pursuant to various operating lease agreements, at December 31, 1998, the
Company had payment obligations totaling $6,474,000 during the next five years
and thereafter in annual amounts ranging from $1,907,000 to $869,000. Total
rental expense for operating leases amounted to approximately $1,976,000,
$2,027,000 and $1,564,000 for the years 1998, 1997 and 1996, respectively. At
December 31, 1998, the Company had commitments of $5,044,000 for capital
expenditures.
15. RELATED PARTY TRANSACTIONS
During 1996, pursuant to a management consulting and advisory agreement (the
"Agreement"), the Company paid management fees and out-of-pocket expenses of
$450,000 to Genstar Investment Corporation ("GIC"), an affiliate of Genstar
Capital Corporation, a former controlling stockholder of the Company. Under the
terms of the Agreement, the Company paid GIC a management fee of $150,000 per
quarter through September 30, 1996, at which time the Agreement terminated.
16. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information in 1998, which changes the way the Company
reports information about its operating segments. The information for 1997 and
1996 has been restated from the prior year's
F-21
<PAGE> 61
presentation in order to conform to the 1998 presentation. The Company's
reportable segments are based on the Company's three product lines: commercial
products, wholesale products and other products. Commercial products consist
primarily of high value-added products sold directly to equipment manufacturers.
Wholesale products are commodity-type plumbing tube products, which are
typically sold to a variety of customers. Other products consist primarily of
commodity-type rod, bar and strip products which are also sold to a variety of
customers.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to the Consolidated Financial Statements. The
Company evaluates the performance of its operating segments based on sales and
gross profit. During 1998, 1997 and 1996, the Company did not allocate asset
amounts and items of income and expense below gross profit or depreciation and
amortization. Summarized financial information concerning the Company's
reportable segments is shown in the following table:
<TABLE>
<CAPTION>
Commercial Wholesale Other Consolidated
- --------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Sales $455,488 $104,072 $67,952 $617,512
Gross profit 73,410 6,357 2,946 82,713
Year ended December 31, 1997:
Sales $477,290 $116,757 $73,639 $667,686
Gross profit 77,525 2,833 2,268 82,626
Year ended December 31, 1996:
Sales $503,146 $120,860 $75,857 $699,863
Gross profit 80,713 7,935 5,058 93,706
</TABLE>
The Company's manufacturing operations are primarily conducted in the U.S. and
Canada. In 1998, one customer accounted for 10% of the Company's net sales. In
1997, no customer accounted for as much as 10% of the Company's net sales. In
1996, one customer accounted for approximately 11% of the Company's net sales.
The following summarized geographic data is based on estimates that do not
consider fully the extent to which the Company's product development,
engineering, marketing and management activities are interrelated. Thus, the
data is not totally indicative of the extent that each geographic area
contributed to the Company's consolidated operating results.
<TABLE>
<CAPTION>
U.S. Canada Consolidated
- -------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Year ended December 31, 1998:
Sales $441,833 $175,679 $617,512
Long-lived assets 262,773 32,287 295,060
Year ended December 31, 1997:
Sales $454,448 $213,238 $667,686
Long-lived assets 218,317 30,734 249,051
Year ended December 31, 1996:
Sales $476,090 $223,773 $699,863
Long-lived assets 206,900 34,295 241,195
</TABLE>
17. 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 net of tax). This charge included $7.4
million in expenses related primarily to the closing of the Company's
Greenville, Mississippi facility of which $5.6 million in expenses relate to the
write-off of impaired assets and $1.6 million in severance costs resulting
F-22
<PAGE> 62
primarily from the closing of this facility, which employed approximately 140
people; $2.7 million in expenses related to efficiency initiatives being
implemented at the Company's North Carolina facility, which primarily related to
the impairment in value of certain equipment; $0.9 million in expenses related
to the implementation of a salaried workforce reduction program of approximately
50 employees; and $0.9 million in professional fees and other costs primarily
associated with an acquisition that was not completed.
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 in expenses related to the implementation of the Company's 1997
Voluntary Early Retirement Program; $1.3 million in severance costs primarily
associated with the departure of the Company's former Chief Executive Officer;
$0.6 million in professional fees and other costs associated with an acquisition
that was not completed; and $0.7 million in costs for discontinuing the Poland
operations of Small Tube Manufacturing Corporation (a wholly-owned subsidiary of
the Company).
18. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Income before extraordinary item $ 24,637 $ 30,576 $ 39,583
Extraordinary item -- (4,738) --
Net income 24,637 25,838 39,583
Dividends on preferred stock (280) (280) (280)
- --------------------------------------------------------------------------------------------------------------------
Net income available to common shares $ 24,357 $ 25,558 $ 39,303
- --------------------------------------------------------------------------------------------------------------------
Basic weighted average common shares 14,025 14,022 13,772
Employee stock options 161 210 424
- --------------------------------------------------------------------------------------------------------------------
Diluted weighted average common and common
equivalent shares 14,186 14,232 14,196
- --------------------------------------------------------------------------------------------------------------------
Earnings per common share--basic
Income before extraordinary item $ 1.74 $ 2.16 $ 2.85
Extraordinary item -- (0.34) --
- --------------------------------------------------------------------------------------------------------------------
Net income per common share $ 1.74 $ 1.82 $ 2.85
- --------------------------------------------------------------------------------------------------------------------
Earnings per common share--diluted
Income before extraordinary item $ 1.72 $ 2.13 $ 2.77
Extraordinary item -- (0.33) --
- --------------------------------------------------------------------------------------------------------------------
Net income per common share $ 1.72 $ 1.80 $ 2.77
====================================================================================================================
</TABLE>
F-23
<PAGE> 63
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 April 4 July 4 October 3 December 31
- -------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $170,299 $ 169,640 $ 147,855 $129,718
Gross profit 24,795 25,665 18,396 13,857
Non-recurring charge -- -- 11,867 --
- -------------------------------------------------------------------------------------------------------------------------
Net income/(loss) $ 10,575 $ 11,668 ($ 834) $ 3,228
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ 0.75 $ 0.82 ($ 0.06) $ 0.23
- -------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 0.74 $ 0.81 ($ 0.06) $ 0.23
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 March 29 June 28 September 27 December 31
- -------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $173,576 $ 178,082 $ 159,380 $156,648
Gross profit 21,595 23,322 18,509 19,200
Non-recurring charge -- 4,384 -- --
Income before extraordinary item 8,837 7,063 7,289 7,387
Extraordinary item, net of income tax benefits -- 4,738 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 8,837 $ 2,325 $ 7,289 $ 7,387
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share
Income before extraordinary item $ 0.63 $ 0.50 $ 0.51 $ 0.52
Extraordinary item, net of income tax
benefit -- (0.34) -- --
- -------------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.63 $ 0.16 $ 0.51 $ 0.52
- -------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share
Income before extraordinary item $ 0.62 $ 0.49 $ 0.51 $ 0.51
Extraordinary item, net of income tax
benefit -- (0.33) -- --
- -------------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.62 $ 0.16 $ 0.51 $ 0.51
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE> 64
The Board of Directors
Wolverine Tube, Inc.
We have audited the accompanying consolidated balance sheets of Wolverine Tube,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wolverine Tube,
Inc. and Subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
February 5, 1999
Birmingham, Alabama
F-25
<PAGE> 65
Schedule II
WOLVERINE TUBE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions-
Charged to
Balance Charged to Other Balance at
Beginning Cost and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Deducted from assets accounts:
Reserve for sales returns and allowances $ 299 $ -- $-- ($107)(1) $ 192
Allowances for doubtful accounts 1,064 100 25(3) (607)(2) 582
- -----------------------------------------------------------------------------------------------------------------
Totals $1,363 $100 $25 ($714) $ 774
=================================================================================================================
Year ended December 31, 1997
Deducted from assets accounts:
Reserve for sales returns and allowances $ 192 $300 -- ($ 28)(1) $ 464
Allowances for doubtful accounts 582 45 -- (72)(2) 555
- -----------------------------------------------------------------------------------------------------------------
Totals $ 774 $345 -- ($100) $1,019
=================================================================================================================
Year ended December 31, 1998
Deducted from assets accounts:
Reserve for sales returns and allowances $ 464 $297 -- ($321)(1) $ 440
Allowances for doubtful accounts 555 46 -- (360)(2) 241
- -----------------------------------------------------------------------------------------------------------------
Totals $1,019 $343 -- ($681) $ 681
=================================================================================================================
</TABLE>
(1) Reduction of reserve, net of translation adjustments.
(2) Uncollectable accounts written off, net of translation adjustments and
recoveries and a $212,500 reduction of reserve, net of translation
adjustments in 1998.
(3) Reflects the addition of Tube Forming Inc.'s allowance for doubtful
amounts effective September 6, 1996
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
<S> <C> <C>
10.1 Second Amendment to the Credit Agreement
10.2 Form of Change in Control, Severance and
Non-Competition Agreement for Executive
Officers
10.3 Non-Qualified Option Agreement No. 2
between the Company and Dennis Horowitz
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EXECUTION
WOLVERINE TUBE, INC.
WOLVERINE TUBE (CANADA) INC.
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of
March 10, 1999 and entered into by and among, WOLVERINE TUBE INC., a Delaware
corporation ("COMPANY"), WOLVERINE TUBE (CANADA) INC., an Ontario Corporation
("WOLVERINE CANADA"; the Company and Wolverine Canada are each a "BORROWER" and
collectively, the "BORROWERS"), CREDIT SUISSE FIRST BOSTON, as administrative
agent (in such capacity, "ADMINISTRATIVE AGENT"), MELLON BANK, N.A., as
documentation agent (in such capacity, "DOCUMENTATION AGENT") and the financial
institutions listed on the signature pages hereto (each individually referred to
herein as a "LENDER" and collectively, as "LENDERS"), and is made with
reference to that certain Credit Agreement dated as of April 30, 1997, by and
among Borrowers, Lenders, Administrative Agent and Documentation Agent, as
amended by that certain First Amendment and Limited Waiver to Credit Agreement,
dated as of June 26, 1998, by and among Company, Borrowers, the financial
institutions listed on the signature pages thereof, Administrative Agent and
Documentation Agent (such Credit Agreement, as so amended, the "CREDIT
AGREEMENT"). Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.
R E C I T A L S
WHEREAS, Company has requested that Requisite Lenders, pursuant to
subsection 10.6 of the Credit Agreement, agree to modify subsection 7.5 of the
Credit Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1,
AMENDMENTS
A. AMOUNT OF RESTRICTED JUNIOR PAYMENTS. Subsection 7.5 of the Credit
Agreement is hereby amended by deleting the reference to $25,000,000 and
substituting $50,000,000 therefor.
SECTION 2.
BORROWERS' REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, each of Company and Wolverine
Canada hereby represents and warrants to each Lender that the following
statements are true, correct and complete:
<PAGE> 2
A. CORPORATE POWER AND AUTHORITY. Company and Wolverine Canada have all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated by, and perform their obligations under,
the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of Company and Wolverine Canada,
as the case may be.
C. NO CONFLICT. The execution and delivery by Company and Wolverine Canada
of this Amendment and the performance by Company and Wolverine of the Amended
Agreement do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Company, Wolverine Canada or any
of their respective Subsidiaries, the Certificate or Articles of Incorporation
or Bylaws of Company, Wolverine Canada or any of their respective Subsidiaries
or any order, judgment or decree of any court or other agency of government
binding on Company, Wolverine Canada or any of their respective Subsidiaries,
(ii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of Company,
Wolverine Canada or any of their respective Subsidiaries, (iii) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Company, Wolverine Canada or any of their respective Subsidiaries
(other than Liens created under any of the Loan Documents in favor of Agent on
behalf of Lenders), or (iv) require any approval of stockholders or any approval
or consent of any Person under any Contractual Obligation of Company, Wolverine
Canada or any of their respective Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company and
Wolverine Canada of this Amendment and the performance by Company and Wolverine
Canada of the Amended Agreement do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been
duly executed and delivered by Company and Wolverine Canada and are the legally
valid and binding obligations of Company and Wolverine Canada enforceable
against Company and Wolverine Canada in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT.
The representations and warranties contained in Section 5 of the Credit
Agreement are and will be true, correct and complete in all material respects on
and as of the Second Amendment Effective Date to the same extent as though made
on and as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.
2
<PAGE> 3
[Remainder of page intentionally left blank]
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 3.
MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
(i) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the
Credit Agreement shall mean and be a reference to the provisions of
the Credit Agreement as amended and waived hereby.
(ii) Except as specifically amended or waived by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of
Administrative Agent or any Lender under, the Credit Agreement or any
of the other Loan Documents.
B. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
C. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
D. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective upon the execution of a
counterpart hereof by Borrowers and Requisite Lenders and receipt by Company and
Administrative Agent of written or telephonic notification of such execution and
authorization of delivery thereof (the date of satisfaction of such conditions
being referred to herein as the "SECOND AMENDMENT EFFECTIVE DATE").
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
WOLVERINE TUBE, INC.
By: /s/ James E. Deason
--------------------------------
Name:
Title:
Notice Address:
Wolverine Tube, Inc.
1525 Perimeter Parkway, Suite 210
Huntsville, Alabama 35808
Attention: James E. Deason
WOLVERINE TUBE (CANADA) INC.
By: /s/ James E. Deason
--------------------------------
Name:
Title:
Notice Address:
Wolverine Tube, Inc.
1525 Perimeter Parkway, Suite 210
Huntsville, Alabama 35808
Attention: James E. Deason
S-1
<PAGE> 5
CREDIT SUISSE FIRST BOSTON,
as the Administrative Agent
By: /s/ Robert N. Finney
----------------------------------
Name: Robert N. Finney
Title: Managing Director
By: /s/ Wm. Matthew Carter
----------------------------------
Name: Wm. Matthew Carter
Title: Assistant Vice President
Notice Address:
Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010-3629
Attention: Robert Finney
S-2
<PAGE> 6
CREDIT SUISSE FIRST BOSTON,
as a Lender
By: /s/ Robert N. Finney
----------------------------------
Name: Robert N. Finney
Title: Managing Director
By: /s/ Wm. Matthew Carter
----------------------------------
Name: Wm. Matthew Carter
Title: Assistant Vice President
Notice Address:
Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010-3629
Attention: Robert Finney
S-3
<PAGE> 7
MELLON BANK, N.A., individually and as
Documentation Agent
By: /s/ Roger N. Stanier
----------------------------------
Name: Roger N. Stanier
Title: Vice President
Notice Address:
Mellon Bank, N.A.
Three Mellon Bank Center
23rd Floor
Pittsburgh, PA 15259-0003
Attention: Loan Administration
Copy to:
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Attention: Steven Prather
S-4
<PAGE> 8
BANK OF AMERICA ILLINOIS
as a Lender
By: /s/ Bianca Hemmen
----------------------------------
Name: Bianca Hemmen
Title: Senior Vice President
Notice Address:
Bank of America
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Bianca Hemmen
S-5
<PAGE> 9
CREDIT LYONNAIS ATLANTA AGENCY
as a Lender
By: /s/ David M. Cawrse
-----------------------------------
Name: David M. Cawrse
Title: First Vice President
Notice Address:
Credit Lyonnais, Atlanta Agency
One Peachtree Center
303 Peachtree Street NE
Suite 4400
Atlanta, GA 30308
Attention: Ronald Blissett
S-6
<PAGE> 10
NATIONSBANK, N.A., (successor by merger to
NationsBank, N.A. (South))
as a Lender
By: /s/ Bianca Hemmen
------------------------------------
Name: Bianca Hemmen
Title: Senior Vice President
Notice Address:
Bank of America
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Bianca Hemmen
S-7
<PAGE> 11
THE BANK OF NOVA SCOTIA,
as a Lender
By: /s/ William E. Zarrett
----------------------------------
Name: William E. Zarrett
Title: Senior Relationship Manager
Notice Address:
The Bank of Nova Scotia
Suite 2700
600 Peachtree Street NE
Atlanta, GA 30308
Attention: Pat Brown
S-8
<PAGE> 12
FIRST UNION NATIONAL BANK
as a Lender
By: /s/ Anthony D. Braxton
-----------------------------------
Name: Anthony D. Braxton
Title: Vice President
Notice Address:
First Union Capital Markets
PA 4805
1339 Chestnut Street
Philadelphia, PA 19107
Attention: Donna J. Emhart
S-9
<PAGE> 13
SUNTRUST BANK, NASHVILLE, N.A.
as a Lender
By: /s/ Jon C. Long
-----------------------------------
Name: Jon C. Long
Title: Vice President
Notice Address:
Suntrust Bank, Nashville, N.A.
P.O.Box 305110
Nashville, TN 37230-5110
Attention: Jon C. Long
S-10
<PAGE> 1
EXHIBIT 10.2
FORM OF CHANGE IN CONTROL, SEVERANCE
AND NON-COMPETITION AGREEMENT
AGREEMENT, dated as of ______________ by and between Wolverine
Tube, Inc., a Delaware corporation ("Wolverine" or "Company"), and ___________,
an individual residing at _______________ (the "Executive").
W I T N E S S E T H:
WHEREAS, Wolverine recognizes the Executive's expertise in
connection with his employment by Wolverine or its subsidiaries or affiliates
(collectively, the "Company"); and
WHEREAS, the Company desires to provide the Executive with
severance benefits or the opportunity for continued employment in a different
position if the Executive's employment in his current position is terminated for
the reasons set forth herein and the Executive refrains from engaging in certain
activities in the event his employment is terminated, upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
1. Termination of Employment.
(a) Termination for Cause; Resignation Without Good Reason.
(i) If the Executive's employment is terminated by the Company
for Cause, as defined in Section 1(a)(ii) hereof, or if the Executive resigns
from his employment hereunder, other than for Good Reason, as defined in Section
1(a)(iii) hereof, the Executive shall be entitled to only (A) severance benefits
as provided by the Company's general procedures and practices, if any, (B)
payment of the pro rata portion of the Executive's salary through and including
the date of termination or resignation, and (C) such employee benefits as may be
due to Executive pursuant to the provisions of the benefit plans which govern
such issues.
(ii) For purposes of this Agreement, termination for "Cause"
shall mean termination of the Executive's employment by the Company because of
(A) the Executive's conviction for, or guilty plea to, a felony or a crime
involving moral turpitude, (B) the Executive's commission of an act of personal
dishonesty in connection with his employment by the Company, (C) a breach of
fiduciary duty in connection with his employment with the Company which shall
include, but not be limited to, (1) investment in any person or organization
with the knowledge that such person or organization has or proposes to have
dealings with the Company, such person or organization competes with the
Company, or the Company is considering an investment in such person or
organization (the reference to "organization" excludes federal credit unions,
publicly owned insurance companies and corporations the stock of which is listed
on a national securities
Page (1) of 7
<PAGE> 2
exchange or quoted on NASDAQ if the direct and beneficial stock ownership of the
Executive, including members of his immediate family, is not more than one
percent (1%) of the total outstanding stock of such corporation); (2) a loan
(including a guaranty of a loan) from or to any person or organization having or
proposing any dealings with the Company or in competition with the Company; (3)
participation directly or indirectly in any transaction involving the Company
other than as a director or as an officer or employee of the Company; (4)
acceptance from any person or organization having or proposing any dealings with
the Company or in competition with the Company of any gratuity, gift,
entertainment or favor which exceeds either nominal value or common courtesies
which are generally accepted business practice; or (5) service as an officer,
director, partner or employee of, or consultant to, any person or organization
having or proposing dealings with the Company or in competition with the
Company; (D) the Executive's failure to execute or follow the written policies
of the Company, including, but not limited to, the Company's policy against
discrimination or harassment, or (E) the Executive's refusal to perform the
essential functions of the job, following written notice thereof. Termination of
the Executive's employment as a result of his death or disability (if such
Executive is eligible for benefits under the Company's long-term disability plan
or would be eligible for such benefits were the Executive a participant in said
plan) shall constitute a termination by the Company with Cause for purposes of
this Agreement.
(iii) For purposes of this Agreement, resignation for "Good
Reason" shall mean the resignation of the Executive within a period of six (6)
months after (A) a reduction in the Executive's benefits or pay in an amount in
the aggregate in excess of five percent (5%) thereof, unless all individuals at
the same managerial level as the Executive experience a similar reduction in
benefits or pay or (B) a substantial adverse alteration occurs in the nature or
status of the Executive's responsibilities from those in effect on the date
hereof, disregarding change in title only.
(iv) The date of termination for Cause shall be the date of
receipt by the Executive of written notice of such termination, or such later
date as may be contained in said notice. The date of resignation without Good
Reason shall be the date of receipt by the Company of a written notice of such
resignation.
(b) Termination without Cause; Resignation for Good Reason.
(i) If the Executive's employment is terminated by the Company
without Cause, or if the Executive resigns from his employment for Good Reason,
and if the Executive executes an Agreement and General Release, which shall be
drafted by the Company, and if the Executive complies with Section 2 of this
Agreement, the Executive shall be entitled to receive the following benefits,
provided, however, that if termination is a consequence of the Executive's
resignation for Good Reason, or Termination without Cause, his benefits shall be
only those described in (A) and (B) below:
(A) The Company shall pay to the Executive either (x)
in the event of termination as a result of a Change of Control within two (2)
years following the Change in Control, as defined in Section 1(b)(v) hereof, an
amount equal to two (2) years' salary; or (y) in all other such events, an
amount equal to one (1) year's salary; in either case to be paid at the rate
Page (2) of 7
<PAGE> 3
in effect immediately prior to the Severance Date (as defined in Section
1(b)(iv)) plus pay at the same rate for all vacation time accrued during the
calendar year in which the Severance Date occurs, with such payment to be made
at the Company's option either:
(X) as a lump sum within 30 days after the
Severance Date, or
(Y) as a series of payments in accordance
with the Company's normal payroll procedures following the Severance Date;
(B) the Company shall reimburse the Executive for any
costs incurred by the Executive in electing COBRA continuation coverage under
only the Company's medical plan and maintaining life insurance coverage
comparable to that maintained for him by the Company for the period from the
Severance Date until the earlier to occur of:
(X) the date which follows the Severance
Date by the lesser of (1) 18 months or (2) the number of months of salary which
is being paid to Executive pursuant to subparagraph (i)(A)(x) or (y) above, or
(Y) the date on which the Executive is
covered under any other medical plan;
(C) the Company shall pay the Executive a lump sum
equal to ___% of his annual base salary in lieu of any benefit otherwise due to
him under the Company's annual bonus plan for each year in which the Executive
is entitled to pay under paragraph (b)(i)(A) above, plus an additional amount
for the year in which the severance occurs, in the event that the Severance Date
occurs after the first six (6) full months of the Company's then current fiscal
year, equal to the actual bonus which would have been paid to the Executive for
said year had he remained employed throughout said year less the amount of the
above-described lump sum paid to him pursuant to this subparagraph (C);
(D) the Company shall reimburse the Executive for any
reasonable costs actually incurred by the Executive for outplacement services
provided by an outplacement consultant mutually agreeable to the Executive and
the Company for a period not to exceed __ months.
(ii) In the event the Executive refuses to execute or breaches
the Agreement and General Release tendered to the Executive on or about the
Severance Date, or in the event the Executive breaches any of the covenants
contained in Section 2, the Executive acknowledges and agrees that the Company
will cease any payments remaining under Section 2(b)(i) of this Agreement and
that the Executive shall be entitled to no further payments or benefits under
this Agreement.
(iii) The Executive shall have no further right under this
Agreement or otherwise to receive any bonus or other compensation with respect
to the year in which the Severance Date occurs and later years.
Page (3) of 7
<PAGE> 4
(iv) The date of termination of employment without Cause shall
be the date specified in a written notice of termination to the Executive and
the date of resignation for Good Reason shall be the date of receipt by the
Company of written notice of resignation (both such dates hereinafter referred
to as the "Severance Date").
(v) For purposes of this Agreement, "Change in Control" shall
mean:
(A) The Company is merged, consolidated or
reorganized into or with another corporation or other legal person, and as a
result of such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding securities of such corporation
or person immediately after such transaction are held in the aggregate by the
holders of Voting Stock (as that term is hereafter defined) of the Company
immediately prior to such transaction;
(B) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal person,
and as a result of such sale or transfer less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such sale or transfer is held in the aggregate by the holders
of Voting Stock of the Company immediately prior to such sale or transfer;
(C) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that (x) any person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of securities
representing 15% or more of the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors of the
Company ("Voting Stock"), or (y) any person has, during any period, increased
the number of shares of Voting Stock beneficially owned by such person by an
amount equal to or greater than 15% of the outstanding shares of Voting Stock;
provided, however, that transfers of shares of Voting Stock between a person and
the affiliates or associates (as such terms are defined under Rule 12b-2 or any
successor rule or regulation promulgated under the Exchange Act) of such person
shall not be considered in determining any increase in the number of shares of
Voting Stock beneficially owned by such person;
(D) The Company files a report or proxy statement
with the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor schedule,
form or report or item therein) that a change in control of the Company has
occurred or will occur in the future pursuant to any then-existing contract or
transaction; or
(E) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the Directors of
the Company cease for any reason to constitute at least a majority thereof;
provided, however, that for purposes of this clause (v) each Director who is
first elected, or first nominated for election by the Company's stockholders, by
a vote of at least two-thirds of the Directors of the Company (or a committee
thereof) then still in
Page (4) of 7
<PAGE> 5
office who were Directors of the Company at the beginning of any such period
will be deemed to have been a Director of the Company at the beginning of such
period.
Notwithstanding the foregoing provisions of Sections (C) or (D) unless
otherwise determined in a specific case by majority vote of the Board, a "Change
in Control" shall not be deemed to have occurred for purposes of Sections (C) or
(D) solely because (1) the Company, (2) an entity in which the Company directly
or indirectly beneficially owns 50% or more of the voting securities (a
"Subsidiary"), or (3) any employee stock ownership plan or any other employee
benefit plan of the Company or any Subsidiary either files or becomes obligated
to file a report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) under the Exchange Act disclosing beneficial ownership
by it of shares of Voting Stock, whether in excess of 15% or otherwise, or
because the Company reports that a change in control of the Company has occurred
or will occur in the future by reason of such beneficial ownership.
2. Secrecy, Non-Solicitation and Non-Competition.
(a) Secrecy. During the Executive's employment with the Company and for
a period of three (3) years after his termination from the Company for any
reason, the Executive Covenants and agrees that he will not, except in
performance of the Executive's obligations to the Company, or with the prior
written consent of the Company pursuant to the authority granted by a resolution
of the Board, directly or indirectly, disclose any secret or confidential
information that he may learn or has learned by reason of his association with
the Company or use any such information. The term "secret or confidential
information" includes, without limitation, information not previously disclosed
to the public or to the trade by the Company's management with respect to the
Company's products, facilities and methods, trade secrets and other intellectual
property, systems, procedures, manuals, confidential reports, products price
lists, customer lists, financial information (including the revenues, costs or
profits associated with any of the Company's products), business plans,
prospects, employee or employees, compensation, or opportunities but shall
exclude any information already in the public domain which has been disclosed to
the public during the normal course of the Company's business.
(b) Customer Protection. During the Executive's employment with the
Company and for a period of two (2) years following the termination of the
Executive's employment for any reason, the Executive covenants and agrees that
he will not solicit or attempt to solicit any business from the Company's
customers, including actively sought prospective customers, with whom the
Executive had Material Contact during his employment, for the purpose of
providing products or services competitive with those provided by the Company.
Material Contacts exist between the Executive and each customer or prospective
customers with whom the Executive has dealt within the twelve months prior to
the last day worked, whose dealings with the Company were coordinated or
supervised by the Executive, or about whom the Executive obtained trade secrets
or confidential information as a result of the Executive's association with the
Company.
(c) Non-solicitation of Employees. During the Executive's employment
and for a period of one (1) year following the termination of the Executive's
employment for any reason, the Executive, covenants and agrees that he shall not
directly or indirectly, on his behalf or on
Page (5) of 7
<PAGE> 6
behalf of any person or other entity, solicit or induce, or attempt to solicit
or induce, any person who, on the date hereof or at anytime during the term of
this Agreement, is an employee of the Company, to terminate his or her
employment with the Company, whether expressed in a written or oral agreement or
understanding or is otherwise an "at-will" employee.
(d) Noncompetition. During the Executive's employment and for a period
of ____ year following the termination of the Executive's employment for any
reason, the Executive covenants and agrees that he will not, directly or
indirectly, compete against the Company within the United States in the
managerial or executive capacity for another company or entity that designs,
produces, sells, or distributes copper tubing, including, but not limited to,
those companies listed on Attachment A.
(e) Equitable Relief. The Executive acknowledges and agrees that the
services performed by him are special, unique and extraordinary in that, by
reason of the Executive's employment, the Executive may acquire confidential
information and trade secrets concerning the operation of the Company, or that
the Executive may have contact with or obtain knowledge of the Company's
customers or prospects, the use or disclosure of which could cause the Company
substantial loss and damages, which could not be readily calculated and for
which no remedy at law would be adequate. Accordingly, the Executive
acknowledges and agrees that the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary or permanent injunction restraining the
Executive from engaging in activities prohibited by this Section 2 or such other
relief as may be required to specifically enforce any of the covenants in this
Section 2. The Executive acknowledges and agrees that the Company shall be
entitled to it's attorneys' fees and court costs should the Company pursue legal
action to enforce its rights under this section.
3. Amendment; Waiver. This Agreement may not be modified, amended or waived in
any manner except by an instrument in writing signed by both parties hereto;
provided, however, that any such modification, amendment or waiver on the part
of the Company shall have been previously approved by the Board. The waiver by
either party of compliance with any provision of this Agreement by the other
party shall not operate or be construed as a waiver of any other provision of
this Agreement, or of any subsequent breach by such party of a provision of this
Agreement.
4. Withholding. Payments to the Executive of all compensation contemplated under
this Agreement shall be subject to all applicable legal requirements with
respect to the withholding of taxes and similar deductions.
5. Governing Law. All matters affecting this Agreement, including the validity
thereof, are to be governed by, and interpreted and construed in accordance
with, the laws of the State of Alabama applicable to contracts executed in and
to be performed in that State. Nothing in this agreement shall affect the rights
of either party under state or federal laws affecting employment.
6. Notices. Any notice hereunder by either party to the other shall be given in
writing by personal delivery or certified mail, return receipt requested. If
addressed to the Executive, the notice shall be delivered or mailed to the
Executive at the address first set forth below, or if addressed to the Company,
the notice shall be delivered or mailed to Perimeter Corporate Park,
Page (6) of 7
<PAGE> 7
Suite 210, 1525 Perimeter Parkway, Huntsville, Alabama 35806, or such address as
the Company or the Executive may designate by written notice at any time or from
time to time to the other party. A notice shall be deemed given, if by personal
delivery, on the date of such delivery or, if by certified mail, on the date
shown on the applicable return receipt.
7. Supersedes Previous Agreements. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements and writings with respect
to the subject matter hereof, all such other negotiations, commitments,
agreements and writings will have no further force or effect, and the parties to
any such other negotiation, commitment, agreement or writing will have no
further rights or obligations thereunder.
8. Severability. The parties agree that if any part of this Agreement is found
to be illegal or unenforceable, including, but not limited to, the geographic,
temporal, or activity restrictions contained in Section 2, the court should
delete or modify the illegal or unenforceable provision(s) hereby leaving the
remaining or modified provision(s) fully enforceable.
9. Counterparts. This Agreement may be executed by either of the parties hereto
in counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
10. Headings. The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
IN WITNESS WHEREOF, the Company has caused the Agreement to be
signed by its officer pursuant to the authority of its Board, and the Executive
has executed this Agreement, as of the day and year first written above.
WOLVERINE TUBE, INC.
By:
---------------------------------
Name: Dennis Horowitz
Title: President & CEO
EXECUTIVE
-------------------------------------
Name:
Executive's Address:
Page (7) of 7
<PAGE> 1
Exhibit 10.3
NON-QUALIFIED OPTION AGREEMENT NO. 2
THIS OPTION AGREEMENT (the "Option Agreement"), dated as of
February 1, 1999 and effective as of March 23,1998, (the "Grant Date"),
between WOLVERINE TUBE, INC., a Delaware corporation (the "Company"), and the
other party signatory hereto (the "Participant").
WHEREAS, the Participant has not been employed by the Company
prior to the Grant Date, and the Company desires to provide the Participant with
an inducement which is essential to his entering into employment with the
Company;
WHEREAS, said inducement includes, among other things, the
granting to the Participant of non-qualified stock options (the "Options") to
purchase up to 125,000 shares of common stock of the Company, par value $.01 per
share (the "Common Stock");
WHEREAS, the Company has previously entered into that certain
Non-Qualified Option Agreement, dated as of March 23, 1998, between the Company
and the Participant purporting to grant to the Participant options to purchase
125,000 shares of the Company's Common Stock;
WHEREAS, in order to correct an administrative error in that
previous grant and to provide the full inducement offered to Participant, the
Company and Participant are willing to enter into this Non-Qualified Option
Agreement No. 2 and that certain Non-Qualified Option Agreement No. 1, dated as
of February 1, 1999 and effective as of March 23, 1998, between the Company
and the Participant (the "Non-Qualified Option Agreement No. 1") and the parties
hereto agree that, upon execution of this Option Agreement and the Non-Qualified
Option Agreement No. 1, that certain Non-Qualified Option Agreement dated as of
March 23, 1998 between the Company and the Participant shall be void and of no
effect.
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereto agree as follows:
1. Grant of Option. Subject to the terms and conditions contained
herein, the Company hereby grants to the Participant, effective as of the Grant
Date, the number of Options specified on the signature page hereof. Each such
Option shall entitle the Participant to purchase, upon payment of the option
price specified on the signature page hereof (the "Option Price"), one share of
Common Stock. Each Option granted hereunder is not intended to qualify as, and
shall not be treated as, an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Terms and Conditions of Options. The Options evidenced hereby
are subject to the following terms and conditions:
(a) Vesting. Twenty (20) percent of the Options will vest and
become exercisable effective on the first anniversary of the Grant
Date. The balance of the Options
<PAGE> 2
(52,000) will vest and become exercisable twenty-five (25) percent on
the second anniversary of the Grant Date and on each anniversary date
thereafter over the next four (4) years. However, all Options shall
immediately vest and become exercisable upon a "Change in Control of
the Company" (as hereinafter defined).
(b) Option Period. The Options shall not be exercisable
following the tenth anniversary of the Grant Date. Upon termination of
the Participant's full time employment with the Company, the Options,
to the extent then vested (the "Vested Options"), may be exercised as
follows:
(i) If the Participant's Full-Time Employment (as
hereinafter defined) terminates by reason of Retirement (as
hereinafter defined) or Disability (as hereinafter defined),
the Vested Options shall be exercisable by the Participant for
one year following the date of such treatment;
(ii) If the Participant's Full-Time Employment terminates by
reason of the Participant's death, the Vested Options shall be
exercisable by the Participant's Beneficiary (as hereinafter
defined) for one year following the date of death;
(iii) If the Participant's Full-Time Employment is terminated
by the Company for Cause (as hereinafter defined) or if the
Participant voluntarily resigns his employment with the
Company for any reason other than Disability or Retirement,
all Vested Options shall immediately terminate and cease to be
exercisable as of the date of such termination or resignation;
and
(iv) If the Participant's Full-Time Employment with the
Company terminates for any other reason not specified above in
this Section 3(b), the Vested Options shall be exercisable by
the Participant for ninety days following the date of such
termination.
"Change in Control of the Company" means any of the following events:
(a) The Company is merged or consolidated or reorganized into
or with another corporation or other legal person, and as a result of
such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of the then-outstanding securities
entitled to vote generally in the election of directors of the Company
("Voting Stock") immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal
person, less than a majority of the combined voting power of the
then-outstanding securities of such corporation or person immediately
after such sale or transfer is held in the aggregate by the holders of
Voting Stock of the Company immediately prior to such sale or transfer;
2
<PAGE> 3
(c) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 20% or more of the Voting
Stock of the Company;
(d) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) that a change in control of
the Company has or may have occurred or will or may occur in the future
pursuant to any then-existing contract or transaction;
(e) If during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors of the
Company cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Company's
stockholders, of each Director of the Company first elected during such
period was approved by a vote of at least two-thirds of the Directors
of the Company then still in office who were Directors of the Company
at the beginning of any such period;
(f) The Board of Directors of the Company approves, or the
Company enters into an agreement providing for, a transaction, event or
development that constitutes (or would constitute if consummated) a
Change of Control pursuant to any of the foregoing;
(g) Notwithstanding the foregoing provisions of (c) and (d)
above, a "Change in Control" shall not be deemed to have occurred (i)
solely because (A) the Company, (B) a corporation in respect of which
the Company directly or indirectly beneficially owns or controls a
majority of the Voting Stock (a "Subsidiary") or (C) any
Company-sponsored employee stock ownership plan or other employee
benefit plan of the Company, either files or becomes obligated to file
a report or proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule,
form or report or item therein) under the Exchange Act, disclosing
beneficial ownership by it of shares of Voting Stock of the Company,
whether in excess of 20% or otherwise, or because the Company reports
that a change of control of the Company has or may have occurred or
will or may occur in the future by reason of such beneficial ownership
or (ii) solely because of a change in control of any Subsidiary.
A committee appointed by the Board of Directors of the Company, which shall
consist of two or more members of the Board who, during their time of service on
such committee, qualify as "Non-Employee Directors," within the meaning of Rule
16b-3 of the Exchange Act (the "Committee") may, in its sole discretion, provide
for a longer post-termination exercise period than the applicable period
specified above. Any Option which is not a Vested Option as of the date of the
Participant's termination of Full-Time Employment shall terminate as of such
date and be of no further force and effect.
3
<PAGE> 4
For purposes of this Section 3(b), the following terms shall
have the meanings set forth below:
"Full-Time Employment" means regular employment as a common
law employee of the Company or one of its Subsidiaries for at
least 35 hours per week.
"Retirement" means the Participant's termination or
resignation of Full-Time Employment on or after the
Participant has attained age 65.
"Disability" means permanent disability as defined in the
long-term disability policy of the Company or one of its
Subsidiaries applicable to the Participant.
"Beneficiary" means the person designated by the Participant
in writing to the Company as having the right to exercise the
Vested Options in the event of the Participant's death or, if
no such person is designated, the Participant's estate.
"Cause" means (i) the failure or refusal of the Participant to
perform the duties of his or her employment, (ii) the
Participant's fraud or dishonesty against the Company or its
Subsidiaries, or (iii) the Participant's willful or negligent
acts or omissions which are materially harmful to the Company
or its Subsidiaries, including, without limitation, the
Participant's unauthorized disclosure of confidential
information related to the business of the Company or any of
its Subsidiaries. Whether the Participant's employment has
been terminated for Cause shall be determined in good faith by
the Committee, and such determination shall be final and
binding on all persons.
(c) Certain Restrictions. None of the Options may be sold,
transferred, assigned, pledged, or otherwise encumbered or disposed of,
except by testamentary devise or the laws of descent and distribution.
The Options shall be exercisable only by the Participant during the
Participant's lifetime.
(d) Notice of Exercise. Subject to Sections 3(e), 3(g) and
5(b) hereof, the Participant may exercise any or all of the Options
that have vested pursuant to Section 3 (a) and 3 (b) hereof, by giving
a properly executed written notice to the Committee, a form of which
will be provided by the Company.
(e) Payment. The Participant shall pay the Option Price in
full at the time the written notice of exercise (pursuant to Section
3(d) hereof) is given to the Committee. Such payment shall be in cash,
bank certified or cashier's check or personal check (unless at the time
of exercise the Committee in a particular case determines not to accept
a personal check) for the Common Stock being purchased. The Committee
may, but need not, determine, in its sole discretion, at any time
before the exercise of the Options that additional forms of payment may
be permitted.
(f) Stockholder Rights. The Participant shall have no rights
as a stockholder with respect to any shares of Common Stock issuable
upon exercise of the Options until a
4
<PAGE> 5
certificate or certificates evidencing such shares shall have been
issued to the Participant, and no adjustment shall be made for
dividends or distributions or other rights in respect of any share for
which the record date is prior to the date upon which the Participant
shall become the holder of record thereof.
(g) Limitation on Exercise. The Options shall not be
exercisable unless either the Common Stock subject to the Options has
been registered under the Securities Act of 1933, as amended (the "1933
Act") and qualified under applicable state "'blue sky" laws in
connection with the offer and sale thereof, or the Participant has
furnished the Company with an investment representation satisfactory to
the Company that such registration and qualification is not required as
a result of the availability of an exemption from registration under
such laws.
(h) Delivery of Certificate. As soon as practicable following
the exercise of any Options, a stock certificate evidencing the
appropriate number of shares of Common Stock issued in connection with
such exercise shall be issued in the Participant's name to the
Participant.
4. Participant Representation. The Participant represents that
this Agreement has been duly executed and delivered by the Participant and
constitutes a legal, valid and binding agreement of the Participant, enforceable
against the Participant in accordance with its terms.
5. Miscellaneous.
(a) No Rights to Grants or Continued Employment. The
Participant shall not have any claim or right to receive any additional
grants of Options, which may, however, be granted in the discretion of
the Committee or the Company. This Agreement shall not be deemed to
create or confer on the Participant any right to be retained in the
employ of the Company or any Subsidiary or other affiliate thereof, or
to interfere with or limit in any way the right of the Company or any
Subsidiary or other affiliate thereof to terminate the employment of
the Participant at any time.
(b) Tax Withholding. The Company or any related corporation
shall have the right to retain and withhold from any payment of Common
Stock under this Agreement the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect
to such payment. At its discretion, the Company may require the
Participant receiving shares of Common Stock to reimburse the Company
for any such taxes required to be withheld by the Company and withhold
any distribution in whole or in part until the Company is so
reimbursed. In lieu thereof the Company shall have the right to
withhold from any cash amounts due or to become due from the Company to
the Participant an amount equal to such taxes and any interest and
penalties payable by the Company with respect to such taxes, or retain
and withhold that number of shares having a fair market value not less
than the amount of such taxes required to be withheld by the Company to
reimburse the Company for any such taxes and cancel (in whole or in
part) any such shares so withheld.
5
<PAGE> 6
(c) No Restriction on Right to Effect Corporate Changes. This
Agreement shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalization, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of
the Company, or any issue of stock or of options, warrants or rights to
purchase stock or of bonds, debentures, preferred or prior preference
stocks whose rights are superior to or affect the Common Stock or the
rights thereof or which are convertible into or exchangeable for Common
Stock, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character of
otherwise.
6. Survival; Assignment. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
heirs and permitted successors and assigns of such party; and all agreements
herein by or on behalf of the Company, or by or on behalf of the Participant,
shall bind and insure to the benefit of the heirs and permitted successors and
assigns of such parties hereto.
7. Notices. All notices and other communications provided for
herein shall be in writing and shall be delivered by hand or sent by certified
or registered mail, return receipt requested, postage prepaid, addressed, if to
the Participant, to his or her attention at the mailing address set forth at the
foot of this Agreement (or to such other address as the Participant shall have
specified to the Company in writing) and, if to the Company, to Wolverine Tube,
Inc., 1525 Perimeter Parkway, Suite 210, Huntsville, Alabama, 35806, Attention:
Secretary. All such notices shall be conclusively deemed to be received and
shall be effective, if sent by hand delivery, upon receipt, or if sent by
registered or certified mail, on the fifth day after the day on which such
notice is mailed.
8. Waiver. The waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement, or of any subsequent
breach by such party of a provision of this Agreement.
9. Headings: Governing Law. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same agreement. The
headings of sections and subsections herein are included solely for convenience
of reference and shall not affect the meaning of any of the provisions of this
Agreement. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by two of its duly authorized officers and the Participant has executed
this Agreement, both as of February 1, 1999, to be effective as of the Grant
Date.
WOLVERINE TUBE, INC.
By: /s/ Johann R. Manning Jr.
--------------------------------
Name: Johann R. Manning Jr.
Title: Vice President-HR
By: /s/ James E. Deason
--------------------------------
Name: James E. Deason
Title: Executive Vice President CFO
PARTICIPANT
/s/ Dennis Horowitz
------------------------------------
Name: Dennis Horowitz
Address:
Huntsville, AL
Options:
Number of Options: 65,000
Option Price: $ 40.25
---------
7
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF WOLVERINE TUBE, INC.
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Wolverine Tube (Canada) Inc. Canada
STPC Holding, Inc. Delaware
Small Tube Manufacturing Corporation Delaware
Wolverine Tube International Limited Virgin Islands of the United States
TFI Holdings, Inc. Delaware
TF Investors, Inc. Delaware
Tube Forming, LP Delaware
Wolverine Finance Company Tennessee
Wolverine Europe (EURL) France
Wolverine Asia, Ltd. Hong Kong
Wolverine China Investments LLC Delaware
Wolverine Tube (Shanghai) Co. Ltd. China
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in (i) the Registration Statement
(Form S-8 No. 33-73550) pertaining to the 1993 Equity Incentive Plan of
Wolverine Tube, Inc.; (ii) the Registration Statement (Form S-8 No. 33-73490)
pertaining to the 1993 Stock Option Plan for Outside Directors of Wolverine
Tube, Inc.; and, (iii) the Registration Statement (Form S-8 No. 33-87687)
pertaining to the Savings Plan of Wolverine Tube, Inc. of our report dated
February 5, 1999, with respect to the consolidated financial statements of
Wolverine Tube, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1998.
Our audits also included the financial statement schedule of Wolverine Tube,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR WOLVERINE TUBE, INC. FOR THE TWELVE MONTH
PERIOD ENDED DECEMBER 31, 1998, AND THE CONSOLIDATED BALANCE SHEET OF WOLVERINE
TUBE, INC. AT DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 78,899
<SECURITIES> 0
<RECEIVABLES> 66,231
<ALLOWANCES> 0<F1>
<INVENTORY> 108,134
<CURRENT-ASSETS> 254,358
<PP&E> 197,708
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 549,418
<CURRENT-LIABILITIES> 54,255
<BONDS> 215,689
0
2,000
<COMMON> 141
<OTHER-SE> 236,822
<TOTAL-LIABILITY-AND-EQUITY> 549,418
<SALES> 617,512
<TOTAL-REVENUES> 617,512
<CGS> 534,799
<TOTAL-COSTS> 534,799
<OTHER-EXPENSES> 38,158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,566
<INCOME-PRETAX> 37,989
<INCOME-TAX> 13,352
<INCOME-CONTINUING> 24,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,637
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.72
<FN>
<F1>THE VALUES FOR THE TAGS RECEIVABLE AND PP&E ARE SHOWN NET OF THEIR RESPECTIVE
ALLOWANCE ACCOUNTS.
</FN>
</TABLE>
