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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999,
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.
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(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
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(Address of principle executive offices) (Zip Code)
(256) 353-1310
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(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
Common Stock, $0.01 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
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, 2000, was approximately
$57,600,000 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, 2000
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Common Stock, $0.01 Par Value 12,296,738 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the annual stockholders meeting
to be held May 24, 2000, are incorporated by reference into Part III.
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FORM 10-K
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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Page No.
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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. Qualitative and Quantitative Disclosures About
Market Risk.......................................................31
Item 8. Financial Statements and Supplementary Data...........................32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures..............................33
PART III
Item 10. Directors and Executive Officers of the Registrant....................34
Item 11. Executive Compensation................................................35
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................................36
Item 13. Certain Relationships and Related Transactions........................37
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...............................................38
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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. The Company
believes that it offers the broadest product line of any North American tube
manufacturer and focuses on custom-engineered, high value-added tubular and
fabricated products, which enhance performance and energy efficiency in many
applications. The Company also manufactures and distributes copper and copper
alloy rod, bar and strip 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. 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., 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 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
Corporation ("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."
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
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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.
In July 1999, the Company combined the assets of its Fergus, Ontario facility, a
copper and copper alloy strip production facility, with certain of the assets of
Ratcliffs Severn Ltd., a Toronto-based light gauge copper and brass strip
manufacturing operation, to create the newly-formed joint entity of Wolverine
Ratcliffs, Inc. ("WRI"). The Company owns 85.9% of WRI and the remaining 14.1%
is owned by Ratcliffs Severn Ltd.
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 this area.
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Copper Alloy Tube. Copper alloy tube (principally copper mixed with nickel) is
manufactured for certain severe uses and corrosive environments such as
condenser tubes and heat exchangers in power generating plants, chemical plants,
refineries and ships. The Company's copper alloy tube products include smooth
and surface enhanced tube produced from a variety of alloys, U-bends for heat
exchangers and the Company's patented Korodense(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 products and subassemblies 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 rod and bar products are sold
directly to manufacturers and to service centers that keep an inventory of
standard sizes.
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.
ENERGY EFFICIENCY AND GOVERNMENTAL REGULATIONS
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 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
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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 "EPA") promulgated regulations requiring domestic
producers to cease production of CFCs by January 1, 1996.
The Company has benefited and expects to continue to benefit, although at rates
slower than originally anticipated, from the CFC phaseout as existing large
commercial air conditioners ("chillers") are replaced with units utilizing
alternative refrigerants. Based upon data from the EPA and the Air Conditioning
and Refrigeration Institute ("ARI"), the Company estimates 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, 1999, there were approximately 48,000 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.
Non-CFC chillers can be 40 percent more efficient than the CFC units installed
20 years ago, resulting in operating savings that can pay back the replacement
cost in a few years. However, U.S. federal tax laws pertaining to depreciation
of capital improvements were not changed when the ban on CFCs went into effect.
Congress has been asked to consider an accelerated depreciable life for CFC
chillers so that unused depreciation could be apportioned over a four-year
period, providing building owners with more incentives to replace their CFC
units.
The Company expects demand for its high value-added, energy efficient tubes to
improve as manufacturers produce more energy efficient and lower operating cost
units and as existing chillers continue to be 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.
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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).
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
manufacturers, air conditioning
and refrigeration manufacturers,
automotive manufacturers, heavy
equipment manufacturers,
industrial equipment
manufacturers, marine industry,
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
No customer accounted for as much as 10% of the Company's consolidated net sales
in 1999 or 1997. York International accounted for 10% of the Company's
consolidated net sales in 1998.
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 amount of the Company's sales result from customer 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
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arrangements, the Company's customers provide forecasts of their requirements,
against which purchase orders are periodically released. In several cases the
Company has entered into multi-year arrangements with major customers to
continue to serve as the supplier of first choice on a global basis.
SALES AND MARKETING
The Company uses a direct field sales force augmented with sales agents in
pursuing global sales opportunities. The Company believes its sales structure
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. The sales structure is
coordinated through key senior executives responsible for the sales and
marketing efforts of the Company.
North America. The sales structure in North America consists of sales officers,
field marketing representatives and independent sales agents who are responsible
for selling and servicing accounts for the entire product line.
International. The Company's overseas export sales are carried out both directly
with major overseas customers and through foreign sales agents. The Company has
sales, marketing and business development offices in Lyon, France, Leeds, United
Kingdom and Hong Kong.
For information concerning the amount of sales, gross profit and certain other
financial information about foreign and domestic operations see Note 15 of the
Notes to Consolidated Financial Statements.
COMPETITION
While no single company competes with Wolverine in all of the Company's product
lines, the Company faces significant competition in each of its product lines.
The Company has numerous competitors, some of which are larger and have greater
financial resources than the Company. Cerro Copper Products Co., Inc.,
Industrias Nacobre S.A. de C.V., Kobe Copper Products Inc., Wieland-Werke AG,
Mueller Industries Inc., Olin Corporation, PMX Industries, Outokumpu American
Brass Company and others compete with the Company in one or more product lines.
There can be no assurance that the Company will be able to compete successfully
or that competition will not have an adverse effect on the Company's business
operating results or financial condition. Minimal product differentiation among
competitors in the Company's wholesale and rod and bar 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
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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 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. 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 1999,
the Company purchased approximately 379.3 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
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the customer which covers both the metal price and the fabrication charge. In
either case, the Company minimizes its exposure to metal price fluctuations
through various strategies. Generally, at the time the metal price for the
customer is established, the Company prices an equivalent amount of metal under
its open pricing arrangements with its suppliers. It is the Company's policy not
to attempt to profit from fluctuations in copper prices by taking commodity
risks or speculative commodity positions.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are devoted to new product
development and manufacturing process improvements. To further support the
Company's advancements in product and process development, the Company completed
construction of the 21,000 square foot Technology Center in Decatur, Alabama in
1998. 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 25% of commercial product gross profit in 1999. 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 alternative refrigerants
as well as more energy efficient tube for the HVAC, refrigeration, power and
petrochemical industries. The ARI has chosen the Company's tube as the
"standard" to measure the efficiency of alternative refrigerants. See "Energy
Efficiency and Governmental Regulations."
The Company's research and development expense was $3.0 million in 1999, $1.5
million in 1998, and $1.4 million in 1997. 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, as well as
universities and government agencies.
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
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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.
The Company has a reserve of $2.6 million for environmental remediation costs.
This reserve is reflected in the Company's December 31, 1999 Consolidated
Balance Sheet and does not include any potential 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, 1999, the Company had a total of 3,465 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, Quebec and Fergus, Ontario
plants are unionized and are covered by collective bargaining agreements that
expire in 2002. 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 herein,
including, but not
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limited to, cyclicality and seasonality in the industries to which the Company
sells its products, the impact of competitive products and pricing,
extraordinary fluctuations in the pricing and supply of the Company's raw
materials, volatility of commodities markets, unanticipated developments in the
areas of environmental compliance and other risks and uncertainties identified
from time to time in the Company's reports filed with the Securities and
Exchange Commission.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to each
executive officer of the Company:
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Name Age Positions with the Company
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Dennis J. Horowitz 53 President, Chief Executive Officer and Director
James E. Deason 52 Executive Vice President, Chief Financial Officer, Secretary and
Director
Keith I. Weil 42 Senior Vice President, Tubing Products
Johann R. Manning, Jr. 39 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 and Superconductor Technologies, 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. 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 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.
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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.
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ITEM 2 PROPERTIES
UNITED STATES FACILITIES
The Company owns and operates manufacturing facilities in Decatur, Alabama;
Shawnee, Oklahoma; Jackson, Tennessee; Roxboro, North Carolina; Carrollton,
Texas; Booneville, Mississippi; and Ardmore, Tennessee. 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 that is not
being utilized for production and is 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>
Property Plant Size Number of
Size (square Year Employees at
Location (acres) feet) Opened Dec. 31, 1999 Description
-------- ------- ----- ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Decatur, AL 166 590,442 1948 949 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 506 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. Also houses U.S.
wholesale product distribution center.
Roxboro, NC 33 231,700 1994 76 Produces technical copper tube, plumbing
tube and refrigeration service tube. The
Company has announced plant closure to
occur mid-2000.
Altoona, PA 32 169,000 1956 346 A redraw facility that produces higher
margin commercial products such as
capillary tube and specialty fabricated
components.
Carrollton, TX 8 165,000 1987 337 A redraw facility that produces
higher-margin commercial products such as
specialty fabricated parts, return bends
and manifolds.
Booneville, MS 30 152,200 1989 178 Processes feedstock tube from Decatur
facility into enhanced surface industrial
tube and technical copper tube.
Ardmore, TN 6 56,724 1974 90 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 Montreal, Quebec,
London, Ontario, and Fergus, Ontario. The following table describes each of the
Company's Canadian manufacturing facilities:
<TABLE>
<CAPTION>
Property Plant Size Number of
Size (square Year Employees at
Location (acres) feet) Opened Dec. 31, 1999 Description
-------- ------- ----- ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Montreal, Quebec 25 424,000 1942 401 Produces plumbing tube and refrigeration
service tube, copper alloy tube and copper
and copper alloy rod and bar.
London, Ontario 45 195,000 1958 314 Produces plumbing tube, refrigeration
service tube and industrial tube. Also
houses corporate offices for Wolverine Tube
(Canada) Inc.
Fergus, Ontario 26 150,000 1968 142 Produces copper and copper alloy strip.
Also houses corporate offices for Wolverine
Ratcliffs, Inc.
</TABLE>
OTHER FACILITIES
The Company leases minor square footage for sales offices in Lyon, France and
Hong Kong, China. The Shanghai, China facility is leased from the Shanghai
Waigaoqiao Free Trade Zone 3-U Development Co., Ltd. for a twelve year term. The
following table describes the Company's Shanghai, China facility:
<TABLE>
<CAPTION>
Property Plant Size Number of
Size (square Year Employees at
Location (acres) feet) Opened Dec. 31, 1999 Description
-------- ------- ----- ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Shanghai, China 3 60,000 1998 63 Produces technical copper tube from
feedstock supplied by local copper tube
manufacturers.
</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." As of March 15, 2000, there were 12,296,738 shares of common stock
outstanding, held by 319 shareholders of record.
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:
<TABLE>
<CAPTION>
1999 1998
Period High Low High Low
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $22 15/16 $18 5/8 $40 7/8 $26 11/16
Second Quarter $26 3/4 $20 1/16 $42 1/2 $36
Third Quarter $25 3/8 $14 3/16 $40 1/2 $20
Fourth Quarter $15 15/16 $13 3/8 $25 $18 11/16
- -----------------------------------------------------------------------
</TABLE>
The Company did not declare or pay cash dividends on its Common Stock during the
years ended December 31, 1999 or 1998. 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, 1999, 1998, 1997, 1996 and 1995 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 Operations Data: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Net sales $ 645,774 $ 617,512 $ 667,686 $699,863 $664,605
Cost of goods sold (a) 579,030 534,799 585,060 606,157 580,749
- ---------------------------------------------------------------------------------------------------------------
Gross profit 66,744 82,713 82,626 93,706 83,856
Selling, general and administrative expenses 30,777 26,328 22,506 22,012 22,996
Restructuring and other charges (b) 19,938 11,867 4,384 -- --
- ---------------------------------------------------------------------------------------------------------------
Income from operations 16,029 44,518 55,736 71,694 60,860
Other expenses:
Interest expense, net 12,608 6,566 7,367 9,321 9,038
Amortization and other, net 1,941 (37) 287 998 1,999
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary
item and cumulative effect of accounting
change 1,480 37,989 48,082 61,375 49,823
Income tax provision (benefit) (289) 13,352 17,506 21,792 17,587
- ---------------------------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of accounting change 1,769 24,637 30,576 39,583 32,236
Extraordinary item, net of income tax benefit -- -- (4,738) -- --
Cumulative effect of accounting change, net
of income tax benefit (5,754) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) ($ 3,985) $ 24,637 $ 25,838 $ 39,583 $ 32,236
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shares
(c) ($ 4,265) $ 24,357 $ 25,558 $ 39,303 $ 31,956
- ---------------------------------------------------------------------------------------------------------------
Earnings per common share-basic:
Income before extraordinary item and
cumulative effect of accounting change $ 0.11 $ 1.74 $ 2.16 $ 2.85 $ 2.35
Extraordinary item -- -- (0.34) -- --
Cumulative effect of accounting change (0.44) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) per share ($ 0.33) $ 1.74 $ 1.82 $ 2.85 $ 2.35
- ---------------------------------------------------------------------------------------------------------------
Basic weighted average common shares 13,106 14,025 14,022 13,772 13,605
- ---------------------------------------------------------------------------------------------------------------
Earnings per common share-diluted:
Income before extraordinary item and
cumulative effect of accounting change $ 0.11 $ 1.72 $ 2.13 $ 2.77 $ 2.26
Extraordinary item -- -- (0.33) -- --
Cumulative effect of accounting change (0.43) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) per share ($ 0.32) $ 1.72 $ 1.80 $ 2.77 $ 2.26
- ---------------------------------------------------------------------------------------------------------------
Diluted weighted average common and common
equivalent shares 13,243 14,186 14,232 14,196 14,118
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
Other Data: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per pound amounts)
Pounds shipped 387,156 357,480 339,313 349,297 313,145
Depreciation and amortization $ 16,448 $ 17,320 $ 16,796 $ 16,346 $ 15,790
Capital expenditures 24,125 34,694 21,598 8,540 15,805
Average COMEX price of copper per pound (d) 0.72 0.75 1.04 1.06 1.35
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------------------
Balance Sheet Data: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Total assets $ 506,689 $ 549,418 $ 424,922 $397,020 $357,225
Total long-term debt 176,421 215,689 98,411 100,473 100,547
Redeemable cumulative preferred stock 2,000 2,000 2,000 2,000 2,000
Stockholders' equity 222,950 236,963 232,763 209,222 164,526
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
(a) During 1999 and 1998, the Company incurred non-recurring charges which
are included in cost of goods sold of approximately $14.4 million and
$2.1 million, respectively. The 1999 non-recurring charge included $8.1
million relating to the liquidation of LIFO inventory values resulting
from planned inventory reductions and $6.3 million of additional costs
associated with the realignment of the Company's manufacturing
operations and product rationalization. The 1998 non-recurring charge
included $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 implemented at the Company's
Roxboro, North Carolina facility.
(b) During 1999, the Company recognized restructuring and other charges of
approximately $19.9 million ($12.5 million after tax). This charge
included $10.0 million in expenses relating to the announced closing of
the Company's Roxboro, North Carolina facility, of which $8.6 million
in expenses related to the write-down of impaired assets; $2.8 million
in expenses related to the implementation of an indirect workforce
reduction program; $3.6 million in expenses related to impaired assets
due to a product and plant rationalization plan; $1.9 million in
expenses related to previously closed entities, of which $1.8 million
related to the write-down of impaired assets; $0.8 million in expenses
related to the termination of an interest rate swap; and $0.8 million
in professional fees and other costs primarily associated with
acquisitions that were not completed.
During 1998, the Company recorded restructuring and other charges 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 in
expenses related to the write-down of impaired assets resulting
primarily from the closing of this facility; $2.7 million in expenses
related to efficiency initiatives 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 recorded restructuring and other charges of
approximately $4.4 million ($3.0 million after 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 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).
(c) Reflects the payment of preferred stock dividends and accretion of
preferred stock redemption requirements.
(d) 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
1999, 1998, and 1997, gross profit from sales of these products was $12.2
million, $6.4 million and $2.8 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 and bar 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 products and rod and bar 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
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
19
<PAGE> 22
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, 1999, COMPARED WITH YEAR-ENDED DECEMBER 31, 1998
Consolidated net sales for the year ended December 31, 1999 were $645.8 million,
an increase of 4.6% from net sales of $617.5 million in 1998. Pounds shipped
increased by 8.3% in 1999 to 387.2 million from 357.5 million in 1998. Pounds
shipped from the United States were 235.6 million in 1999, representing a 3.4%
increase over 1998. Pounds shipped from Canada in 1999 were 151.6 million, a
16.9% increase over 1998. Net sales reflect a decrease in the price of copper,
the Company's main raw material. The average COMEX copper price for 1999 was
$0.72 per pound, compared with $0.75 per pound in 1998.
Shipments of commercial tube products increased 2.5% in 1999 over 1998,
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 have decreased over prior period levels as the Company
experienced a significant, unexpected decline in demand for these products from
major customers resulting from the decrease in the rate of replacement of large
commercial air conditioning units using CFC refrigerants.
Shipments of the Company's wholesale products increased 8.1% as a result of
increased participation by the Company in the United States market. Rod, bar and
strip product shipments increased 30.5% as compared to a year ago due primarily
to increased shipments of strip products to the Canadian mint during the first
half of the year and to increased shipments of strip products from the newly
formed Wolverine Ratcliffs, Inc. joint entity in the second half of 1999.
Consolidated gross profit decreased 19.3% in 1999 to $66.7 million from $82.7
million in 1998. In 1999, non-recurring charges of $14.4 million were recognized
in cost of goods sold. These charges primarily consisted of $8.1 million
relating to the liquidation of LIFO inventory values resulting from planned
inventory reductions and $6.3 million of additional costs associated with the
realignment of the Company's manufacturing operations and product
rationalization. In 1998, non-recurring charges of $2.1 million were recognized
in cost of goods sold. These charges primarily consisted of $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
implemented at the Company's Roxboro, North Carolina facility.
Excluding the effect of the non-recurring charges in both years, consolidated
gross profit decreased 4.4% in 1999 to $81.1 million from $84.8 million in 1998.
This decrease was primarily the result of decreased shipments of technical tube
products, that are included in commercial products, which are generally the
Company's highest margin products. To a lesser extent, higher costs associated
with the slower than anticipated ramp-up of the Jackson, Tennessee facility
affected gross profit. Increased shipments of wholesale products at higher
average fabrication charges and rod, bar and strip products partially offset the
reduction of gross profit resulting from the decreased shipments of technical
tube. Gross profit from United States
20
<PAGE> 23
operations decreased by 29.2% to $46.4 million from $65.5 million in 1998 due to
the factors outlined above. Gross profit from Canadian operations increased by
18.0% to $20.3 million from $17.2 million in 1998, principally due to the
factors outlined above.
Consolidated selling, general and administrative expenses for the year ended
December 31, 1999 increased 17.1% to $30.8 million, compared with $26.3 million
in 1998. This increase was primarily the result of depreciation and maintenance
charges resulting from new information systems software, the increased costs due
to the addition of Wolverine Ratcliffs, Inc., incremental depreciation on the
Company's new research and development center and increased employee
compensation expenses relating to performance incentives and relocation costs.
As a result of decreased gross profit, increased selling, general and
administrative expenses, and restructuring and other charges recorded in 1999,
as described in "Restructuring and Other Charges" section below, consolidated
income from operations decreased by 64.0% to $16.0 million in 1999, from $44.5
million in 1998. United States income from operations decreased $31.4 million to
a loss of $0.6 million in 1999 from income of $30.8 million in 1998, and
Canadian income from operations increased by 21.2% to $16.6 million in 1999 from
$13.7 million in 1998. Excluding the effect of the non-recurring and
restructuring and other charges recorded in both years, income from operations
was $50.3 million in 1999 and $58.5 million in 1998.
Consolidated net interest expense was $12.6 million in 1999 as compared to $6.6
million for the full year 1998. This increase was primarily the result of
increased interest expense associated with the issuance of the Company's $150
million in principal amount of 7 3/8% Senior Notes due 2008 in August 1998 (the
"Senior Notes") and a decrease in interest expense capitalized during the year.
For the year ended December 31, 1999, the Company recognized a tax benefit of
$0.3 million resulting from the recognition of non-recurring charges in cost of
goods sold and restructuring and other charges. Excluding the effect of the tax
benefit and the associated non-recurring and restructuring and other charges
recognized in both years, the effective tax rate would have been 35.3% in 1999
and 35.7% in 1998.
During the year ended December 31, 1999, the Company recognized a charge for the
cumulative effect of a change in accounting principle of $8.0 million pre-tax
($5.8 million after tax). The Company adopted the American Institute of
Certified Public Accountants Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities (the "Statement"). The implementation of the Statement
required the Company to write-off the remaining start-up costs relating
primarily to the Company's Roxboro, North Carolina, Jackson, Tennessee and
Shanghai, China facilities.
Consolidated net loss in 1999 was $4.0 million, or $.32 loss per diluted share,
compared to consolidated net income of $24.6 million or $1.72 per diluted share
in 1998. Excluding the non-recurring charges included in cost of goods sold and
restructuring and other charges recognized in both years, and the cumulative
effect of an accounting change recognized in 1999, consolidated net income and
diluted earnings per share for 1999 would have been $23.2 million and $1.73,
respectively, compared to $33.5 million and $2.34, respectively, in the prior
year period.
21
<PAGE> 24
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. Pounds
shipped from the United States were 227.8 million in 1998, representing a 1.5%
increase over 1997. Pounds shipped from Canada in 1998 were 129.7 million, a
12.3% increase over 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.
Consolidated gross profit increased 0.1% in 1998 to $82.7 million from $82.6
million in 1997. 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. Excluding
the effect of the $2.1 million non-recurring charges included in cost of goods
sold as previously described, consolidated gross profit was $84.8 million
in 1998.
Consolidated selling, general and administrative expenses for the year ended
December 31, 1998 increased 16.9% to $26.3 million, compared with $22.5 million
in 1997. This increase was primarily the result of increased employee benefits,
marketing expenses and professional fees.
As a result of increased selling, general and administrative expenses and
restructuring and other charges recorded in 1998, as described in the
"Restructuring and Other Charges" section below, consolidated income from
operations decreased by 20.1% to $44.5 million in 1998, from $55.7 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 29.2% to $13.7 million in 1998 from $10.6 million in 1997.
Excluding the effect of the non-recurring and restructuring and other charges
recorded in both years, income from operations was $58.5 million in 1998 and
$60.1 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
22
<PAGE> 25
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 in 1997. 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
restructuring and other charges in 1998. Excluding the effect of the tax benefit
associated with the restructuring and other charges in 1998, the effective tax
rate would have been 35.7% in 1998.
Consolidated net income in 1998 was $24.6 million, or $1.72 per diluted share,
compared to $25.8 million or $1.80 per diluted share in 1997. Excluding the
non-recurring charges included in cost of goods sold and restructuring and other
charges recognized in 1998 and the restructuring and other charges and the
extraordinary item recognized in 1997, 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.
RESTRUCTURING AND OTHER CHARGES
1999 RESTRUCTURING AND OTHER CHARGES
In 1999, the Company recognized restructuring and other charges of $19.9 million
($12.5 million net of tax). This charge included $10.0 million in expenses
relating to the announced closing of the Company's Roxboro, North Carolina
facility scheduled to take place in mid-2000, of which $8.6 million in expenses
related to the write-down of impaired assets; $2.8 million in expenses related
to the implementation of an indirect workforce reduction program of
approximately 100 employees (further described below); $3.6 million in expenses
related to impaired assets due to a product and plant rationalization plan; $1.9
million in expenses related to previously closed entities, of which $1.8 million
related to the write-down of impaired assets; $0.8 million in expense related to
the termination of an interest rate swap; and $0.8 million in professional fees
and other costs, primarily associated with acquisitions that were not completed.
To date, the Company has paid approximately $3.5 million in cash related to the
restructuring. The Company believes the accrued restructuring costs of $1.6
million at December 31, 1999 represents its remaining cash obligations.
During the third quarter of 1999, the Company implemented an indirect workforce
reduction program of approximately 100 employees. 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 vacation and two
weeks' pay at the employee's current base salary plus one week's pay for each
full year of continuous service, less applicable taxes and withholding, not to
exceed 26 weeks. At the end of the fourth quarter of 1999, the implementation of
the indirect workforce reduction program was substantially complete. The Company
expects to realize approximately $2.5 million in reduced salary and related
expenses per year as a result of this workforce reduction.
23
<PAGE> 26
Implementation of the workforce reduction program resulted in an approximate
$2.8 million charge that was recognized in the third quarter of 1999. The
primary components of this charge relating to the indirect workforce reduction
program included approximately $2.1 million relating to severance and vacation
pay and $0.7 million in increased post-retirement medical and life insurance
benefits.
1998 RESTRUCTURING AND OTHER CHARGES
In 1998, the Company recognized restructuring and other charges 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 (further described below), of which $5.6 million in expenses related to
the write-down of impaired assets resulting primarily from the closing of this
facility; $2.7 million in expenses related to efficiency initiatives implemented
at the Company's North Carolina facility; $0.9 million in expenses related to
the implementation of a salaried workforce reduction program (further described
below); and $0.9 million in professional fees and other costs primarily
associated with an acquisition that was not completed.
During the third quarter of 1998, the Company implemented plans to close the
Greenville, Mississippi fabricated products facility. 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 closure of this facility.
Implementation of the plan to close this facility resulted in an approximate
$8.8 million charge, of which $7.4 million was included in restructuring and
other charges and $1.4 million was 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.
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 the Severance Plan. 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 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.
1997 RESTRUCTURING AND OTHER CHARGES
In 1997, the Company recognized restructuring and other charges of $4.4 million
($3.0 million after tax). This charge included $1.8 million in expenses related
to the implementation of the Company's 1997 Voluntary Early Retirement Program
(further described below); $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
24
<PAGE> 27
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).
The Company adopted the 1997 Voluntary Early Retirement Program (the "Plan") in
the first quarter of 1997. This Plan rewarded 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 realized
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 recognized in the second quarter of 1997. The primary
components of the charge relating to the Plan included 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities is the Company's primary source of
liquidity and totaled $18.6 million, $35.8 million and $46.7 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The decrease in net
cash provided by operating activities in 1999 was primarily due to the decrease
in net income exclusive of the cumulative effect of the accounting change.
The ratio of current assets to current liabilities was 3.2 in 1999 and 4.7 in
1998. The current ratio decreased in 1999 over 1998 due primarily to decreased
cash and equivalents resulting from the net reduction of borrowings under the
various credit facilities, a decrease in inventories and an increase in
short-term borrowings.
The Company has a $200 million Revolving Credit Facility (the "Facility"), which
matures on April 30, 2002. The Facility 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, 1999, the
Company had approximately $30 million in outstanding borrowings and obligations
under the Facility and approximately $170 million in additional borrowing
availability thereunder.
Capital expenditures were $24.1 million in 1999, $34.7 million in 1998 and $21.6
million in 1997. The Company currently expects to spend approximately $35 to $40
million in 2000 under
25
<PAGE> 28
its capital improvement program. The Company's 2000 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, stock repurchases and capital expenditure
requirements with cash flow from operations and funds available under the
Facility.
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 used the remainder for capital expenditures, working
capital and other general corporate purposes. The Senior Notes (i) have interest
payments dates on February 1 and August 1 of each year, which commenced 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.
MARKET RISKS
The Company is exposed to various market risks, including changes in interest
rates, commodity prices and foreign currency rates. 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. In the ordinary course of business, the Company enters
into various types of transactions involving financial instruments to manage and
reduce the impact to changes in interest rates, commodity prices and foreign
exchange rates.
INTEREST RATE RISK
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of the Company's total long-term debt at December 31, 1999
was $131,636,000. A 1% increase from prevailing interest rates at December 31,
1999 would result in a decrease in fair value of total long-term debt by
approximately $7,678,000. Conversely, interest rate changes generally do not
affect the fair market value of variable rate debt but will impact future
earnings and cash flows assuming all other factors are held constant. At
December 31, 1999, the annual pretax earnings and cash flow
26
<PAGE> 29
impact resulting from a one percentage point increase in interest rates would be
approximately $400,000.
COMMODITY PRICE RISK
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 Company's risk of future price increases. At December
31, 1999, the Company had entered into contracts hedging certain future
commodity purchases through May 2001, of $32.6 million. The estimated fair value
of these outstanding contracts was approximately $38.3 million at December 31,
1999. The effect of a 10% adverse change in commodity prices at December 31,
1999 would change the estimated fair value of these outstanding contracts to
$34.5 million.
FOREIGN CURRENCY RISK
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. At December 31, 1999, the Company was not a
party to any material contract relating to foreign currency forward agreements.
YEAR 2000 ISSUE UPDATE
In prior years the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company did not experience any significant issues or errors in its operating
or business systems when the date changed from 1999 to 2000. Based on operations
since January 1, 2000, the Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems
or the products and services of third parties.
The Company utilized 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 was estimated at $6.4 million and was funded through
operating cash flows. Of the total project cost, approximately $6.2 million is
attributable to the purchase of new software, which has been capitalized.
The Company will continue to monitor its mission-critical computer applications
and those of its suppliers and vendors throughout the current year to ensure
that any potential Year 2000 matters that may arise are addressed promptly.
ENVIRONMENTAL
The Company's facilities and operations are subject to extensive environmental
laws and regulations. During the year ended December 31, 1999, the Company spent
approximately $0.4
27
<PAGE> 30
million on environmental matters, which include remediation costs, monitoring
costs and legal and other costs. The Company has a reserve of $2.6 million for
environmental remediation costs which is reflected in the Company's Consolidated
Balance Sheet. The Company has approved and intends to spend $1.0 million for
capital expenditures relating to environmental matters during 2000. 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.
DECATUR, ALABAMA
In 1999, the Company negotiated a new Consent Order under Section 3008(h) of the
Resource Conservation and Recovery Act. The new Order incorporated the
Corrective Measures Study ("CMS") that Henley (a former owner of the facility)
had submitted to the EPA regarding a waste burial site at the Decatur, Alabama
facility. The order also included an upgrade to an existing chrome groundwater
remediation system. The CMS proposes current monitoring and site maintenance.
The remaining monitoring, legal, and other costs associated with the ground
water remediation project are estimated to be $861,000. The cost to the Company
to comply with the CMS, as currently approved, 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
28
<PAGE> 31
initiated the RI/FS. Based on the available information, the Company
preliminarily estimates that it will cost between $319,000 and $1,174,000 to
complete the investigation and remediation of this site.
A report of a 1995 EPA site inspection of the Ardmore facility recommended
further action for the site. The Company believes, however, that because the
Tennessee Division is actively supervising an ongoing investigation of the
Ardmore facility, it is unlikely that 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 determined the
effectiveness of technology identified for remediation and which will also help
define the scope of remediation for the site. The pilot study program concluded
on June 1, 1997. The Company entered into a final consent agreement with MDEQ on
July 15, 1997. Remediation efforts began in the third quarter of 1997 and are
expected to take approximately three years. The Company recently submitted a
report of remediation activities requesting that the MDEQ allow it to cease and
desist such remediation. However, there can be no assurance that remediation
efforts will be allowed to be discontinued, and operations, maintenance and
other expenses of the remediation system may continue for a longer period of
time. Through October 3, 1998, applicable costs of testing and remediation
required at the Greenville facility had 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 $290,000 under the remediation plan the Company
adopted, but these costs could increase if additional remediation is required.
In December 1999, the Company applied for admission into the Mississippi Land
Recycling Program. It is anticipated that the Land Recycling Program will allow
more latitude in remediation decision-making and property transfers.
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 had 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 $730,000. However, certain of the remediation
costs may be reimbursed pursuant to the terms of an indemnification agreement
between the Company and the previous owners of the Jackson Facility.
29
<PAGE> 32
ALTOONA, PENNSYLVANIA
The Company has entered into the State of Pennsylvania Department of
Environmental Protection Act II Program (the "Program"). The Program was entered
to address issues of contamination from closed hazardous waste lagoons and
possible oil contamination of soil. The hazardous waste lagoons were closed in
1982. The Program is a voluntary site remediation program, which allows the
Company to direct the site evaluation and any eventual remediation. Preliminary
costs are estimated at $198,000 to complete the investigation phase of the
Program. Once the investigation phase is completed, a decision on remediation
(if any) will be made. Insufficient information exists at this point to estimate
any remediation costs or if remediation will be required. The Company is fully
indemnified by the previous owner for any costs associated with the Program,
thus no liability has been recorded as of December 31, 1999.
OTHER
The Company has been named as a party in a Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) lawsuit by Southdown Environmental
Services ("Southdown") and Allworth, Inc. ("Allworth"). The Company is named
with approximately 200 other companies (the "Group") in the suit. The Company,
along with the other members of the Group, contracted with Allworth, and
subsequently Southdown, for treatment, storage and disposal of hazardous wastes
between 1978 and 1995. The suit seeks compensation from the Group for costs
related to environmental cleanup incurred by Southdown, and potentially
Allworth, at the site in Birmingham, Alabama. The site is presently owned by
Philips Services Corporation ("Philips"). To date, the Company has only incurred
legal fees associated with this matter. Negotiations have been ongoing,
unsuccessfully, between Philips, Southdown and Allworth to reach a settlement.
The Company's potential share of liability, if any, is unknown at this point.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133 Accounting for Derivative Instruments and Hedging Activities. In 1999,
the FASB delayed the effective date of Statement No. 133 until years beginning
after June 15, 2000. The Company expects to adopt Statement No. 133 effective
January 1, 2001. Statement No. 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet completed its analysis of the
impact that Statement No. 133 will have on its financial statements.
30
<PAGE> 33
ITEM 7A QUALITATIVE AND QUANTITATIVE 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."
31
<PAGE> 34
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Operations--For the years ended December 31, 1999, 1998, and 1997. F-1
Consolidated Balance Sheets--December 31, 1999 and 1998. F-2
Consolidated Statements of Stockholders' Equity--For the years ended December 31, 1999, 1998,
and 1997. F-3
Consolidated Statements of Cash Flows--For the years ended December 31, 1999, 1998, and 1997. F-4
Notes to Consolidated Financial Statements. F-5
Report of Ernst & Young LLP, Independent Auditors. F-26
</TABLE>
32
<PAGE> 35
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.
33
<PAGE> 36
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 2000 Annual
Meeting of Stockholders. The required information concerning executive officers
of the Company is contained in Part I of this report.
34
<PAGE> 37
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 2000 Annual Meeting of Stockholders.
35
<PAGE> 38
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 2000
Annual Meeting of Stockholders.
36
<PAGE> 39
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 2000 Annual Meeting of Stockholders.
37
<PAGE> 40
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 Operations--For the years ended December 31,
1999, 1998, and 1997.
Consolidated Balance Sheets--December 31, 1999 and 1998.
Consolidated Statements of Stockholders' Equity--For the years ended
December 31, 1999, 1998, and 1997.
Consolidated Statements of Cash Flows--For the years ended December 31,
1999, 1998, and 1997.
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* Amendment to Amended and Restated Change in Control,
Severance and Non-Competition Agreement for Executive
Officers
10.2* First Amendment to Agreement for Supplemental
Executive Retirement Benefits
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule (for SEC use only)
</TABLE>
38
<PAGE> 41
The following exhibits are incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Third Amendment and Limited Waiver to Credit
Agreement dated June 30, 1999, by and between the
Company, Wolverine Tube (Canada) Inc. and the lenders
named therein
10.2* Agreement for Supplemental Executive Retirement
Benefits
</TABLE>
The following exhibits are incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 3, 1999:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1* Form of Amended and Restated Change in Control,
Severance and Non-Competition Agreement for Executive
Officers
10.2* Long-Term Incentive Plan
10.3* Annual Performance Incentive Plan
</TABLE>
The following exhibits are incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Second Amendment to 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
</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)
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), Inc., and the
lenders named therein
</TABLE>
39
<PAGE> 42
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 Bank,
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
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>
4 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>
40
<PAGE> 43
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>
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, 1999.
41
<PAGE> 44
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 29th day of March, 2000.
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 29, 2000
----------------------------------- Officer and Director (Principal
Dennis J. Horowitz Executive Officer)
By: /s/ James E. Deason Executive Vice President, Chief March 29, 2000
----------------------------------- Financial Officer, Secretary and
James E. Deason Director (Principal Financial Officer
and Principal Accounting Officer)
By: /s/ Jan K. Ver Hagen Chairman and Director March 29, 2000
-----------------------------------
Jan K. Ver Hagen
By: /s/ W. Barnes Hauptfuhrer Director March 29, 2000
-----------------------------------
W. Barnes Hauptfuhrer
By: /s/ Thomas P. Evans Director March 29, 2000
-----------------------------------
Thomas P. Evans
By: /s/ John L. Duncan Director March 29, 2000
-----------------------------------
John L. Duncan
By: /s/ Charles E. Thompson Director March 29, 2000
-----------------------------------
Charles E. Thompson
By: /s/ Chris A. Davis Director March 29, 2000
-----------------------------------
Chris A. Davis
By: /s/ Gail O. Neuman Director March 29, 2000
-----------------------------------
Gail O. Neuman
</TABLE>
42
<PAGE> 45
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands except per share amounts)
Net sales $645,774 $617,512 $667,686
Cost of goods sold 579,030 534,799 585,060
- ------------------------------------------------------------------------------------------------------------------
Gross profit 66,744 82,713 82,626
Selling, general and administrative expenses 30,777 26,328 22,506
Restructuring and other charges 19,938 11,867 4,384
- ------------------------------------------------------------------------------------------------------------------
Income from operations 16,029 44,518 55,736
Other (income) expenses:
Interest expense, net 12,608 6,566 7,367
Amortization and other, net 1,941 (37) 287
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary item and
cumulative effect of accounting change 1,480 37,989 48,082
Income tax provision (benefit) (289) 13,352 17,506
- ------------------------------------------------------------------------------------------------------------------
Income before extraordinary item and cumulative
effect of accounting change 1,769 24,637 30,576
Extraordinary item, net of income tax benefit of $2,782 -- -- (4,738)
Cumulative effect of accounting change, net of income tax
benefit of $2,211 (5,754) -- --
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) (3,985) 24,637 25,838
Less preferred stock dividends (280) (280) (280)
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shares $ (4,265) $ 24,357 $ 25,558
==================================================================================================================
Earnings per common share--basic:
Income before extraordinary item and cumulative
effect of accounting change $ 0.11 $ 1.74 $ 2.16
Extraordinary item -- -- (0.34)
Cumulative effect of accounting change (0.44) -- --
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share--basic ($0.33) $ 1.74 $ 1.82
==================================================================================================================
Basic weighted average number of common shares 13,106 14,025 14,022
==================================================================================================================
Earnings per common share--diluted:
Income before extraordinary item and cumulative
effect of accounting change $ 0.11 $ 1.72 $ 2.13
Extraordinary item -- -- (0.33)
Cumulative effect of accounting change (0.43) -- --
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share--diluted $ (0.32) $ 1.72 $ 1.80
==================================================================================================================
Diluted weighted average number of common and common
equivalent shares 13,243 14,186 14,232
==================================================================================================================
</TABLE>
See accompanying notes.
F-1
<PAGE> 46
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands except share and per share amounts)
ASSETS
Current assets
Cash and equivalents $ 26,894 $ 78,899
Accounts receivable, net 84,440 66,231
Inventories 95,368 108,134
Refundable income taxes 9,511 --
Prepaid expenses and other 1,415 1,094
- ------------------------------------------------------------------------------------------------------
Total current assets 217,628 254,358
Property, plant and equipment, net 190,774 197,708
Deferred charges and intangible assets, net 91,772 87,984
Assets held for resale -- 2,989
Prepaid pensions 6,515 6,379
- ------------------------------------------------------------------------------------------------------
Total assets $506,689 $549,418
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 39,240 $ 37,444
Accrued liabilities 14,772 12,584
Deferred income taxes -- 3,018
Short-term borrowings 13,469 1,209
- ------------------------------------------------------------------------------------------------------
Total current liabilities 67,481 54,255
Deferred income taxes 20,931 25,903
Long-term debt 176,421 215,689
Postretirement benefit obligation 11,935 11,606
Accrued environmental remediation 2,590 3,002
- ------------------------------------------------------------------------------------------------------
Total liabilities 279,358 310,455
Commitments and contingencies
Minority interest 2,381 --
Redeemable cumulative preferred stock, par value
$1 per share; 20,000 shares issued and outstanding
at December 31, 1999 and 1998 2,000 2,000
Stockholders' equity
Cumulative preferred stock, par value $1 per
share; 500,000 shares authorized -- --
Common stock, par value $0.01 per share; 40,000,000
shares authorized, 14,196,289 and 14,147,060 shares
issued as of December 31, 1999 and 1998, respectively 142 141
Additional paid-in capital 102,654 101,514
Retained earnings 163,165 167,430
Unearned compensation (309) --
Accumulated other comprehensive income (10,688) (15,494)
Treasury stock, at cost (1,642,300 shares and 784,200 shares
as of December 31, 1999 and 1998, respectively) (32,014) (16,628)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 222,950 236,963
- ------------------------------------------------------------------------------------------------------
Total liabilities, minority interest, redeemable cumulative
preferred stock and stockholders' equity $506,689 $549,418
======================================================================================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 47
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumu-
lated
Redeemable Other Total
Cumulative Preferred Additional Unearned Compre- Stock-
Stock Common Stock Paid-In Retained Compen- hensive Treasury holders'
Shares Amount Shares Amount Capital Earnings sation Income Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands except number of shares)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 exercised -- -- -- -- 479 -- -- -- -- 479
Preferred stock
dividends -- -- -- -- -- (280) -- -- -- (280)
- ------------------------------------------------------------------------------------------------------------------------------------
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 exercised -- -- -- -- 273 -- -- -- -- 273
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
Comprehensive income:
Net (loss) -- -- -- -- -- (3,985) -- -- -- (3,985)
Translation adjustments -- -- -- -- -- -- -- 4,806 -- 4,806
-------
Comprehensive income 821
-------
Common stock issued -- -- 49,229 1 283 -- -- -- -- 284
Tax benefit from stock
options exercised -- -- -- -- 308 -- -- -- -- 308
Preferred stock
dividends -- -- -- -- -- (280) -- -- -- (280)
Issuance of restricted
stock award and
amortization
of unearned
compensation -- -- -- -- 549 -- (309) -- -- 240
Purchase of
treasury stock -- -- -- -- -- -- -- -- (15,386) (15,386)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December
31, 1999 20,000 $2,000 14,196,289 $142 $102,654 $163,165 ($309) ($10,688) ($32,014) $222,950
====================================================================================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 48
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($3,985) $ 24,637 $ 25,838
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 13,600 14,635 14,116
Amortization 2,848 2,685 2,680
Deferred income taxes (5,948) (1,375) 520
Non-cash portion of restructuring and other charges 14,920 8,174 3,533
Loss on sale of equipment 1,024 88 --
Extraordinary loss on retirement of debt -- -- 4,738
Cumulative effect of accounting change 5,754 -- --
Changes in operating assets and liabilities:
Accounts receivable, net (7,456) 3,946 6,219
Inventories 14,522 (20,989) (14,606)
Refundable income taxes (8,672) -- --
Prepaid expenses and other 732 (2,125) (1,670)
Accounts payable (11,073) (460) 10,652
Accrued liabilities, including pension,
postretirement benefit and environmental 2,665 6,551 (5,351)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,931 35,767 46,669
INVESTING ACTIVITIES
Additions to property, plant and equipment (24,125) (34,694) (21,598)
Acquisition of business assets (6,427) (35,431) (4,210)
Other (452) (385) (496)
- -------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (31,004) (70,510) (26,304)
FINANCING ACTIVITIES
Financing fees -- (1,829) (820)
Net borrowing (repayment) from revolving credit facilities (25,345) (31,999) 97,000
Principal payments on long-term debt (335) (374) (99,213)
Proceeds from issuance of long-term debt -- 149,683 --
Premium and fees paid on retirement of debt -- -- (5,517)
Issuance of common stock 284 1,177 716
Purchase of treasury stock (15,386) (16,628) -
Dividends paid on preferred stock (280) (280) (280)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (41,062) 99,750 (8,114)
Effect of exchange rate on cash and equivalents 1,130 (1,204) (122)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (52,005) 63,803 12,129
Cash and equivalents at beginning of year 78,899 15,096 2,967
- -------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 26,894 $ 78,899 $ 15,096
=============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Interest paid $ 16,119 $ 5,275 $ 9,321
Income taxes paid $ 14,484 $ 12,977 $ 13,721
NONCASH FINANCING ACTIVITIES:
Tax benefit from stock options exercised $ 308 $ 273 $ 479
</TABLE>
See accompanying notes.
F-4
<PAGE> 49
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 majority-owned subsidiaries after
elimination of significant intercompany accounts and transactions.
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.
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 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.
REVENUE RECOGNITION POLICY
The Company records sales when products are shipped to customers or title
passes. 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 60% and 64%
of the total consolidated inventories at December 31, 1999 and 1998 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 using
the straight-line method over the following periods:
<TABLE>
<S> <C>
Furniture and fixtures 2-9 years
Software 3-5 years
Tooling 3-10 years
Building and improvements 3-39 years
Machinery and equipment 5-25 years
</TABLE>
F-5
<PAGE> 50
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 enterprise level goodwill) generally is amortized on a straight-line basis
over 40 years. The carrying value of enterprise level 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 enterprise level goodwill. The Company assesses
the recoverability of enterprise level goodwill by determining whether the
unamortized goodwill balance can be recovered through undiscounted future
results of operations. The amount of enterprise level goodwill impairment, if
any, is measured based on projected discounted future cash flows using a
discount rate reflecting the Company's average cost of funds. To date, the
Company has made no adjustments to the carrying value of its enterprise level
goodwill.
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 prices. 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 $131,636,000 and $2,156,000,
respectively, at December 31, 1999 and $143,880,000 and $2,215,000,
respectively, at December 31, 1998.
F-6
<PAGE> 51
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.
INTEREST RATE SWAPS
From time to time 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 on 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 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.
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.
At December 31, 1999, the Company was not a party to any interest rate swap
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 Company's 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 goods sold as part of the product cost. 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.
At December 31, 1999, the Company had entered into contracts hedging certain
future commodity purchases through May 2001, of approximately $32.6 million.
The estimated fair value of these outstanding contracts was approximately $38.3
million at December 31, 1999.
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> 52
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, 1999, the Company was not a party to any material contract
relating to foreign currency forward agreements.
STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, encourages but does not require companies to record compensation
costs for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. The Company grants stock
options for a fixed number of shares to employees with an exercise price equal
to the fair value of the shares at the date of grant. Accordingly, the Company
recognizes no compensation 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 other comprehensive income component of
stockholders' equity. Realized exchange gains and losses are included in
"Amortization and other, net" in the consolidated statements of operations. Net
exchange (gains) losses totaled $666,000 in 1999, ($875,000) in 1998 and
($425,000) in 1997.
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 $3.0 million in 1999,
$1.5 million in 1998 and $1.4 million in 1997.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported consolidated
statements of operations for the years ended December 31, 1998 and 1997 and
consolidated balance sheet as of December 31, 1998 to provide comparability with
the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133 Accounting for Derivative Instruments and Hedging Activities. In 1999,
the FASB delayed the effective date of Statement No. 133 until years beginning
after June 15, 2000. The Company
F-8
<PAGE> 53
expects to adopt Statement No. 133 effective January 1, 2001. Statement No. 133
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet completed its analysis of the impact that Statement No. 133 will have on its
financial statements.
2. INVENTORIES
Inventories are as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Finished products $16,489 $ 22,740
Work-in-process 24,890 28,401
Raw materials and supplies 53,989 56,993
- ------------------------------------------------------------------------------
Totals $95,368 $108,134
==============================================================================
</TABLE>
The reserves for LIFO included in inventories at December 31, 1999 and 1998 are
$8,445,000 and $18,996,000, respectively. During the third quarter of 1999,
liquidation of certain LIFO layers increased cost of goods sold by $8.1 million,
pre-tax.
3. ASSETS HELD FOR RESALE
Assets held for sale at December 31, 1998 included the net assets of the
unoccupied Greenville, Mississippi and Carrollton, Texas facilites recorded at
$0.7 million and $2.3 million, respectively. The remaining net book value of the
Greenville, Mississippi facility was written off and included in the third
quarter 1999 restructuring and other charges as discussed in Note 17. In July
1999, the Carrollton, Texas facility was sold for approximately $2.3 million.
4. PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment are as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Land and improvements $ 11,500 $ 11,942
Building and improvements 52,247 46,062
Machinery and equipment 215,793 207,696
Construction-in-progress 10,607 22,314
- ------------------------------------------------------------------------------
290,147 288,014
Less accumulated depreciation (99,373) (90,306)
- ------------------------------------------------------------------------------
Totals $190,774 $197,708
==============================================================================
</TABLE>
During the implementation of the Company's new information systems, the Company
reviewed the estimated useful lives of its property, plant and equipment. This
evaluation revealed that certain equipment was being depreciated over periods of
time which were shorter than their respective useful lives. Accordingly,
effective January 1, 1999, a change in estimate was made
F-9
<PAGE> 54
to the estimated useful lives of certain equipment, which resulted in an
increase of approximately $1,444,000 in net income for the year ended December
31, 1999.
5. DEFERRED CHARGES AND INTANGIBLE ASSETS
Deferred charges and intangible assets are as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Deferred debt issuance costs $ 2,650 $ 2,650
Goodwill 99,747 93,113
Patents and other 5,020 5,155
- -----------------------------------------------------------------------------
107,417 100,918
Less accumulated amortization (15,645) (12,934)
- -----------------------------------------------------------------------------
Totals $91,772 $87,984
=============================================================================
</TABLE>
In July 1999, the Company combined the assets of its Fergus, Ontario facility
with certain of the assets of Ratcliffs Severn Ltd. to create the newly-formed
joint entity of Wolverine Ratcliffs, Inc. ("WRI"). This transaction was
accounted for using the purchase method. The purchase price was approximately
$7.8 million, resulting in approximately $5.8 million of goodwill. The goodwill
is being amortized over 40 years. The accounts and results of operations of WRI
have been combined with those of the Company since the date of the acquisition.
6. FINANCING ARRANGEMENTS AND 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 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, 1999, the Company had approximately $30 million in outstanding
borrowings and obligations under the Facility and approximately $170 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 $98,225,000 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
F-10
<PAGE> 55
remained outstanding was called for redemption by the Company at 103.8%,
pursuant to the terms of the 10 1/8% Notes.
During 1998 and 1999, the Company was party to an interest rate swap agreement
which effectively fixed 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 was to expire on May 7, 2002,
and was based on the three-month LIBOR. This interest rate swap was accounted
for as a hedge; the differential to be paid as interest rates changes were
accrued and recognized as an adjustment to interest expense. In September 1999,
the Company entered into a cancellation agreement that terminated the interest
rate swap. The resulting loss on termination, $810,000, was included in
restructuring and other charges as stated in Note 16.
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 were used for capital
expenditures, 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 entered into two credit facilities with a Chinese bank providing
for an aggregate available credit facility of up to $3.7 million. These
facilities are payable upon demand and bear interest at the bank's prime rate.
At December 31, 1999, the Company had outstanding borrowings of $3.0 million
under these facilities.
In July 1999, WRI entered into a credit agreement with a Canadian bank providing
for an aggregate available credit facility of up to Canadian $15 million
(approximately U.S. $10 million) (the "Canadian Facility"). The Canadian
Facility is payable upon demand and bears interest at the bank's prime rate. The
Canadian Facility is secured by certain of WRI's assets. At December 31, 1999,
WRI had outstanding borrowings of approximately Canadian $13.8 million
(approximately U.S. $9.6 million).
The Company has a non-interest bearing loan agreement with the government of
Canada. As of December 31, 1999 and 1998, the Company had outstanding advances
of $693,000 and $980,000 respectively. The loan is being repaid in four annual
installments which commenced in 1998.
F-11
<PAGE> 56
The weighted average interest rate for short-term borrowings outstanding at
December 31, 1999 was 7.1%.
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
$2,992,000 and $378,000 in 1999, $2,792,000 and $1,816,000 in 1998, and $383,000
and $381,000 in 1997, 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 a prescribed formula based upon the employee's compensation. The Company
contributes annual amounts that fall within the range determined to be
deductible for federal income tax purposes.
Certain assumptions utilized in accounting for the U.S. defined benefit plans
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.0% 7.5%
Rate of increase in compensation 4.0-4.25 4.0-4.25 4.0-4.25
Expected return on plan assets 9.5 9.0 9.0
</TABLE>
The effect of the change in the assumed discount rate and the expected return on
plan assets for the year ended December 31, 1999 resulted in an increase to the
unrecognized net actuarial gain at December 31, 1999.
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>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Service cost $ 4,143 $3,556 $3,266
Interest cost 7,953 7,331 6,768
Expected return on plan assets (11,708) (9,620) (8,020)
Amortization of prior service cost 134 133 50
Effect of special termination benefits 68 -- 509
- ---------------------------------------------------------------------------------
Net periodic pension costs $ 590 $1,400 $2,573
=================================================================================
</TABLE>
F-12
<PAGE> 57
The following table sets forth a reconciliation of the benefit obligation for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Benefit obligation at the beginning of the year $113,888 $ 98,570
Service costs 4,143 3,556
Interest costs 7,953 7,331
Amendments -- 1,160
Actuarial (gain) loss (9,641) 7,364
Benefits paid (4,849) (4,093)
Special termination benefits 68 --
- --------------------------------------------------------------------------------
Benefit obligation at the end of the year $111,562 $113,888
================================================================================
</TABLE>
The following table sets forth a reconciliation of the plan assets for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Fair value of plan assets at the beginning of the year $125,203 $108,632
Actual return on plan assets 16,705 19,915
Company contribution 687 749
Benefits paid (4,849) (4,093)
- ---------------------------------------------------------------------------------
Fair value of plan assets at the end of the year $137,746 $125,203
=================================================================================
</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>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Funded status $ 26,184 $11,315
Unrecognized net actuarial gain (22,480) (7,841)
Unrecognized pension service costs 1,495 1,629
- --------------------------------------------------------------------------------
Prepaid pension obligation $ 5,199 $ 5,103
================================================================================
</TABLE>
The Company has 401(k) plans covering substantially all U.S. employees. The
Company provides a 40%-75% match for up to the first 5% to 7.5% of the
employee's salary contributed to the plans. The amount of expense recorded by
the Company with respect to these plans was $1,909,000 in 1999, $1,928,000 in
1998, and $1,317,000 in 1997.
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 defined
benefit pension plan. In addition, the Company provides a Supplemental
Retirement Plan ("SERP") for the current CEO, which is non-funded. The benefits
provided under this SERP are based upon years of service and compensation.
Benefits become fully vested upon completion of six years of service from the
date of employment or a change of control for the Company or dismissal without
cause. The amount of expense incurred by the Company with respect to all
supplemental plans was $215,000 in 1999, $123,000 in 1998 and $261,000 in 1997.
At December 31, 1999, the balance of accrued pension costs related to these
plans was $865,000.
F-13
<PAGE> 58
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 $669,000 in 1999,
$585,000 in 1998, and $630,000 in 1997.
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.
Certain assumptions utilized in accounting for the Salaried Employees, Canadian
Operational Employees and Quebec Operational Employees pension plans for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7.0% 7.0%
Expected long-term rate of return on plan assets 8.5 8.0 8.0
</TABLE>
The expected rate of increase in compensation used in accounting for the
Salaried Employees' pension plan was 3.0% for the years ended December 31, 1999,
1998 and 1997, and is not applicable in accounting for the Canadian Operational
Employees and Quebec Operational Employees pension plans for the same periods.
The effect of the change in the assumed discount rate and the expected return on
plan assets for the year ended December 31, 1999 resulted in an increase to the
unrecognized net actuarial gain at December 31, 1999.
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>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Service cost $ 525 $ 488 $ 515
Interest cost 1,212 1,114 1,135
Expected return on plan assets (1,638) (1,544) (1,481)
Amortization of prior service cost 41 35 35
Amortization of net actuarial gain (32) (45) (18)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 108 $ 48 $ 186
================================================================================
</TABLE>
F-14
<PAGE> 59
The following table sets forth a reconciliation of the benefit obligation for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Benefit obligation at the beginning of the year $16,708 $16,939
Service costs 525 488
Interest costs 1,212 1,114
Amendments 722 69
Actuarial loss (1,071) 13
Benefits paid (1,113) (794)
Foreign currency exchange rate changes 1,018 (1,121)
- ---------------------------------------------------------------------------------
Benefit obligation at the end of the year $18,001 $16,708
=================================================================================
</TABLE>
The following table sets forth a reconciliation of the plans assets for the
years ended December 31:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Fair value of plan assets at the beginning of the year $20,380 $21,072
Actual return on plan assets 1,172 1,451
Company contribution -- 45
Benefits paid (1,113) (794)
Foreign currency exchange rate changes 1,234 (1,394)
- ---------------------------------------------------------------------------------
Fair value of plan assets at the end of the year $21,673 $20,380
=================================================================================
</TABLE>
The following table sets forth the funded status of the plans and the amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Funded status $ 3,672 $ 3,672
Unrecognized net actuarial gain (2,793) (2,255)
Unrecognized pension service costs 1,302 579
- --------------------------------------------------------------------------------
Prepaid pension obligation $ 2,181 $ 1,996
================================================================================
</TABLE>
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 to 52, 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 being adjusted annually.
Net periodic postretirement benefit cost for the years ended December 31
includes the following components:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Service cost $331 $306 $328
Interest cost 443 443 486
Amortization of deferred gain (640) (781) (773)
Effect of special termination benefits 717 -- --
- ---------------------------------------------------------------------------------
Net periodic postretirement benefit cost $851 ($32) $ 41
=================================================================================
</TABLE>
F-15
<PAGE> 60
The change in benefit obligation for the years ended December 31 includes the
following components:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Benefit obligation at the beginning of the year $6,489 $6,807
Service cost 331 306
Interest cost 443 443
Participants' contributions 48 46
Amendments 536 --
Actuarial gain 180 (580)
Benefits paid (571) (533)
Special termination benefits 717 --
- --------------------------------------------------------------------------------
Benefit obligation at the end of the year $8,173 $6,489
================================================================================
</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>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Funded status $ 8,173 $ 6,489
Unrecognized net actuarial gain 4,298 5,117
Unrecognized prior service cost (536) --
- --------------------------------------------------------------------------------
Net accrued postretirement benefit obligation $11,935 $11,606
================================================================================
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.00% at December 31, 1999 and
1998, respectively.
For purposes of determining the cost and obligation for postretirement medical
benefits, a 5% annual rate of increase in the per capita cost of covered
benefits (i.e. health care trend rate) was assumed for 1999 and is assumed to
remain at that level thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for health care plans. A one
percentage point change in the assumed health care cost trend rate would have
had the following effects:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
- -------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Effect on total of service and interest cost components $ 49 $ (45)
Effect on postretirement benefit obligation $160 $(141)
=====================================================================================
</TABLE>
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 one waste disposal site. The Company believes that
its potential liability with respect to this waste disposal site is not
material.
The Company had accrued estimated environmental remediation costs of $2,590,000
at December 31, 1999, consisting primarily of $861,000 for the Decatur facility,
$290,000 for the Greenville facility, $730,000 for the Jackson facility,
$319,000 for the Ardmore facility and $390,000 for 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
F-16
<PAGE> 61
reasonably likely to have a material effect on the Company's business, financial
condition or results of operations.
10. INCOME TAXES
The components of income before income taxes, extraordinary item and cumulative
effect of accounting change for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
U.S. ($15,046) $24,151 $38,193
Canadian 16,526 13,838 9,889
- ---------------------------------------------------------------------------------
Total $ 1,480 $37,989 $48,082
=================================================================================
</TABLE>
The provision for income taxes on income before extraordinary item and the
cumulative effect of accounting change for the years ended December 31 consists
of the following:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Current (benefit) expense:
U.S. Federal $ 191 $10,402 $12,627
Canadian 5,961 4,062 3,252
State (493) 263 1,107
- ---------------------------------------------------------------------------------
Total current 5,659 14,727 16,986
- ---------------------------------------------------------------------------------
Deferred (benefit) expense:
U.S. (5,246) (1,728) 587
Canadian (702) 353 (67)
- ---------------------------------------------------------------------------------
Total deferred (5,948) (1,375) 520
- ---------------------------------------------------------------------------------
Total income tax (benefit) expense ($289) $13,352 $17,506
=================================================================================
</TABLE>
Deferred income taxes included in the Company's balance sheet reflect the net
tax effects of temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the carrying amount for income
tax return purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Deferred tax liabilities:
Basis of property, plant and equipment $24,048 $28,302
Inventory valuation 1,386 5,017
Prepaid pension 2,663 2,601
Other 235 21
- --------------------------------------------------------------------------------
Total deferred tax liabilities 28,332 35,941
Deferred tax assets:
Environmental remediation 980 1,157
Pension obligation 324 270
Postretirement benefits obligation 4,476 4,352
Other 1,790 1,241
- --------------------------------------------------------------------------------
Total deferred tax assets 7,570 7,020
- --------------------------------------------------------------------------------
Net deferred tax liability $20,762 $28,921
================================================================================
</TABLE>
F-17
<PAGE> 62
Reconciliation of differences between the statutory U.S. federal income tax rate
and the Company's effective tax rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Income tax expense at federal statutory rate $ 518 $13,296 $16,829
Increase (decrease) in taxes resulting from:
State and local taxes, net of federal benefit (731) 263 1,108
Effect of difference in U.S. and Canadian rates (525) (428) (276)
Permanent differences 643 338 324
Other (194) (117) (479)
- -----------------------------------------------------------------------------------
Income tax (benefit) expense ($289) $13,352 $17,506
===================================================================================
</TABLE>
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, 1999 and 1998, all 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 (a "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
F-18
<PAGE> 63
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.
The Board has authorized the Company to purchase up to 2,000,000 shares of the
Company's outstanding stock in the open market from time to time as market
conditions warrant. The aggregate purchase price for such purchases of Common
Stock shall not exceed $50,000,000. During 1999 and 1998, the Company
repurchased 858,100 shares of its Common Stock for $15,386,000, and 784,200
shares for $16,628,000, respectively.
13. STOCK-BASED COMPENSATION PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
("APB 25") Accounting for Stock Options Issued to Employees 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.
Proforma 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
weighted average fair value of options granted during 1999 estimated on the date
of grant using the Black-Scholes pricing model was $10.58. The fair value for
these options was estimated at the date of grant using the following
weighted-average assumptions for 1999, 1998 and 1997, respectively: risk free
interest rates of 5.78%, 5.29% and 6.32%; volatility factors of the expected
market price of the Company's common stock of 0.337, 0.331 and 0.331; and a
weighted-average expected life of the option of seven 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.
F-19
<PAGE> 64
For purposes of proforma 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 be representative of the effects
on reported proforma net income in future years. The Company's proforma
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Net income (loss) applicable to common shares:
As reported ($4,265) $24,357 $25,558
Proforma (6,386) 21,743 24,670
Diluted earnings (loss) per share:
As reported ($0.32) $ 1.72 $ 1.80
Proforma (0.48) 1.54 1.74
=================================================================================
</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 employees. The maximum
number of additional shares issuable under the 1993 Equity Plan is 2,075,000 at
a price as determined by the Company's Compensation Committee. All options
granted to date have been issued at the market value at the date of the grant.
Options granted prior to 1999 under the 1993 Equity Plan vest 20% on each
anniversary thereafter and terminate on the tenth anniversary of the date of
grant. Options granted in 1999 and subsequent years under the 1993 Equity Plan
vest 33 1/3% on each anniversary thereafter and terminate on the tenth
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 185,000 shares are issuable
under the 1993 Directors' Plan. The initial options granted at the time the
Director joins the Board vest at 33.3% per year but must be held one year before
being exercised. All subsequent options granted vest immediately. All options
terminate on the tenth anniversary of the date of grant.
F-20
<PAGE> 65
The Company's stock option plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted-
1993 1993 Equity Average
Directors' Plan Incentive Plan Option Price Exercise Price
- -----------------------------------------------------------------------------------------------------------
Number of Shares)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Granted 7,000 394,950 $14.01 - $25.25 $22.01
Exercised -- (49,229) $4.44 - $20.88 $ 5.81
Forfeited -- (114,450) $20.00 - $39.38 $30.46
- ---------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 53,000 1,076,358 $4.44 - $40.25 $28.04
=========================================================================================================
Exercisable at:
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
December 31, 1999 43,000 388,273 $4.44 - $40.25 $26.42
</TABLE>
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,
1999, which were issued prior to August 1993, were 87,898, $6.27, 2.7 years,
87,898 and $6.27, 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, 1999, which were issued after August 1993, were
1,041,460, $29.87, 7.4 years, 343,375 and $31.58, respectively. The weighted
average remaining life for all options outstanding at December 31, 1999 is 7.1
years.
In 1999, the Company awarded 26,847 shares of restricted stock under the 1993
Equity Plan, with a fair value at the date of grant of $20.44 per share. These
restricted shares vest 50% annually at the anniversary date of the grant.
Compensation expense recorded by the Company with respect to this restricted
stock award was approximately $240,000 in 1999. In addition, selected senior
executives as designated by the CEO and approved by the Compensation Committee,
are eligible for restricted stock awards under the Long-Term Incentive Plan
("LTIP") based on the Company's return on total capital measured over a three
year period. Performance objectives under the LTIP are based upon an incremental
scale depending on achieving the specified target return rate. No compensation
expense was recorded in 1999 with respect to these awards.
F-21
<PAGE> 66
14. COMMITMENTS
Minimum future rental commitments under operating leases having non-cancelable
lease terms in excess of one year totaled approximately $10,500,000 as of
December 31, 1999 and are payable as follows: $2,927,000 in 2000, $1,728,000 in
2001, $1,133,000 in 2002, $1,063,000 in 2003, $1,004,000 in 2004 and $2,645,000
thereafter. Rental expense for operating leases was $2,872,000 in 1999,
$1,976,000 in 1998 and $2,027,000 in 1997.
At December 31, 1999, the Company had commitments of $9,160,000 for capital
expenditures.
15. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
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 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 1999, 1998 and 1997, 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
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
Year ended December 31, 1999:
Sales $436,738 $118,809 $90,227 $645,774
Gross profit 50,443 12,247 4,054 66,744
Year ended December 31, 1998:
Sales $445,488 $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
</TABLE>
The Company's manufacturing operations are primarily conducted in the U.S. and
Canada. In 1999 and 1997, no customer accounted for as much as 10% of the
Company's net sales. In 1998, one customer accounted for 10% of the Company's
net sales.
F-22
<PAGE> 67
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
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Year ended December 31, 1999:
Sales $443,310 $202,464 $645,774
Long-lived assets 249,706 39,355 289,061
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
</TABLE>
16. RESTRUCTURING AND OTHER CHARGES
During the third quarter of 1999, the Company recognized restructuring and other
charges of $19,938,000 ($12,461,000 net of tax). This charge included $10.0
million in expenses relating to the announced closing of the Company's Roxboro,
North Carolina facility, which employed approximately 100 people, of which $8.6
million of these Roxboro expenses related to the write-down of impaired assets;
$2.8 million in expenses related to the implementation of an indirect
(non-manufacturing) workforce reduction program of approximately 100 employees;
$3.6 million in expenses related to impaired assets due to a product and plant
rationalization plan; $1.9 million in expenses related to previously closed
entities, of which $1.8 million was related to write-down of impaired assets;
$0.8 million in expenses related to termination of an interest rate swap; and
$0.8 million in expenses related to professional fees and other costs primarily
associated with acquisitions that were not completed. To date, the Company has
paid approximately $3.5 million in cash relating to the restructuring. The
Company believes the accrued restructuring costs of $1.6 million at December 31,
1999 represent its remaining cash obligations. Additionally, $14,414,000 of
non-recurring charges were included in cost of goods sold in the consolidated
statements of operations. These charges included $8.1 million relating to the
liquidation of LIFO inventory values and $6.3 million of additional costs
associated with the realignment of the Company's manufacturing operations and
product rationalization.
During the third quarter of 1998, the Company recognized restructuring and other
charges 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 related to
the write-down of impaired assets and $1.6 million in severance costs resulting
primarily from the closing of this facility, which employed approximately 140
people; $2.7 million in expenses related to efficiency initiatives implemented
at the Company's Roxboro, 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 restructuring and
other charges of $4,384,000 ($2,997,000 net of tax). This charge included $1.8
million in expenses related to the
F-23
<PAGE> 68
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).
17. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
During the first quarter of 1999, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities (the "Statement"), which requires that certain costs
related to start-up activities be expensed as incurred. In accordance with the
Statement, the Company recognized a charge for the cumulative effect of a change
in accounting principle of $8.0 million pre-tax ($5.8 million after-tax). The
implementation of the Statement required the Company to write-off the remaining
start-up costs relating primarily to the Company's Roxboro, North Carolina,
Jackson, Tennessee, and Shanghai, China facilities.
18. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share for the
years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Income before extraordinary item and cumulative $ 1,769 $24,637 $30,576
effect of accounting change
Extraordinary item -- -- (4,738)
Cumulative effect of accounting change (5,754) -- --
- ------------------------------------------------------------------------------------------------------
Net income (loss) (3,985) 24,637 25,838
Dividends on preferred stock (280) (280) (280)
- ------------------------------------------------------------------------------------------------------
Net income (loss) available to common shares ($4,265) $24,357 $25,558
======================================================================================================
Basic weighted average common shares 13,106 14,025 14,022
Employee stock options 137 161 210
- ------------------------------------------------------------------------------------------------------
Diluted weighted average common and common
equivalent shares 13,243 14,186 14,232
======================================================================================================
Earnings per common share--basic:
Income before extraordinary item and cumulative
effect of accounting change $ 0.11 $ 1.74 $ 2.16
Extraordinary item -- -- (0.34)
Cumulative effect of accounting change (0.44) -- --
- ------------------------------------------------------------------------------------------------------
Net income (loss) per common share ($0.33) $ 1.74 $ 1.82
======================================================================================================
Earnings per common share--diluted:
Income before extraordinary item and cumulative
effect of accounting change $ 0.11 $ 1.72 $ 2.13
Extraordinary item -- -- (0.33)
Cumulative effect of accounting change (0.43) -- --
- ------------------------------------------------------------------------------------------------------
Net income (loss) per common share ($0.32) $ 1.72 $ 1.80
======================================================================================================
</TABLE>
F-24
<PAGE> 69
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 April 3 July 3 October 2 December 31
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Net sales $160,845 $164,317 $164,766 $155,846
Gross profit 22,112 24,119 3,488 17,025
Restructuring and other charges -- -- 19,938 --
Income (loss) before cumulative effect
of accounting change 7,220 8,591 (17,104) 3,062
Cumulative effect of accounting change,
net of income tax benefit (5,754) -- -- --
Net income (loss) 1,466 8,591 (17,104) 3,062
==================================================================================================================
Basic earnings per common share:
Income (loss) before cumulative effect
of accounting change $ 0.53 $ 0.64 ($1.32) $ 0.24
Cumulative effect of accounting change,
net of income tax benefit (0.43) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.10 $ 0.64 ($1.32) $ 0.24
==================================================================================================================
Diluted earnings per common share:
Income (loss) before cumulative effect
of accounting change $ 0.53 $ 0.63 ($1.32) $ 0.23
Cumulative effect of accounting change,
net of income tax benefit (0.43) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.10 $ 0.63 ($1.32) $ 0.23
==================================================================================================================
<CAPTION>
1998 April 4 July 4 October 3 December 31
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Net sales $170,299 $169,640 $147,855 $129,718
Gross profit 24,795 25,665 18,396 13,857
Restructuring and other charges -- -- 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>
F-25
<PAGE> 70
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, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wolverine Tube,
Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 17 to the financial statements, in 1999 the Company
changed its method of accounting for start-up activities.
/s/ Ernst & Young LLP
February 4, 2000
Birmingham, Alabama
F-26
<PAGE> 71
WOLVERINE TUBE, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Charged to Charged to Balance at
Beginning of Cost and Other End of
Description Period Expenses Accounts Deductions Period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
YEAR ENDED DECEMBER 31, 1999:
Deducted from assets accounts:
Reserve for sales returns and allowances $ 440 $200 -- ($140)(1) $ 500
Allowances for doubtful accounts 241 53 -- (1)(2) 293
- ------------------------------------------------------------------------------------------------------------------
Totals $ 681 $253 -- ($141) $ 793
==================================================================================================================
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
==================================================================================================================
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
==================================================================================================================
</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.
S-1
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
<S> <C> <C>
10.1* Amendment to Amended and Restated Change in Control,
Severance and Non-Competition Agreement for Executive
Officers
10.2* First Amendment to Agreement for Supplemental Executive
Retirement Benefits
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule (for SEC use only)
</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.
<PAGE> 1
EXHIBIT 10.1
AMENDMENT TO AMENDED AND RESTATED CHANGE IN CONTROL,
SEVERANCE AND NON-COMPETITION AGREEMENT
WHEREAS, Wolverine Tube, Inc. (the "Company") and _______________
(the "Executive") entered into an Amended and Restated Change in Control,
Severance and Non-Competition Agreement made as of April 20, 1999 (the
"Agreement"); and
WHEREAS, the Company and the Executive wish to amend the Agreement
pursuant to Section 3 thereof;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt whereof is hereby acknowledged, the Company and
the Executive agree as follows:
1. A new sentence is added to the end of Section 1(b)(i)(A) of the
Agreement to read as follows:
The amount payable to the Executive by the Company
under this paragraph (b)(i)(A) shall be offset by the
non-compete and non-solicitation fee as defined in Section
2(d)(i) of this Agreement.
2. A new sentence is added to the end of Section 1(b)(i)(C) of the
Agreement to read as follows:
The amount payable to the Executive under this
paragraph (b)(i)(C) shall be offset by the non-compete and
non-solicitation fee as defined in Section 2(d)(i) of this
Agreement.
3. Section 1(b)(i)(B) of the Agreement is amended and restated to read as
follows:
(B)(I) For a period of ___________________________ , following
the Executive's Severance Date (the "Continuation Period"), the Company
will arrange to provide the Executive with medical and disability
benefits (the "Employee Benefits") substantially similar to those that
the Executive was receiving or entitled to receive immediately prior to
the Severance Date at no cost to the Executive. Without otherwise
limiting the purposes or effect of Section 1(b), Employee Benefits
otherwise receivable by the Executive pursuant to this Section
1(b)(i)(B)(I) will be reduced or eliminated to the extent comparable
Employee Benefits at substantially similar cost are actually received
by the Executive from another employer during the Continuation Period
following the
<PAGE> 2
Executive's Termination Date, and any such benefits actually received
by the Executive shall be reported by the Executive to the Company. If
and to the extent that any benefit described in this Section
1(b)(i)(B)(I) is not or cannot be paid or provided under any policy,
plan, program or arrangement of the Company or any Subsidiary, as the
case may be, then the Company will reimburse the Executive for the
costs incurred in obtaining comparable Employee Benefits coverage.
(B)(II) Following the Continuation Period, the Company will
provide the Executive access to Employee Benefits coverage on a group
basis equal to that generally available to the majority of the
Company's employees or retirees, as the case may be, who receive said
benefits, at the Executive's own expense until the Executive attains
the age of sixty-five (65). Without otherwise limiting the purposes or
effect of Section 1(b), Employee Benefits to which access is otherwise
provided to the Executive pursuant to this Section 1(b)(i)(B)(II) will
not be required to be made available to the extent comparable Employee
Benefits at substantially similar cost are actually received by the
Executive from another employer during the period following the
Continuation Period until attainment of age sixty-five (65). If and to
the extent that any benefit described in this Section 1(b)(i)(B)(II) is
not or cannot be provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will reimburse the Executive for the difference in costs
incurred in obtaining comparable Employee Benefits coverage on an
individual basis and the cost for group coverage.
(B)(III) The Company shall reimburse the Executive for any
costs incurred by the Executive in maintaining life insurance coverage
comparable to that maintained for him by the Company under its group
life insurance program for the period from the Severance Date until the
earlier to occur of:
(X) the date which follows the Severance Date
___________________________, or
(Y) the date on which the Executive is
covered under any other equivalent group life
insurance plan;
4. A new Section 1(c) of the Agreement is added to read as follows:
(c) Certain Additional Payments by the Company. In the event
that this Agreement shall become operative and it shall be determined
(as hereafter provided) that any Payment would be subject to the
provisions of Section 4999 of the Internal Revenue Code of 1986, as
amended ("Code") or to any similar tax imposed by federal, state or
local law, or any other revenue system to which the executive may be
subject, or any interest or penalties with respect to that tax (that
tax or those taxes, together with any interest and penalties, may be
hereafter referred to as the "Excise Tax"), then, if the Executive
complies in all substantial respects with the requirements of the
Gross-Up Procedure, the Executive will be entitled to receive an
additional payment or payments (collectively, a "Gross-Up Payment"), as
described in the Gross-Up Procedure.
<PAGE> 3
For purposes of this subparagraph (c), "Payment" means any
payment made to the Executive (other than the Gross-Up payments
provided for in the Gross-Up Procedure) or distribution by the Company
or any of its affiliates to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including
without limitation any stock option, performance share, performance
unit, stock appreciation right or similar right, supplemental
retirement plan benefits, split dollar insurance agreements, or the
lapse or termination of any restriction on, or the vesting or
exercisability of, any of the foregoing.
For purposes of this subparagraph (c), "Gross-Up Procedure"
means the Gross-Up Procedure attached hereto as Annex A.
5. A new Section 2(d)(i) of the Agreement is added to read as follows:
(i) In consideration of the promises of Executive contained in
this Agreement, including without limitation in this Paragraph 2(d),
the Company shall pay to the Executive a non-compete and
non-solicitation fee equal to _______ salary and bonus as determined in
accordance with Section 1(b)(i)(C), payable in the manner determined by
the Company under Sections 1(b)(i)(A) and 1(b)(i)(C) of the Agreement.
The amount otherwise payable to the Executive under Sections 1(b)(i)(A)
and 1(b)(i)(C) of this Agreement shall be offset by this non-compete
and non-solicitation fee.
IN WITNESS WHEREOF, this Amendment has been executed as a sealed
instrument by the Company by its duly authorized officer, and by the Executive,
as of the ________day of __________, ____.
WOLVERINE TUBE, INC.
By:
------------------------------
Name:
Title:
EXECUTIVE
By:
------------------------------
Name:
<PAGE> 4
ANNEX A
GROSS-UP PROCEDURE
(a) If a Change in Control of the Company occurs, or a termination of
employment occurs without Cause (as defined in the Agreement), any payment or
benefit provided by the Company or any of its affiliates to or for the benefit
of the Executive, whether paid or payable or provided or to be provided pursuant
to the terms of the Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, (including without limitation
any stock option, performance share, performance unit, stock appreciation right
or similar right, supplemental retirement plan benefits, split dollar insurance
agreements, or the lapse or termination of any restriction on, or the vesting or
exercisability of, any of the foregoing) (a "Payment"), would be subject to:
(i) the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any successor
provision) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of Section
280G of the Code (or any successor provision);
(ii) any similar tax or any future tax imposed upon Payments
resulting from a termination without Cause whether or not a Change in
Control has occurred, imposed by federal, state or local law, or any
other revenue system to which the Executive may be subject, or
(iii) any interest or penalties with respect to (i) or (ii)
((i), (ii) or those taxes, together with any interest and penalties,
may be hereafter referred to as the "Excise Tax"),
then, if the Executive complies with the requirements of this Annex A, the
Executive will be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"); provided, however, that no Gross-Up
Payment will be made with respect to the Excise Tax, if any, attributable to (i)
any incentive stock option, as defined by Section 422 of the Code ("ISO")
granted prior to ____________________________ or (ii) any stock appreciation or
similar right, whether or not limited, granted in tandem with any ISO described
in clause (i). The Gross-Up Payment will be in an amount such that the Executive
will be in the same position as if there was no Excise Tax imposed upon the
Payment. The Gross-Up Payment shall only reimburse the Executive for income
taxes that result from the Gross-Up Payment itself but not for income taxes that
would be normally incurred if the Excise Tax was not triggered.
(b) Subject to the provisions of subparagraph (f) below, all
determinations required to be made under this Annex A, including whether an
Excise Tax is payable by the Executive, the amount of that Excise Tax, whether a
Gross-Up Payment is required to be paid by the Company to the Executive and the
amount of that Gross-Up Payment, if any, will be made by a nationally recognized
accounting firm (the "Accounting Firm") selected by the Executive in the
Executive's sole discretion. The Executive will direct the Accounting Firm to
submit its determination and
<PAGE> 5
detailed supporting calculations to both the Company and the Executive within
thirty (30) calendar days after the Executive's date of termination, if
practicable, upon or following the triggering of the Change in Control. If the
Accounting Firm determines that any Excise Tax is payable by the Executive, the
Company will pay the required Gross-Up Payment to the Executive within five (5)
business days after receipt of the determination and calculations with respect
to any Payment to the Executive. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it will, at the same time as it makes
that determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision) and the
possibility of similar uncertainty regarding applicable state or local tax law
at the time of any determination by the Accounting Firm, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made (an "Underpayment"), consistent with the calculations required to be made
under this Annex A. If the Company exhausts or fails to pursue its remedies
pursuant to subparagraph (f) and the Executive subsequently is required to make
a payment of any Excise Tax, the Executive will direct the Accounting Firm to
determine the amount of the Underpayment that has occurred and to submit its
determination and detailed supporting calculations to both the Company and the
Executive as promptly as possible. Any such Underpayment will be promptly paid
by the Company to, or for the benefit of, the Executive within five (5) business
days after receipt of the determination and calculations.
(c) The Company and the Executive will each provide the Accounting Firm
access to and copies of any books, records and documents in the possession of
the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by subparagraph (b). Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment will be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company just
verification evidencing that payment. If prior to the filing of the Executive's
federal income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the Gross-Up Payment
should be reduced, the Executive shall within five (5) business days pay to the
Company the amount of that reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by subparagraph
(b) will be borne by the Company. If those fees and expenses are initially paid
by the Executive, the Company will reimburse the Executive the full amount of
those fees and expenses within five (5) business days after receipt from the
Executive of a statement for them and reasonable evidence of his payment of
them.
(f) The Executive will notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by
<PAGE> 6
the Company of a Gross-Up Payment. That notification will be given as promptly
as practicable but not later than thirty (30) business days after the Executive
actually receives notice of that claim and the Executive will further apprise
the Company of the nature of that claim and the date on which that claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive will not pay that claim prior to the earlier of (i) the expiration of
the thirty (30) calendar-day period following the date on which they give notice
to the Company or (ii) the date that any with respect to that claim is due. If
the Company notifies the Executive in writing prior to the expiration of that
period that it desires to contest the claim, the Executive will:
(A) provide the Company with any written records or documents
in his possession relating to that claim reasonably requested by the Company;
(B) take that action in connection with contesting the claim
as the Company reasonably requests in writing from time to time, including
without limitation accepting legal representation with respect to that claim by
an attorney competent in respect to the subject matter and reasonably selected
by the Company and mutually agreeable to the Executive;
(C) cooperate with the Company in good faith in order
effectively to contest that claim; and
(D) permit the Company to participate in any proceedings
relating to that claim; provided, however, that the Company will bear and pay
directly all attorney fees, costs and expenses (including, but not limited to,
interest and penalties) incurred in connection with that contest and will
indemnify and hold harmless the Executive, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and penalties with
respect to the Excise Tax, imposed as a result of that representation and
payment of attorney fees, costs and expenses. Without limiting the foregoing
provisions of this subparagraph (f), the Company will control all proceedings
taken in connection with the contest of any claim contemplated by this
subparagraph (f) and, after consultation with Executive and exercising
reasonable and prudent business practices, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of that claim (provided, however, that the Executive may
participate in them at his own cost and expense) and may, at its option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive will prosecute that contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company will determine;
provided, however, that if the Company directs the Executive to pay the tax
claimed and sue for a refund, the Company will advance the amount of that
payment to the Executive on an interest-free basis and will indemnify and hold
harmless the Executive, on an after-tax basis, from any Excise Tax or income or
other tax or imputed income from the interest-free advance, including, but not
limited to, interest or penalties with respect to the Excise Tax, imposed with
respect to that advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is claimed to be due is
limited solely to that contested amount. Furthermore, the Company's control of
any contested claim will be limited to issues with respect to which a Gross-Up
Payment would be payable pursuant to this Annex A and the
<PAGE> 7
Executive will be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) The Company agrees that it will maintain any information provided
to it by the Executive or his agents, including but not limited to that
described in paragraph (f) above, in strict confidence, and will disclose same
only in accordance with this Agreement and/or as required by applicable law.
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO
AGREEMENT FOR
SUPPLEMENTAL EXECUTIVE BENEFITS
This Agreement is entered into this 16th day of November, 1999, to be effective
June 1, 1999, by and between Wolverine Tube, Inc. (the "Company") and Dennis
Horowitz (the "Executive"), to that certain Agreement for Supplemental Executive
Benefits entered into by the Company and Horowitz and dated as of June 1, 1999
(the "Agreement").
RECITALS
WHEREAS, pursuant to various provisions of the Agreement, the measuring period
for crediting certain service thereunder was incorrectly stated as terminating
on December 31, 2004, and is impliedly calculated on the basis of calendar years
thereafter; and,
WHEREAS, the Compensation Committee was presented information based on years of
Credited Service calculated from the Executive's date of hire, and said date was
(April 1, 1998) the intended measurement commencement date; and,
WHEREAS, the Compensation Committee desires to amend the Agreement to reflect
the correct date and measurement periods;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1.
Sections 4.1(b), 4.2(b), 4.3(b), 4.4(b) and 4.5(b)
are hereby amended by deleting the phrase "January 1, 1999 and ending
on December 31, 2004" in subparagraph (A) of each of said sections and
replacing it with the phrase "April 1, 1998 and ending on March 31,
2004," and replacing the date "December 31, 2004", which appears later
in said subparagraph and in subparagraph (B) which follows, with the
date "March 31, 2004." Subparagraph (B) of each of said sections is
further amended by deleting the phrase "for each year" and replacing it
with "for each year and month", and replacing the phrase "times the
years" which appears later in said subparagraph with "times the years
and months".
Subparagraphs (b)(2) of each of Sections 4.1, 4.2,
4.3, 4.4 and 4.5 are hereby amended by inserting the word "vested"
before the word "monthly" in each of said subparagraphs.
2.
Section 4.7 "Re-Employment" is renumbered as Section
4.6.
<PAGE> 2
3.
Section 5. Change in Control and Termination Without
Cause Benefits is hereby amended and restated as follows:
For purposes of this Agreement, a "Change in Control"
shall have the meaning contained in Section 1(b)(v) of that certain
Amended and Restated Change in Control, Severance and Non-Competition
Agreement entered into by the Company and Executive and dated as of
April 20, 1999, a copy of which definition is attached hereto as
Exhibit A. For purposes of this Agreement, "Termination Without Cause"
shall mean any instance not covered under the definition of
"Termination For Cause" as contained in Section 1(a)(ii) of that
certain Amended and Restated Change in Control, Severance and
Non-Competition Agreement entered into by the Company and Executive and
dated as of April 20, 1999, a copy of which definition is attached
hereto as Exhibit B.
In the event that the Company experiences a Change in
Control prior to August 15, 2004, or should the Executive be terminated
Without Cause prior to August 15, 2004 (which is the date on which
Executive attains the age of fifty-eight (58) years), Executive will be
deemed to have attained age 58 as of the date of said Change in Control
or Termination Without Cause, and all benefits calculated pursuant to
Section 4.1 through 4.5 above shall be calculated as if:
(1) the Executive were still employed on August 15,
2004 and continued to receive Credited Service through August 15, 2004
under the terms of this Plan;
(2) the Executive attained age fifty-eight (58) on
said date;
(3) the Executive met the eligibility requirements
for early retirement under the Retirement Plan on said date; and
(4) the Executive was fully vested in the benefits
payable under this Plan (whether or not he is then vested under the
Retirement Plan or the Supplemental Plan) on said date.
Additionally, such benefits shall be based on Covered
Compensation (as defined in the Retirement Plan) as of his Termination
of Service. For purposes of determining Final Average Compensation (as
defined in the Retirement Plan) as of August 15, 2004, the calculation
will also assume that the Executive continues to receive Compensation
(as defined in the Retirement Plan) from the date of his Termination of
Service through August 15, 2004 equal to the yearly amount payable to
him pursuant to paragraphs 1(b)(i)(A) and (C) of that certain Amended
and Restated Change in Control, Severance and Non-Competition Agreement
entered into by Executive and Company and dated as of April 20, 1999,
as the same may be amended from time to time.
<PAGE> 3
Finally, the Executive shall be entitled to make any
benefit commencement elections pursuant to this Agreement on said date
as if he attained age fifty-eight (58).
4.
Section 6.2 is hereby amended by adding the word
"vested" before the phrase "death benefit" in subparagraph (i) of said
Section. Section 6.2 is further amended by deleting the phrase "January
1, 1999 and ending on December 31, 2004" from subparagraph (A) of said
section and replacing it with the phrase "April 1, 1998 and ending on
March 31, 2004," and replacing the date "December 31, 2004" which
appears later in said subparagraph and in subparagraph (B) which
follows, with the date "March 31, 2004." Subparagraph (B) is further
amended by deleting the phrase "for each year" and replacing it with
"for each year and month", and replacing the phrase "times the years"
which appears later in said subparagraph with "times the years and
months".
5.
All other portions of said Agreement are hereby
ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as the date
first indicated above.
WOLVERINE TUBE, INC.
By: /s/ Jan K. VerHagen
--------------------------------
Jan K. VerHagen,
Chairman of the Board
EXECUTIVE
By: /s/ Dennis Horowitz
--------------------------------
Dennis Horowitz
<PAGE> 1
WOLVERINE TUBE, INC. AND SUBSIDIARIES
EXHIBIT 21--SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State or Other Jurisdiction of
Name Incorporation
- --------------------------------------------------------------------------------
<S> <C>
Small Tube Manufacturing Corporation Delaware
Tube Forming, LP Delaware
Wolverine Finance Company, Inc. Tennessee
Wolverine Ratcliff, Inc. Canada
Wolverine Tube (Canada) Inc. Canada
Wolverine Tube (Shanghai) Co. Ltd. China
Wolverine Tube Asia, Ltd. Hong Kong
Wolverine Tube International Limited Virgin Islands
</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 4, 2000, 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, 1999.
Our audit 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
Birmingham, Alabama
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR WOLVERINE TUBE, INC. FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1999 AND THE CONSOLIDATED BALANCE SHEET AT DECEMBER
31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 26,894
<SECURITIES> 0
<RECEIVABLES> 84,440<F1>
<ALLOWANCES> 0
<INVENTORY> 95,368
<CURRENT-ASSETS> 217,628
<PP&E> 190,774<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 506,689
<CURRENT-LIABILITIES> 67,481
<BONDS> 176,421
2,000
0
<COMMON> 142
<OTHER-SE> 222,808
<TOTAL-LIABILITY-AND-EQUITY> 506,689
<SALES> 645,774
<TOTAL-REVENUES> 645,774
<CGS> 579,030
<TOTAL-COSTS> 579,030
<OTHER-EXPENSES> 52,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,608
<INCOME-PRETAX> 1,480
<INCOME-TAX> (289)
<INCOME-CONTINUING> 1,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (5,754)
<NET-INCOME> (3,985)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.32)
<FN>
<F1>THE VALUES FOR TAGS RECEIVABLES AND PP&E ARE SHOWN NET OF THEIR RESPECTIVE
ALLOWANCE ACCOUNTS.
</FN>
</TABLE>
