AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 2002
REGISTRATION NO. 333-88742
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
WOLVERINE TUBE, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3350 63-0970812
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</Table>
200 CLINTON AVENUE WEST, SUITE 1000
HUNTSVILLE, ALABAMA 35801
(256) 890-0460
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOHANN R. MANNING, JR.
SENIOR VICE PRESIDENT, FABRICATED PRODUCTS AND GENERAL COUNSEL
WOLVERINE TUBE, INC.
200 CLINTON AVENUE WEST, SUITE 1000
HUNTSVILLE, ALABAMA 35801
(256) 890-0460
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<Table>
MICHAEL D. WATERS MORTON A. PIERCE
BALCH & BINGHAM LLP DEWEY BALLANTINE LLP
2 DEXTER AVENUE 1301 AVENUE OF THE AMERICAS
MONTGOMERY, ALABAMA 36104 NEW YORK, NEW YORK 10019
(334) 834-6500 (212) 259-8000
</Table>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF ADDITIONAL REGISTRANTS
<Table>
<Caption>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL
INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
NAME, ADDRESS AND TELEPHONE* OR ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
- ---------------------------- --------------- ---------------- ---------------------
Small Tube Manufacturing Corporation......... Delaware 3351 13-3209199
STPC Holding, Inc. .......................... Delaware 6719 13-3209198
TF Investor, Inc. ........................... Delaware 6159 52-2008048
Tube Forming, L.P. .......................... Delaware 3351 75-2683323
Tube Forming Holdings, Inc. ................. Delaware 6719 75-3050535
Wolverine China Investments, LLC............. Delaware 6159 72-1387849
Wolverine Finance Company.................... Tennessee 8721 62-1640366
Wolverine Joining Technologies, Inc. ........ Delaware 3351 63-1257668
</Table>
- ---------------
* The address and telephone number of the principal executive offices of each
additional registrant is 200 Clinton Avenue West, Suite 1000, Huntsville,
Alabama 35801, (256) 890-0460.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 9, 2002
OFFER TO EXCHANGE
ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2009
($120,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 1/2% SERIES B SENIOR NOTES DUE 2009
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
OF
WOLVERINE TUBE, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 2002, UNLESS EXTENDED
We are offering you the opportunity to exchange your 10 1/2% Senior Notes
due 2009 that are not registered under the Securities Act of 1933 for our new
10 1/2% Series B Senior Notes due 2009 that are registered under the Securities
Act of 1933 in the Exchange Offer.
Material terms of the Exchange Offer are:
- EXPIRATION. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 2002, unless we extend it.
- EXCHANGE. We will exchange all outstanding Old Notes that are validly
tendered and not validly withdrawn before the Exchange Offer expires.
- TERMS OF THE NOTES. The terms of the New Notes are substantially
identical to the Old Notes, except that the New Notes are registered
under the Securities Act of 1933. Certain transfer restrictions and
registration rights relating to the Old Notes do not apply to the New
Notes.
- REPRESENTATIONS OF HOLDERS. You will be required to make various
representations including that (1) any New Notes received by you will be
acquired in the ordinary course of business, (2) you are not
participating in the distribution of the New Notes, (3) you are not an
affiliate of Wolverine and (4) you are not a broker-dealer, and if you
are a broker-dealer, that you will receive the New Notes for your own
account, you will deliver a prospectus on resale of your New Notes and
that you acquired your Old Notes as a result of market making activities
or other trading activities.
- WITHDRAWAL RIGHTS. You may withdraw tenders of Old Notes at any time
before the Exchange Offer expires.
- TAX CONSEQUENCES. We believe that the exchange of notes will not be a
taxable event for U.S. federal income tax purposes, but you should see
"Material U.S. Federal Income Tax Considerations" on page 102 for more
information.
- USE OF PROCEEDS. We will not receive any proceeds from the Exchange
Offer.
- TRADING. There is no existing market for the New Notes and we will not
apply to list them on any securities exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS
THAT YOU SHOULD CONSIDER IF YOU TENDER YOUR OLD NOTES IN CONNECTION WITH THIS
EXCHANGE OFFER.
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this Prospectus is , 2002
Whenever we refer to the outstanding 10 1/2% Senior Notes due 2009 issued
in a private placement on March 27, 2002, we will refer to them collectively as
the "Old Notes" and each individually as an Old Note. Whenever we refer to the
10 1/2% Series B Senior Notes due 2009 registered under the Securities Act of
1933 and issued in exchange for the Old Notes, we will refer to them
collectively as the "New Notes" and each individually as a "New Note." The Old
Notes and the New Notes are collectively referred to as the "notes."
---------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Incorporation of Documents By Reference..................... i
Forward-Looking Statements.................................. ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 12
Use of Proceeds............................................. 20
Capitalization.............................................. 21
Selected Consolidated Financial Information................. 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 44
The Exchange Offer.......................................... 53
Description of Other Obligations............................ 62
Description of the New Notes................................ 64
Material U.S. Federal Income Tax Considerations............. 102
Plan of Distribution........................................ 103
Legal Matters............................................... 103
Experts..................................................... 103
Where You Can Find More Information......................... 103
Index to Consolidated Financial Statements.................. F-1
</Table>
---------------------
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution" on page 103.
---------------------
INCORPORATION OF DOCUMENTS BY REFERENCE
We are "incorporating by reference" the information we file with the
Securities and Exchange Commission, or SEC, into this prospectus, which means
that this prospectus incorporates important business and financial information
about our company that is not included in or delivered with this prospectus. The
information incorporated by reference is considered to be part of this
prospectus, and information in documents that we file later with the SEC will
automatically update and supersede information in this prospectus. We
incorporate by reference the documents listed below into this prospectus, and
any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or
15(d) of
i
the Securities Exchange Act of 1934, as amended, until we close this Exchange
Offer. The documents we incorporate by reference are:
1. Our Annual Report on Form 10-K for the fiscal year ended December
31, 2001, filed on March 29, 2002.
2. Our definitive proxy materials on Schedule 14A filed on April 12,
2002.
3. Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, filed on May 15, 2002.
4. Our Current Reports on Form 8-K filed on February 8, 2002, March 1,
2002, March 13, 2002, March 21, 2002, April 18, 2002 and August 9, 2002.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address and telephone number: 200 Clinton Avenue West, Suite
1000, Huntsville, Alabama 35801, (256) 890-0460, Attention: Investor Relations.
TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN
FIVE BUSINESS DAYS BEFORE YOU MUST MAKE YOUR INVESTMENT DECISION, OR NO LATER
THAN , 2002, WHICH IS FIVE BUSINESS DAYS BEFORE THE EXPIRATION OF THE
EXCHANGE OFFER.
FORWARD-LOOKING STATEMENTS
Some information in this prospectus and the information that we have
incorporated by reference contains forward-looking statements. Forward-looking
statements include statements regarding our goals, beliefs, plans or current
expectations, taking into account the information currently available to our
management. Forward-looking statements include all statements that do not relate
solely to current or historical fact. For example, when we use such words as
"anticipate," "estimate," "intend," "expect," "believe," "plan," "may,"
"should," "would" or other words that convey uncertainty of future events or
outcome, we are making forward-looking statements. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. Certain of such risks and uncertainties include:
- our significant amount of debt and the restrictive covenants contained in
our debt agreements;
- our ability to service our debt and incur additional debt;
- cyclicality, seasonality and weather conditions, which affect the sales
of our products;
- the impact of competitive factors in our industry, including the effect
of pricing, product lines and other actions taken by our competitors;
- our ability to maintain our relationships with our major customers;
- our potential exposure to environmental liabilities;
- economic, political and currency risks relating to our international
operations;
- our ability and the ability of our customers to maintain satisfactory
relations with union employees;
- our net losses in recent periods and the possibility that we will
experience net losses in the future;
- business risks that may arise if we undertake strategic acquisitions in
the future;
- extraordinary fluctuations in the markets for raw materials;
- risks to our competitive position from changing technology or the loss of
our intellectual property;
and various other factors, many of which are beyond our ability to control or
predict. You are cautioned not to unduly rely on these forward-looking
statements when evaluating the information included or
ii
incorporated by reference into this prospectus. For a more detailed discussion
of these and other risk factors, please read carefully the information under the
caption "Risk Factors" beginning on page 12. These forward-looking statements
speak only as of the date of this prospectus. We undertake no obligation to
review or revise any particular forward-looking statements included or
incorporated by reference in this prospectus to reflect events, conditions or
circumstances occurring after the date of this prospectus or to reflect the
occurrence of unanticipated events.
iii
PROSPECTUS SUMMARY
The following summary briefly highlights the information in this prospectus
that we believe is material. The information in this summary is described in
more detail elsewhere in this prospectus. You should read this entire prospectus
carefully, including the information under the caption "Risk Factors" and the
information incorporated by reference into this prospectus. For purposes of this
prospectus, references to "Wolverine," "our company," "we" or "us" refer to
Wolverine Tube, Inc. and its consolidated subsidiaries, unless the context
otherwise requires.
WHO WE ARE
We are a world-class quality manufacturer of copper and copper alloy tube,
fabricated and metal joining products and copper and copper alloy rod and bar
products. We focus on custom-engineered, higher value-added tubular, fabricated
and metal joining products which enhance performance and energy efficiency in
many applications, including commercial and residential heating, ventilation and
air conditioning, refrigeration, home appliances, automotive, industrial
equipment, power generation, petrochemicals and chemical processing. We believe
that we have the broadest product offering of any North American manufacturer of
copper and copper alloy tube, which allows us to offer packaged solutions and
pursue cross-selling opportunities.
Our technological expertise has helped us to establish strong and
long-standing relationships with many of the leading users of higher value-added
copper tube in North America and enables us to maintain leading market shares in
our most important product and geographic markets. We have 13 facilities
strategically located in the United States, Canada, China, Portugal and The
Netherlands. Our international presence enables us to serve the needs of our
global clients who we believe are increasingly looking to consolidate their
purchasing among a limited number of key suppliers. In 2001, we generated net
sales of $583.1 million and Adjusted EBITDA of $49.1 million, and in the first
quarter of 2002, we generated net sales of $137.5 million and EBITDA of $10.5
million.
We operate in the following three product segments:
Commercial Products
Commercial products consist of several types of higher value-added
technically enhanced tube and fabricated products made to customer
specifications, as well as metal joining products. This is our largest and most
profitable segment, accounting for approximately 210 million pounds, or 68%, of
our products shipped, $444.2 million, or 76%, of our net sales and $50.1
million, or 81%, of our total gross profit in 2001. In the first quarter of
2002, commercial products accounted for 52 million pounds of product shipped,
$106.3 million of net sales and $12.2 million of gross profit. We believe that
we are the largest technical tube manufacturer in North America. Based upon
information we have obtained from our customers, our knowledge of our markets
and other industry data, we believe that we have an estimated 2001 North
American market share greater than 85% for technical tube and between 25% and
30% for industrial tube. We estimate that these products, together, represent
approximately 50% of our commercial product net sales. We believe that we are
the primary supplier of one or more commercial products to some of the world's
largest and best known manufacturers, particularly in the commercial and
residential heating, ventilation and air-conditioning, refrigeration and home
appliance industries. Our commercial products are primarily marketed through our
dedicated sales force, who actively work with our customers to identify their
specific technical requirements and volume needs. We estimate that approximately
55% of our annual sales volume in this segment is generated pursuant to one to
three-year contracts that require the customer to purchase a minimum percentage
of one or more of their commercial products requirements from us at specified
prices.
Wholesale Products
Wholesale products consist of plumbing and refrigeration service tube
produced in standard sizes and lengths primarily for use in plumbing, air
conditioning and refrigeration service applications. This segment accounted for
approximately 76 million pounds, or 25%, of our products shipped, $97.6 million,
or 17%, of
1
our net sales and $9.3 million, or 15% of our total gross profit in 2001. In the
first quarter of 2002, wholesale products accounted for 19 million pounds of
product shipped, $22 million of net sales and $1.6 million of gross profit. We
are the only major manufacturer of copper tube products in Canada and we believe
that we are the leader in wholesale tube products in that market. We generated
approximately the same 2001 net sales volume of wholesale tube in Canada and in
the substantially larger U.S. market. Wholesale products are marketed primarily
through distributors with price and service being the most important competitive
factors.
Rod, Bar and Other Products
Rod and bar products consist of copper and copper alloy products produced
in a wide variety of shapes and sizes for use in numerous applications,
including the manufacture of industrial equipment and machinery, electrical
distribution systems and power generation. This segment accounted for
approximately 22 million pounds, or 7%, of our products shipped, $41.3 million,
or 7%, of our net sales and $2.8 million, or 4%, of our total gross profit in
2001. In the first quarter of 2002, rod, bar and other products accounted for 6
million pounds shipped, $9.2 million of net sales and $0.5 million of gross
profit.
The following graphs show the relative size of our product segments for
2001 in terms of pounds shipped, net sales and gross profit:
(PIE CHARTS )
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer............ We are offering to exchange up to $120,000,000
aggregate principal amount of our new 10 1/2%
Series B Senior Notes due 2009, or New Notes,
which have been registered under the Securities
Act of 1933, for a like amount of our
outstanding 10 1/2% Senior Notes due 2009, or
Old Notes, which we issued on March 27, 2002 in
a private offering. To exchange your Old Notes,
you must properly tender them by following the
procedures under the heading "The Exchange
Offer" and we must accept them.
Expiration Date............... The Exchange Offer expires at 5:00 p.m., New
York City time, on , 2002, unless we
extend it.
Withdrawal Rights............. You may withdraw the tender of your Old Notes
at any time before 5:00 p.m., New York City
time, on the Expiration Date. If we decide for
any reason not to accept any Old Notes for
exchange, we will return your Old Notes without
expense to you promptly after the expiration or
termination of the Exchange Offer.
2
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to customary
conditions, some of which we may waive. We
reserve the right to terminate and amend the
Exchange Offer at any time if any such
condition occurs before the Expiration Date.
Interest Payments............. Interest on the New Notes will accrue from the
last interest payment date on which interest
was paid on the Old Notes surrendered for
exchange. If no interest has been paid on the
Old Notes at the time of issuance of the New
Notes, interest on the New Notes will accrue
from March 27, 2002, the date of original
issuance of the Old Notes.
Procedures for Tendering Old
Notes......................... If you are a holder of Old Notes who wishes to
accept the Exchange Offer for New Notes:
- you must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof and mail or otherwise
deliver it, together with your Old Notes, to
the Exchange Agent at the address set forth
under "The Exchange Offer -- Exchange Agent;"
or
- arrange for The Depository Trust Company, or
DTC, to transmit certain required information
to the Exchange Agent in connection with a
book-entry transfer.
Do not send Letters of Transmittal and
certificates representing Old Notes to us.
By tendering your Old Notes in this manner, you
will be representing, among other things, that:
- the New Notes you acquire pursuant to the
Exchange Offer are being acquired in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the New Notes issued
to you in the Exchange Offer;
- you are not an "affiliate" of ours, or if you
are an affiliate, you will comply with the
registration and prospectus delivery
requirements of the Securities Act to the
extent applicable; and
- you are not a broker-dealer, or if you are a
broker-dealer, that you will receive the New
Notes for your own account, you will deliver
a prospectus on resale of your New Notes and
that you acquired your Old Notes as a result
of market making activities or other trading
activities.
Special Procedures for
Beneficial Owners............. If you are a beneficial owner whose Old Notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and wish to tender your Old Notes in the
Exchange Offer, please contact the registered
owner as soon as possible and instruct it to
tender on your behalf. If you wish to tender on
your own behalf, you must, prior to completing
and executing the Letter of Transmittal and
delivering your Old
3
Notes, either arrange to have your Old Notes
registered in your name or obtain a properly
completed bond power from the registered
holder. The transfer of registered ownership
may take considerable time.
Guaranteed Delivery
Procedures.................... If you wish to tender your Old Notes and time
will not permit your required documents to
reach the Exchange Agent by the Expiration
Date, or the procedure for book-entry transfer
cannot be completed on time, you may tender
your Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Procedures for Tendering."
Appraisal or Dissenters'
Rights........................ Owners of Old Notes do not have any appraisal
or dissenters' rights in the Exchange Offer.
Consequences of Not Exchanging
Old Notes..................... If you do not tender your Old Notes or we
reject your tender, you will not be entitled to
any further registration rights or exchange
rights, except under limited circumstances, and
your Old Notes will continue to be subject to
certain restrictions on transfer. However, your
Old Notes will remain outstanding and entitled
to the benefits of the indenture governing the
New Notes.
Resales....................... We believe that you can offer for resale,
resell or otherwise transfer the New Notes
without complying with further registration and
prospectus delivery requirements of the
Securities Act if you make the representations
described above under "Procedures for Tendering
Old Notes."
We base our belief on interpretations by the
SEC staff in no-action letters issued to other
issuers in Exchange Offers like ours. We cannot
guarantee that the SEC would make a similar
decision about our Exchange Offer. If our
belief is wrong, you could incur liabilities
under the Securities Act. We will not protect
you against any loss incurred as a result of
this liability under the Securities Act.
If you are unable to make any of such
representations and you transfer any New Notes
without delivering a proper prospectus or
without qualifying for a registration
exemption, you may incur liability under the
Securities Act and applicable state securities
laws. We will not assume or indemnify you
against such liability.
Federal Tax Consequences...... Your exchange of Old Notes for New Notes
pursuant to the Exchange Offer generally will
not result in any gain or loss to you for
United States federal income tax purposes. For
more information, see "Material U.S. Federal
Income Tax Considerations."
Use of Proceeds............... We will receive no proceeds from the Exchange
Offer. We will pay all of our expenses related
to the Exchange Offer.
Exchange Agent................ Wachovia Bank, National Association.
4
SUMMARY OF THE NEW NOTES
The Exchange Offer relates to the exchange of up to $120,000,000 aggregate
principal amount of the Old Notes for an equal aggregate principal amount of New
Notes. The form and terms of the New Notes will be the same as the form and
terms of the Old Notes, except that the New Notes will be registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof. The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the indenture. See "Description of the New Notes"
for a more complete description of the New Notes.
Issuer........................ Wolverine Tube, Inc.
Securities Offered............ $120 million aggregate principal amount of
10 1/2% Series B Senior Notes due 2009.
Maturity Date................. April 1, 2009.
Interest Payment Dates........ We will pay interest on the New Notes
semi-annually on April 1 and October 1 of each
year, beginning on October 1, 2002.
Optional Redemption........... We may redeem any of the New Notes beginning on
April 1, 2006. The initial redemption price is
105.25% of their principal amount, plus accrued
interest. The redemption price will decline in
each year after 2006 and will be 100% of their
principal amount, plus accrued interest,
beginning on April 1, 2008.
In addition, before April 1, 2005, we may
redeem up to 35% of the aggregate principal
amount of the New Notes with the proceeds of
public offerings of certain of our capital
stock at 110.50% of their principal amount,
plus accrued interest. See "Description of the
New Notes -- Optional Redemption."
Guarantees.................... Our obligations under the New Notes will be
guaranteed by certain of our subsidiaries.
Future subsidiaries also may be required to
guarantee the New Notes on a senior basis.
Ranking....................... The New Notes will be senior unsecured
obligations and will rank equally in right of
payment with all of our other existing and
future senior unsecured indebtedness. The New
Notes will be effectively subordinated to all
of our existing and future secured
indebtedness, including all indebtedness that
is incurred under our revolving credit
facility, to the extent of the value of the
security of that indebtedness. In addition, the
New Notes will effectively rank junior to all
existing and future indebtedness and other
liabilities of our subsidiaries that are not
guarantors. As of June 30, 2002, we had
approximately $271.1 million of indebtedness
outstanding on a consolidated basis, none of
which was secured indebtedness, and our
subsidiaries that are not guarantors had $2.7
million of indebtedness outstanding. As of June
30, 2002, our subsidiary guarantors had no
outstanding indebtedness that would rank senior
to their obligation to pay under their
guarantee of the New Notes. See "Description of
the New Notes -- Ranking."
Change of Control............. Upon the occurrence of certain change of
control events, each holder may require us to
repurchase all or a portion of the New Notes at
a purchase price of 101% of their principal
amount plus accrued interest, if any, to the
date of purchase. See "Description of the New
Notes -- Change of Control."
5
Covenants..................... The indenture contains covenants that limit
what we (and most or all of our subsidiaries)
may do. The indenture limits our ability to:
- incur additional indebtedness;
- pay dividends and make distributions;
- make certain investments;
- permit payment or dividend restrictions on
certain of our subsidiaries;
- transfer and sell assets;
- engage in activities that are not related,
ancillary or complementary to our businesses;
- create certain liens;
- engage in certain transactions with
affiliates;
- issue stock of subsidiaries; and
- consolidate or merge or sell all or
substantially all of our assets and the
assets of our subsidiaries.
These restrictions and prohibitions are subject
to a number of important qualifications and
exceptions. See "Description of the New
Notes -- Certain Covenants."
RISK FACTORS
Investing in the New Notes involves risks. You should refer to the section
entitled "Risk Factors" for an explanation of the material risks before
investing in the New Notes.
RECENT DEVELOPMENTS
On July 31, 2002, we announced our results for the quarter ended June 30,
2002. Income from continuing operations for the second quarter of 2002 was $3.5
million, or $0.28 per diluted share, as compared to income from continuing
operations of $3.1 million, or $0.24 per diluted share, in the second quarter of
2001. Net sales for the second quarter of 2002 were $152.5 million, a six
percent decrease from net sales of $161.5 million in the comparable year-ago
quarter. Total pounds of product shipped was 85.1 million, as compared to 84.4
million pounds in the prior year. Gross profit for the second quarter of 2002
was $19.2 million, compared with a gross profit of $15.8 million in the second
quarter of 2001 an increase of 22 percent. Proforma income from continuing
operations in the second quarter of 2001, excluding amortization of goodwill,
was $3.7 million or $0.30 per diluted share. Including the loss from
discontinued operations, net loss in the second quarter of 2001 was ($0.6)
million, or ($0.05) per diluted share.
Shipments of commercial products totaled 59.8 million pounds, a two percent
increase from last year's second quarter of 58.4 million pounds. Net sales were
$118.9 million, down five percent from last year's second quarter of $124.5
million. Gross profit was $17.3 million, a 37 percent increase over last year's
second quarter of $12.7 million. The decrease in revenues reflects an
unfavorable product mix with volume decreases in technical and alloy tube,
offset by increased volumes of industrial tube and fabricated products. Gross
profit was increased principally due to cost reduction and manufacturing
efficiencies.
Shipments of wholesale products totaled 20.1 million pounds, a two percent
increase over last year's second quarter of 19.8 million pounds. Net sales were
$24.9 million, down four percent from last year's second quarter of $25.8
million. Gross profit was $1.4 million, down 33 percent from last year's second
6
quarter of $2.0 million. Wholesale products were impacted by pricing pressures
in this commodity market that negatively impacted net sales. This was somewhat
mitigated by cost reductions and efficiencies.
Shipments of rod, bar and other products totaled 5.2 million pounds, a 16
percent decrease from last year's second quarter of 6.2 million pounds. Net
sales were $8.8 million, a 22 percent decrease from last year's second quarter
of $11.2 million. Gross profit was $0.5 million, down from last year's second
quarter of $1.1 million due principally to the decrease in volumes.
ADDITIONAL INFORMATION
Our executive offices are located at 200 Clinton Avenue West, Suite 1000,
Huntsville, Alabama 35801. Our telephone number is (256) 890-0460. Our corporate
website address is www.wlv.com. Information contained on our website is not part
of this prospectus.
7
SUMMARY CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The tables below present summary consolidated financial and other
information for our company. You should read this information together with the
information set forth under "Use of Proceeds," "Capitalization," "Selected
Consolidated Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes thereto of our company included elsewhere in
this prospectus.
The balance sheet data presented below as of December 31, 2000 and 2001 and
the income statement data presented below for each of the years in the
three-year period ended December 31, 2001, are derived from the audited
Consolidated Financial Statements of our company included elsewhere in this
prospectus. The balance sheet data presented below as of March 31, 2002 and the
income statement data presented below for each of the three-month periods ended
April 1, 2001 and March 31, 2002, are derived from our unaudited interim
consolidated financial statements, also included elsewhere in this prospectus.
The pro forma information described in footnote(f) gives effect to (i) the
issuance of the Old Notes on March 27, 2002, (ii) our obtaining the new credit
facility on March 27, 2002 and (iii) our using the proceeds from the sale of the
Old Notes and borrowings under the new credit facility to repay and terminate
our revolving credit facility that was outstanding on December 31, 2001, which
events we refer to collectively as the Transactions. The pro forma information
is derived from our Consolidated Financial Statements included elsewhere in this
prospectus. The pro forma information gives effect to the Transactions as if the
Transactions had occurred as of January 1, 2001.
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
--------------------------- APRIL 1, MARCH 31,
1999 2000 2001 2001 2002
------- ------- ------- --------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR PRICE OF COPPER)
INCOME STATEMENT DATA:
Net sales:
Commercial..................................... $436.7 $487.4 $444.2 $136.6 $106.3
Wholesale...................................... 118.9 97.0 97.6 23.5 22.0
Rod, bar and other............................. 30.6 37.1 41.3 12.3 9.2
------ ------ ------ ------ ------
Total net sales............................. 586.2 621.5 583.1 172.4 137.5
Gross profit:
Commercial..................................... 50.5 70.0 50.1 18.5 12.2
Wholesale...................................... 12.2 12.6 9.3 2.3 1.6
Rod, bar and other............................. 0.9 2.5 2.8 1.0 0.5
------ ------ ------ ------ ------
Total gross profit.......................... 63.6 85.1 62.2 21.8 14.3
Selling, general and administrative expenses..... 30.3 32.0 32.3 8.1 7.9
Restructuring and other charges(a)............... 19.9 -- 1.5 -- --
------ ------ ------ ------ ------
Operating income from continuing operations...... 13.4 53.1 28.4 13.7 6.4
Interest expense, net............................ 12.2 12.2 13.1 3.8 3.7
Amortization and other, net...................... 1.7 0.4 (0.4) (0.1) 0.1
------ ------ ------ ------ ------
Income (loss) from continuing operations before
income taxes................................... (0.6) 40.6 15.8 10.0 2.6
Income tax provision (benefit)................... (1.0) 14.7 4.3 3.0 0.9
------ ------ ------ ------ ------
Income from continuing operations................ 0.4 25.9 11.4 7.0 1.7
</Table>
8
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
--------------------------- APRIL 1, MARCH 31,
1999 2000 2001 2001 2002
------- ------- ------- --------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR PRICE OF COPPER)
Income (loss) from discontinued operations, net
of income taxes(b)............................. 1.4 0.8 (31.2) (0.9) --
Effect of change in accounting principle, after
tax(c)......................................... (5.8) -- -- -- --
------ ------ ------ ------ ------
Net income (loss)................................ $ (4.0) $ 26.7 $(19.8) $ 6.1 $ 1.7
====== ====== ====== ====== ======
EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR
GOODWILL:(D)
Income from continuing operations, as reported... $ 0.4 $ 25.9 $ 11.4 $ 7.0 $ 1.7
------ ------ ------ ------ ------
Add back: Goodwill amortization (net of tax)..... 2.2 2.3 2.7 0.5 --
------ ------ ------ ------ ------
Adjusted income from continuing operations....... $ 2.6 $ 28.2 $ 14.1 $ 7.5 $ 1.7
====== ====== ====== ====== ======
Adjusted income from continuing operations per
share:
Basic.......................................... $ 0.18 $ 2.30 $ 1.15 $ 0.62 $ 0.14
Diluted........................................ $ 0.18 $ 2.27 $ 1.13 $ 0.61 $ 0.13
Net income (loss), as reported................... $ (4.0) $ 26.7 $(19.8) $ 6.1 $ 1.7
Add back: Goodwill amortization (net of tax)..... 2.3 2.5 2.9 0.8 --
------ ------ ------ ------ ------
Adjusted net income (loss)....................... $ (1.7) $ 29.2 $(16.9) $ 6.9 $ 1.7
====== ====== ====== ====== ======
Adjusted net income (loss) per share:
Basic.......................................... $(0.15) $ 2.38 $(1.42) $ 0.57 $ 0.13
Diluted........................................ $(0.15) $ 2.34 $(1.39) $ 0.56 $ 0.13
OTHER FINANCIAL DATA:
EBITDA(e)........................................ $ 27.4 $ 69.8 $ 47.6 $ 18.2 $ 10.5
EBITDA margin.................................... 4.7% 11.2% 8.1% 10.5% 7.6%
Adjusted EBITDA(e)............................... $ 47.4 $ 69.8 $ 49.1 $ 18.2 $ 10.5
Adjusted EBITDA margin........................... 8.1% 11.2% 8.4% 10.5% 7.6%
Net cash provided by (used for) operating
activities..................................... $ 16.0 $ 46.6 $ 26.6 $ (0.8) $(11.2)
Net cash used for investing activities........... $(23.5) $(75.6) $(29.2) $(12.8) $ (1.9)
Net cash provided by (used for) financing
activities..................................... $(49.2) $ 40.7 $ 16.3 $ 16.7 $ 18.7
Depreciation and amortization.................... $ 15.8 $ 17.0 $ 18.7 $ 4.4 $ 4.2
Cash interest expense............................ 16.1 15.2 15.5 6.5 6.7
Ratio of net debt to adjusted EBITDA(e).......... 3.6x 3.2x 4.7x 13.1x 23.6x
Ratio of Adjusted EBITDA to cash interest
expense(e)..................................... 2.9x 4.6x 3.2x 2.8x 1.6x
Pro forma ratio of Adjusted EBITDA to cash
interest expense(e)(f)......................... 2.0x 1.8x
Ratio of earnings to fixed charges(g)............ -- 3.6x 2.0x 3.1x 1.7x
Pro forma ratio of earnings to fixed
charges(f)(g).................................. 1.2x 1.1x
Capital expenditures............................. $ 23.1 $ 31.7 $ 27.6 $ 11.4 $ 1.9
Net debt(h)...................................... $168.8 $219.8 $228.6 $237.7 $247.6
</Table>
9
<Table>
<Caption>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
--------------------------- APRIL 1, MARCH 31,
1999 2000 2001 2001 2002
------- ------- ------- --------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR PRICE OF COPPER)
OTHER OPERATING DATA:
Pounds shipped in millions:
Commercial..................................... 224.7 238.0 210.3 62.2 51.7
Wholesale...................................... 87.5 67.8 76.3 17.2 18.5
Rod, bar and other............................. 26.4 29.0 21.5 7.8 5.8
Average COMEX price of copper per pound(i)....... $ 0.72 $ 0.84 $ 0.73 $ 0.82 $ 0.72
</Table>
<Table>
<Caption>
AT DECEMBER 31,
--------------- AT MARCH 31,
2000 2001 2002
------ ------ ------------
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................... $ 23.5 $ 22.7 $ 28.4
Working capital............................................. 164.4 141.4 168.0
Total tangible assets....................................... 473.2 436.4 451.2
Total assets................................................ 584.9 539.4 561.1
Total debt and redeemable cumulative preferred stock........ 243.2 251.4 276.0
Total stockholders' equity.................................. 228.4 201.4 206.8
Book value per share -- diluted............................. $18.51 $16.37 $16.85
</Table>
- ---------------
(a) We recognized restructuring and other charges of approximately $19.9 million
($12.5 million after tax) in 1999 and $1.5 million ($1.0 million after tax)
in 2001. See Note 18 of the Notes to Consolidated Financial Statements.
(b) We have reclassified the operating results of Wolverine Ratcliffs, Inc.,
equal to $1.4 million, $0.8 million, $(7.4) million and $(0.8) million (in
each case net of tax) for the years ended 1999, 2000 and 2001 and for the
three months ended April 1, 2001, respectively, as discontinued operations.
In addition, we recorded an estimated $23.9 million (net of tax) loss on the
disposal of the Wolverine Ratcliffs operations in 2001. See Note 2 of the
Notes to Consolidated Financial Statements.
(c) Effective January 1, 1999, we adopted Statement of Position 98-5, Reporting
on the Costs of Start-Up Activities, or SOP 98-5, which requires that costs
related to start-up activities be expensed as incurred. The cumulative
effect of adopting SOP 98-5 as of the beginning of 1999 was a charge of
$5.8, net of tax.
(d) In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement addresses financial accounting and reporting for
acquired goodwill and intangible assets. SFAS No. 142 eliminates
amortization of goodwill and requires an impairment-only model for recording
the value of goodwill. SFAS No. 142 presumes that goodwill has an indefinite
useful life and thus should not be amortized, but rather tested at least
annually for impairment using a lower of cost or fair value approach. Other
intangible assets will still be amortized over their useful lives under SFAS
No. 142. On January 1, 2002, we adopted SFAS No. 142. Accordingly, we ceased
amortization of all previously recorded goodwill (approximately $99.8
million as of December 31, 2001) as of that date. The data shown under the
caption "Effect of Change in the Method of Accounting for Goodwill" depicts
the impact on income from continuing operations, net income and related per
share amounts had the non-amortization provisions of SFAS No. 142 been
applied for the periods indicated. We completed the transitional impairment
test of goodwill (as of January 1, 2002) required by the new rules during
the second quarter of fiscal 2002. Based on the results of these tests, the
fair value of the tested business units exceeded the carrying value of
goodwill and no transitional impairment charge will be recorded.
10
(e) We define EBITDA, for this purpose, as income (loss) from continuing
operations before interest expense, income taxes, depreciation and
amortization. Adjusted EBITDA, for this purpose, means EBITDA plus
restructuring and other charges. We have included EBITDA and Adjusted EBITDA
because we believe that these measures provide useful information to
investors and analysts in evaluating our ability to service debt. However,
EBITDA and Adjusted EBITDA are not measures of financial performance under
accounting principles generally accepted in the United States. EBITDA and
Adjusted EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from continuing operations or other consolidated
income or cash flow data prepared in accordance with accounting principles
generally accepted in the United States or as a measure of a company's
profitability or liquidity. Our method for calculating EBITDA or Adjusted
EBITDA may not be comparable to methods used by other companies, and the
amount of EBITDA will not necessarily be the same as the amount of EBITDA as
calculated for purposes of the indenture governing the notes. The
calculation of Adjusted EBITDA is as follows:
<Table>
<Caption>
QUARTER ENDED
YEAR ENDED DECEMBER 31, --------------------
------------------------ APRIL 1, MARCH 31,
1999 2000 2001 2001 2002
------ ------ ------ -------- ---------
EBITDA...................................... $27.4 $69.8 $47.6 $18.2 $10.5
Restructuring and other charges (described
in Note (a) above)........................ 19.9 -- 1.5 -- --
----- ----- ----- ----- -----
Adjusted EBITDA............................. $47.4 $69.8 $49.1 $18.2 $10.5
===== ===== ===== ===== =====
</Table>
We believe that the adjustments to EBITDA to eliminate the effects of
restructuring and other unusual charges are appropriate for purposes of
supplemental analysis because they relate to isolated decisions and events,
a substantial portion of the charges did not require the use of cash, and
the presentation is intended to provide objective and meaningful
information about our cash flows and liquidity excluding the effects of
these unusual items.
(f) Pro forma ratio of Adjusted EBITDA to cash interest expense and pro forma
ratio of earnings to fixed charges are calculated assuming our average
outstanding balance under our former revolving credit facility during 2001
and for the three months ended March 31, 2002 was refinanced from the
issuance of the Old Notes.
(g) Earnings consist of income (loss) from continuing operations before income
taxes plus fixed charges. Fixed charges consist of interest expense
(including capitalized interest) on debt and amortization of deferred debt
issuance costs, and the portion of rental expense that we believe is
representative of the interest component of rental expense of approximately
$0.3 million, for each of 1999, 2000 and 2001. The interest component of
rental expense was approximately $0.1 million for the quarters ended April
1, 2001 and March 31, 2002. For the year ended December 31, 1999, our
earnings were insufficient to cover our fixed charges by approximately $0.9
million.
(h) Net debt has been calculated by subtracting cash and cash equivalents from
our consolidated total debt and redeemable cumulative preferred stock. A
substantial portion of our balances of cash and cash equivalents are located
outside the United States. These net debt amounts do not, however, give
effect to any tax inefficiencies that may result from the repatriation of
cash and cash equivalents out of those jurisdictions.
(i) Source: Metals Week.
11
RISK FACTORS
Your investment in the New Notes involves a high degree of risk. Before
deciding to exchange your Old Notes for New Notes, you should carefully consider
the following risk factors and the other information contained or incorporated
by reference in this prospectus.
RISKS RELATING TO THE EXCHANGE OFFER
YOU ARE RESPONSIBLE FOR COMPLIANCE WITH THE EXCHANGE OFFER PROCEDURES. YOU WILL
NOT RECEIVE NOTICE FROM THE EXCHANGE AGENT OR US OF DEFECTS OR IRREGULARITIES IN
YOUR TENDER OF YOUR OLD NOTES.
Issuance of the New Notes in exchange for your Old Notes pursuant to this
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
your Old Notes, a properly completed and signed Letter of Transmittal and all
other required documents. Therefore, if you desire to tender your Old Notes in
exchange for New Notes you should allow sufficient time to ensure timely
delivery. Neither we nor the Exchange Agent is under any duty to give
notification of defects or irregularities in the tender of your Old Notes for
exchange. Old Notes that are not tendered or are tendered but not accepted for
exchange will, following the completion of this Exchange Offer, continue to be
subject to the existing restrictions on transfer of the Old Notes, and upon
completion of this Exchange Offer, our obligation to register your Old Notes
will terminate.
RISKS RELATED TO THE OFFERING OF THE NEW NOTES
OUR SIGNIFICANT DEBT LEVELS MAY LIMIT OUR FUTURE ABILITY TO OBTAIN ADDITIONAL
FINANCING AND TO PURSUE BUSINESS OPPORTUNITIES.
As of March 31, 2002, our total debt was $276.0 million, which represented
approximately 57.2% of our total capitalization. (Our total debt at June 30,
2002 was $271.1 million.) In addition, on March 27, 2002, we entered into a new
secured revolving credit facility, under which we may borrow up to $37.5 million
(subject to a $2.0 million ongoing excess availability requirement). We are
permitted under this credit facility and the indenture governing the New Notes
to incur additional debt under certain circumstances.
There are several important consequences of having significant debt levels,
including the following:
- a substantial portion of our cash from operating activities will be used
to pay principal and interest on our debt and will not be available for
other purposes, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures, research and development
efforts and other general corporate purposes;
- our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate may be limited;
- adverse economic or industry conditions are more likely to have a
negative effect on our business;
- we may be at a competitive disadvantage to our competitors that have
relatively less indebtedness;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be
limited; and
- our ability to make acquisitions, develop new technologies and products
and take advantage of significant business opportunities may be
negatively affected.
WE MAY NOT BE ABLE TO SATISFY OUR DEBT OBLIGATIONS.
Our earnings were insufficient to cover our fixed charges by approximately
$0.9 million for the fiscal year 1999. Assuming the offering of the Old Notes
had been completed on January 1, 2001, and giving
12
effect to the application of the proceeds of that offering at that time, the
ratio of our earnings to fixed charges would have been 1.2x. Assuming the
offering of the Old Notes had been completed on January 1, 2002, the pro forma
ratio of our earnings to fixed charges was 1.1x at March 31, 2002. Our ability
to pay the required interest and principal payments on our debt depends on the
future performance of our business. The performance of our business is subject
to general economic conditions and other financial and business factors, many of
which are beyond our control. Accordingly, our business may not generate
sufficient cash flow from operations, we may not realize our currently
anticipated revenues and operating performance and future borrowings may not be
available to us in an amount sufficient to enable us to pay our debt, including
the New Notes, or to fund our other liquidity needs.
If we are unable to meet our debt service obligations or fund our other
liquidity needs, we could attempt to restructure or refinance our indebtedness
or seek additional equity capital or we may be required to sell assets. However,
we may not be able to accomplish those actions on satisfactory terms, or at all.
THE NEW NOTES WILL BE UNSECURED OBLIGATIONS OF OUR COMPANY AND THE COLLATERAL
SECURING ANY OF OUR SECURED INDEBTEDNESS WILL NOT BE AVAILABLE TO YOU UNTIL THAT
INDEBTEDNESS HAS BEEN REPAID.
The New Notes will be unsecured obligations of our company. The payment of
principal and interest on the New Notes will be effectively subordinated in
right of payment to all of our secured debt. The amount of secured debt includes
the secured revolving credit facility we entered into concurrently with the
completion of the offering of the Old Notes on March 27, 2002, under which we
may borrow up to $37.5 million (subject to a $2.0 million ongoing excess
availability requirement), as well as any other secured debt we may be able to
incur in the future. Our new secured revolving credit facility is secured by a
first priority security interest in all of our U.S. and Canadian accounts
receivable and inventory. If we become insolvent or are liquidated, or if
payment under our new secured revolving credit facility or in respect of any
other secured debt is accelerated, the lenders under our new secured revolving
credit facility or holders of other secured debt will be entitled to exercise
the remedies available to a secured lender under applicable law (in addition to
any remedies that may be available under documents pertaining to the new secured
revolving credit facility or other secured debt). Upon the occurrence of any
default under our new secured revolving credit facility (and even without
accelerating the debt under our new secured revolving credit facility), the
lenders may be able to prohibit the payment of the New Notes and subsidiary
guaranties by limiting our ability to access our cash flow. Moreover, the U.S.
and Canadian accounts receivable and inventory, which are among our most liquid
assets, and any other assets that may in the future secure this or any other
secured debt, will not be available to you in the event of a bankruptcy,
liquidation or similar circumstance until we have fully repaid all amounts due
under our secured debt.
As of June 30, 2002, we had approximately $271.1 million of indebtedness
outstanding on a consolidated basis, none of which was secured indebtedness. As
of June 30, 2002, our subsidiary guarantors had no outstanding indebtedness that
would rank senior to their obligation to pay under their guarantee of the New
Notes.
DESPITE OUR SIGNIFICANT DEBT LEVELS, WE AND OUR SUBSIDIARIES MAY BE ABLE TO
INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED
ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Although the credit agreement governing our new
secured revolving credit facility and indenture governing the New Notes contain
restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions, and the indebtedness
incurred in compliance with these restrictions could be substantial. The credit
agreement governing our new secured revolving credit facility permits us to
borrow up to $37.5 million (subject to a $2.0 million excess availability
requirement) so long as we meet certain accounts receivable and inventory levels
and comply with financial and operating covenants. Further, although the
covenants in the credit agreement generally prohibit us from incurring
additional indebtedness, the limited exceptions to this restriction would permit
us to incur
13
specific types of indebtedness, for example, up to $2.5 million in purchase
money indebtedness to finance the purchase of fixed assets. The credit agreement
also contains a general exception to this restriction for the incurrence of up
to $5.0 million in additional unsecured debt under certain conditions. See
"Description of Other Obligations -- New Secured Revolving Credit Facility." The
covenants contained in the indenture governing the New Notes do not limit the
additional indebtedness we may incur so long as we have met the required
coverage ratio, which generally measures our ability to cover our ongoing debt
service obligations with our earnings, and no default has occurred and is
continuing. See "Description of the New Notes -- Certain Covenants -- Limitation
on Indebtedness." These restrictions do not prevent us from incurring
obligations that do not constitute indebtedness. To the extent new debt is added
to our and our subsidiaries' currently anticipated debt levels, the substantial
leverage risks described above would increase.
OUR PROJECT 21 CAPITAL IMPROVEMENT PLAN MAY NOT YIELD THE BENEFIT WE EXPECT.
Although we have substantially completed our capital improvement plan,
which we call "Project 21," we estimate we will spend an additional $5.2 million
in 2002, of which $1.8 million was expended in the first quarter of 2002.
Project 21 was designed to achieve manufacturing and operating improvements,
production efficiencies and increased yield. Project 21 may not achieve the
benefits we assumed when the plan was approved in 1999, and our estimate of
annualized cost savings from the plan may prove to be inaccurate. These
estimates are based on assumptions as to our forecasted manufacturing volumes,
operating costs, labor requirements and timing of project implementation, many
of which are beyond our control. We may not achieve the estimated cost savings,
and you should not place undue reliance upon these estimates.
OUR INABILITY TO COMPLY WITH THE DEBT COVENANTS CONTAINED IN THE INDENTURE FOR
THE NEW NOTES AND IN OUR OTHER DEBT AGREEMENTS, INCLUDING THE NEW SECURED
REVOLVING CREDIT FACILITY, COULD LEAD TO AN ACCELERATION OF OUR DEBT AND
POSSIBLY BANKRUPTCY.
The indenture for the New Notes and our other debt agreements, including
the agreement governing the new secured revolving credit facility, contain a
number of significant covenants that limit our ability to:
- incur other indebtedness;
- engage in transactions with affiliates;
- incur liens;
- make certain restricted payments;
- enter into certain business combinations and asset sale transactions; and
- make investments.
These restrictions could limit our ability to effect future financings,
make needed capital expenditures, withstand a future downturn in our business or
the economy in general, conduct operations or otherwise take advantage of
business opportunities that may arise. Our secured revolving credit facility
also contains covenants that require us to meet certain financial tests. Changes
in economic or business conditions, results of operations or other factors could
make us unable to comply with these covenants and cause us to default under our
debt agreements. A default, if not waived by our lenders, could result in
acceleration of our debt and possibly bankruptcy.
WE MAY BE UNABLE TO PURCHASE THE NEW NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of "change of control" events specified in the
"Description of the New Notes," you may require us to purchase your New Notes at
101% of their principal amount, plus accrued and unpaid interest. The terms of
the indenture governing our 7 3/8% Senior Notes and our new secured revolving
credit facility limit our ability to purchase your New Notes in those
circumstances. Any of our future debt agreements may contain similar
restrictions and provisions. Accordingly, we may be unable to
14
satisfy our obligations to purchase your New Notes unless we are able to
refinance or obtain waivers under our 7 3/8% Senior Notes, our new secured
revolving credit facility and other debt with similar restrictions. We may not
have the financial resources to purchase your New Notes, particularly if a
change of control event constitutes a default under, triggers a similar
repurchase requirement for, or results in the acceleration of, our other debt.
NOT ALL OF OUR SUBSIDIARIES WILL GUARANTEE THE NEW NOTES.
As of December 31, 2001 and for the one year period then ended, our
subsidiaries that will not guarantee the New Notes had assets of approximately
$116.2 million, net sales of approximately $178.5 million, operating income of
approximately $15.3 million and adjusted EBITDA of approximately $16.1 million.
As of March 31, 2002 and for the quarterly period then ended, our subsidiaries
that will not guarantee the New Notes had assets of approximately $113.5
million, net sales of approximately $43.7 million, operating income of
approximately $4.7 million and adjusted EBITDA of approximately $4.7 million. In
the event that any of our non-guarantor subsidiaries become insolvent,
liquidate, reorganize, dissolve or otherwise wind up, the assets of those
subsidiaries will be used first to satisfy the claims of their creditors,
including their trade creditors, banks and other lenders. Consequently your
claims will be effectively subordinated to all of the claims of the creditors of
our non-guarantor subsidiaries.
OUR SUBSIDIARY GUARANTEES COULD BE DEEMED TO BE FRAUDULENT CONVEYANCES.
Certain of our subsidiaries will guarantee the New Notes. The issuance of
these guarantees could be subject to a court's review under applicable
fraudulent transfer or conveyance provisions of the U.S. Bankruptcy Code or
comparable provisions of state law. These courts could require you to return
payments received from, or prevent payments being made by, a guarantor in the
event of the bankruptcy or other financial difficulty of that guarantor. Under
these laws a guarantee could be voided if the issuance of the guarantee is found
to constitute a fraudulent conveyance. The issuance of a guarantee will
generally be a fraudulent conveyance if (1) the guarantor issued the guarantee
with the intent to hinder, delay or defraud its current or future creditors, or
(2) the guarantor received less than reasonably equivalent value or fair
consideration in return for the guarantee, and any of the following is also
true:
- the guarantor was insolvent when it issued the guarantee or was rendered
insolvent by reason of the guarantee;
- the guarantor was left with an unreasonably small amount of capital after
issuing the guarantee; or
- the guarantor intended to incur, or believed that it would incur, debts
beyond its ability to pay as they matured.
Since our subsidiary guarantors will issue the guarantees for the benefit
of our company, Wolverine Tube, Inc., and only indirectly for their own benefit,
the guarantees could be subject to a claim that they were given in return for
less than reasonably equivalent value or fair consideration.
Although the definition of "insolvency" differs among jurisdictions, the
most common definition of insolvency in the fraudulent conveyance context is the
"balance sheet" test. Under the balance sheet test, the guarantor would be
considered insolvent when it issued the guarantee if:
- its liabilities exceed the fair value of its assets; or
- the present market value of its assets is less than the amount it would
need to pay its total existing debts and liabilities as they mature
(including those contingent liabilities which are likely to become
certain).
Even if a court determined that the guarantor was not insolvent when the
New Notes were issued, you should be aware that payments under the guarantees
may constitute fraudulent transfers on other grounds. To the extent that a note
guarantee of any of our subsidiary guarantors is voided as a fraudulent
conveyance or otherwise held to be unenforceable, your claim against that
subsidiary guarantor could be lost or limited.
15
BECAUSE WE DO NOT INTEND TO TAKE STEPS TO CREATE AN ACTIVE TRADING MARKET FOR
THE NEW NOTES, YOU MAY NOT BE ABLE TO RESELL THEM.
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued on March 27, 2002 to a small number of institutional investors
and overseas investors and are eligible for trading in the Private Offering,
Resale and Trading through Automated Linkages (PORTAL(SM)) Market, the National
Association of Securities Dealers' screenbased, automated market for trading of
securities eligible for resale under Rule 144A. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for the
remaining untendered Old Notes could become less liquid and your ability to sell
Old Notes could be detrimentally impacted. There is no existing trading market
for the New Notes. We do not intend to apply for listing or quotation of the New
Notes on any exchange. Therefore lack of investor interest could prevent the
development of a trading market or limit the liquidity of any such market.
Further, the lack of a trading market for the New Notes could hinder the ability
of New Note holders to sell their New Notes or to easily predict the price at
which the New Notes may be sold. Although the initial purchasers of the Old
Notes have informed us that they currently intend to make a market in the New
Notes, they are not obligated to do so, and any such market-making may be
discontinued at any time without notice. As a result, the market price of the
New Notes could fall. Historically, the market for non-investment grade debt,
such as the New Notes, has been subject to disruptions that have caused
substantial volatility in the prices of such securities. Any such disruptions
may be detrimental to holders of the New Notes.
RISKS RELATED TO OUR BUSINESS
WE RELY ON CERTAIN INDUSTRIES THAT ARE SUBJECT TO CYCLICAL AND SEASONAL DEMAND
WHICH CAN REDUCE OUR SALES VOLUMES AND PROFITABILITY.
Demand for our products, particularly our wholesale products, is cyclical
and is significantly affected by changes in general economic conditions that
affect our customers' markets. These conditions include the level of economic
growth, employment levels, financing availability, interest rates, consumer
confidence, housing demand and construction activity. Decreases in demand for
our products resulting from these conditions can reduce the prices we receive
for our products, unit sales volumes and gross profit. The current U.S. economic
recession and downturn in the industries we serve have weakened our customers'
markets and reduced demand for our products.
In addition, demand in certain of the industries to which we sell our
products, including the residential air conditioning industry and, to a lesser
extent, the commercial air conditioning industry, is seasonal. Our sales to the
residential air conditioning industry are generally greater in the first and
second quarters of the year and lower in the third and fourth quarters due to
our customers' increase of inventory in anticipation of summer air conditioning
sales and housing starts. Our sales to the residential air conditioning industry
also decrease in years with unseasonably cool summers.
WE FACE SIGNIFICANT COMPETITION IN MANY CASES FROM COMPETITORS THAT ARE LARGER
THAN US AND HAVE MANUFACTURING AND FINANCIAL RESOURCES GREATER THAN OURS.
We face significant competition in each of our product lines. We have
numerous competitors, some of which are larger than us and have financial
resources greater than ours such as Cerro Copper Products Co., Inc., Industrias
Nacobre S.A. de C.V., Kobe Copper Products Inc., Wieland-Werke AG, Mueller
Industries Inc., Olin Corporation, Outokumpu American Brass Company and J.W.
Harris Company, Inc. We may not be able to compete successfully and competition
may have a negative impact on our business, operating results or financial
condition by reducing volume of products sold and/or selling prices, and
accordingly reducing revenues and profits and depleting capital. Minimal product
differentiation among competitors in our wholesale and rod and bar product lines
creates a pricing structure where customers differentiate between products
almost exclusively on price. In these product areas, certain of our competitors
have significantly larger market shares than we have and tend to be the industry
pricing
16
leaders. If our competitors in these product lines were to significantly reduce
prices, our unit sales and profit margins could be reduced. We currently face
limited competition for certain of our higher value-added commercial products
that have higher profit margins. If other companies or some of our existing
competitors begin or expand operations in these product categories, our sales of
these higher margin products could fall and our profitability in this area could
be reduced or eliminated.
THE LOSS OF ANY OF OUR MAJOR CUSTOMERS COULD NEGATIVELY IMPACT OUR REVENUES AND
FINANCIAL HEALTH.
In 2000 and 2001, our 10 largest customers accounted for approximately 45%
and 44%, respectively, of our consolidated net sales. If we were to lose any of
our relationships with these customers, our revenues and profitability could
fall.
THE REDUCTION IN DEMAND FOR OUR PRODUCTS COULD RESULT IN A LOSS OF REVENUE.
We may not be able to continue to supply our customers at current levels if
we experience a reduction in demand for our products. A substantial decrease in
the amount of net sales to one or more of our major customers could have a
negative impact on our revenues, operating results and financial condition.
WE HAVE EXPERIENCED NET LOSSES IN RECENT PERIODS AND WE MAY EXPERIENCE NET
LOSSES IN THE FUTURE.
We experienced net losses of $4.0 million in 1999 and $19.8 million in 2001
and we may experience net losses in the future. Competitive price pressure,
cyclical demand for our products and an economic downturn in the industries we
serve, among other factors, can reduce the prices we receive for our products,
unit sales volumes and gross profit. These factors may in turn reduce our cash
flow and operating results in future periods. If we are unable to generate
positive cash flow in the future, we may not be able to make payments on our
debt obligations, including the New Notes.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO NUMEROUS RISKS.
We have significant manufacturing or sales operations in Canada, China and
The Netherlands. In 2001, these foreign operations represented 25.8%, 2.4% and
2.6% of our consolidated net sales, respectively, and 70.9%, 30.2% and 5.6% of
our consolidated income from continuing operations, respectively. In 2001, we
completed construction of our manufacturing facility in Portugal and we will
continue to evaluate opportunities to establish new manufacturing and sales
operations in Asia and Latin America. We are subject to the risks inherent in
conducting business across national boundaries, any one of which could adversely
impact our business. These risks include:
- economic downturns;
- currency exchange rate fluctuations;
- changes in governmental policy or regulation;
- restrictions on the transfer of funds into or out of the country;
- import and export duties and quotas;
- domestic and foreign customs and tariffs;
- different regimes controlling the protection of our intellectual
property;
- international incidents;
- military outbreaks;
- government instability;
- nationalization of foreign assets; and
- government protectionism.
17
One or more of these factors could impair our current or future international
operations and, as a result, harm our overall business.
WE AND SOME OF OUR MAJOR CUSTOMERS HAVE UNIONIZED EMPLOYEES AND OUR ABILITY TO
MANUFACTURE AND SELL OUR PRODUCTS COULD BE NEGATIVELY IMPACTED BY LABOR DISPUTES
AFFECTING US OR OUR MAJOR CUSTOMERS.
Some of our employees and some employees of our major customers are
unionized. At March 31, 2002, approximately 11% of our employees were unionized.
Our unionized employees are hourly workers located at our Montreal facility
where various copper and copper alloy tube products and substantially all of our
rod and bar products are manufactured. A new collective bargaining agreement
with the union representing these employees was ratified by the unionized
employees on June 22, 2002 and formally executed on August 2, 2002. A dispute
between us and our employees, or between any one of our major customers and that
customer's employees, could disrupt either our or our customers' production and
thus negatively impact our ability to manufacture and/or sell our products.
WE MAY ENGAGE IN ACQUISITIONS THAT COULD INCREASE OUR DEBT AND ANY ACQUISITIONS
THAT ARE NOT SUCCESSFULLY INTEGRATED WITH OUR BUSINESS COULD INCREASE COSTS,
DIVERT MANAGEMENT'S ATTENTION, DISRUPT EXISTING BUSINESS RELATIONSHIPS AND HAVE
A NEGATIVE IMPACT ON OUR RESULTS OF OPERATIONS.
We may engage in strategic acquisitions in the future. However, attractive
acquisitions may not be available to us at reasonable prices. In addition, to
facilitate future acquisitions, we may take actions that could have a
detrimental effect on our results of operations including:
- the incurrence of substantial debt;
- increased depreciation and amortization expense;
- increased interest expense; or
- decreased operating income.
Acquisitions also entail numerous business risks, including:
- difficulties in assimilating acquired businesses;
- unanticipated costs, including the assumption of environmental
liabilities, that could materially adversely affect our results of
operations;
- diversion of management's attention from other business concerns;
- negative effects on existing business relationships with suppliers and
customers; and
- risks of entering markets in which we have no or limited prior
experience.
WE COULD INCUR SIGNIFICANT COSTS, INCLUDING REMEDIATION COSTS, AS A RESULT OF
COMPLYING WITH ENVIRONMENTAL LAWS.
Our facilities and operations are subject to extensive environmental laws
and regulations imposed by federal, state, provincial and local authorities in
the United States, Canada, China and Portugal relating to the protection of the
environment and human health and safety, including those governing emissions to
air, discharges to waterways and the generation, handling, storage,
transportation, treatment and disposal of, and exposure to, hazardous materials.
We could incur substantial costs, including cleanup costs, fines or sanctions,
and third-party claims for property damage or personal injury, as a result of
violations of or liabilities under environmental laws. We have incurred, and in
the future may continue to incur, liability under environmental statutes and
regulations with respect to the contamination detected at sites owned or
operated by us (including contamination caused by prior owners and operators of
such sites, abutters or other persons) and the sites at which we disposed of
hazardous substances. We have established a reserve with respect to certain
presently estimated environmental remediation costs. This reserve may not be
adequate to cover the ultimate costs of these liabilities (or ones that may be
identified in the future) and
18
the discovery of additional contaminants or the imposition of additional cleanup
obligations could result in significant costs. In addition, we expect that
future regulations, and changes in the text or interpretation of existing
regulations, may subject us to increasingly stringent standards. Compliance with
such requirements may make it necessary, at costs which may be substantial, for
us to retrofit existing facilities with additional pollution-control equipment,
undertake new measures in connection with the storage, transportation, treatment
and disposal of by-products and wastes or take other steps.
OUR PROFITABILITY IS SUBJECT TO THE VOLATILITY OF MARKETS FOR RAW MATERIALS,
PRIMARILY COPPER, AND OUR ABILITY TO PASS ON TO OUR CUSTOMERS ANY INCREASED
COSTS FOR COPPER RAW MATERIALS.
Our profitability depends upon the margin between the cost to us of copper
raw materials and the selling price of our copper based products. Prices for
copper raw material are subject to cyclical price fluctuations. While it is our
intention to base the selling prices of our products upon the associated raw
materials costs to us at the time of sale of our finished products or as set by
our purchases for forward delivery or hedging with futures and options
contracts, we may not be able to pass all increases in copper costs through to
our customers. Significant increases in the price of copper, if not offset by
product price increases, would negatively impact our consolidated financial
condition, results of operations or cash flows by reducing profit and straining
capital. In addition, certain of our copper products 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 our copper
products, particularly our wholesale products, in cases where an alternative
exists and thereby reduce our sales volumes and have a negative impact upon our
results of operations.
OUR COMPETITIVE ADVANTAGE COULD BE REDUCED IF OUR INTELLECTUAL PROPERTY BECOMES
KNOWN BY OUR COMPETITORS OR IF TECHNOLOGICAL CHANGES REDUCE OUR CUSTOMERS' NEED
FOR OUR PRODUCTS.
We own a number of trademarks and patents (in the United States and other
jurisdictions) on our products and related manufacturing processes and we have
granted licenses with respect to some of our trademarks and patents. In addition
to trademark and patent protection, we rely on trade secrets, proprietary
know-how and technological advances that we seek to protect. If our intellectual
property is not properly protected by us or is independently discovered by
others or otherwise becomes known, our protection against competitive products
could be diminished. Because we compete primarily on the basis of the technical
advantages of our commercial products, technical improvements by our competitors
could reduce our competitive advantage in these product lines and thereby reduce
our unit sales and profits per unit. In addition, the development of new
technologies in the air conditioning, refrigeration or other consumer
industries, including technologies developed in response to the elimination of
chlorofluorocarbons and certain refrigerants, could reduce or eliminate the need
for copper and copper alloy based products and thereby reduce our sales volumes
and have a negative impact on our operating results.
19
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the New Notes
offered hereby. In consideration for issuing the New Notes as contemplated in
this prospectus, we will receive in exchange Old Notes in like principal amount,
the forms and terms of which are identical, in all material respects, to the New
Notes. The Old Notes surrendered in exchange for New Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the New Notes will not
result in any increase in our indebtedness.
Net proceeds from the sale of the privately placed Old Notes were used to
repay and terminate our former revolving credit facility, which had $96.2
million in outstanding borrowings (exclusive of letters of credit) at the
closing date, and to cash collateralize approximately $4.4 million in letters of
credit issued under the former revolving credit facility. Our former revolving
credit facility, which matured on April 30, 2002, bore interest at a floating
base rate of LIBOR plus 3%. For the year ended December 31, 2001, the average
borrowings outstanding under the former revolving credit facility were $86.7
million and the weighted average interest rate was 5.5%. Borrowings under our
former revolving credit facility were used for working capital and general
corporate purposes.
20
CAPITALIZATION
The following table sets forth the capitalization of our company at March
31, 2002. You should read this table in conjunction with information set forth
under "Use of Proceeds," "Selected Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of Other Obligations" and the Consolidated Financial
Statements and the related notes thereto of our company included elsewhere in
this prospectus.
<Table>
<Caption>
AT MARCH 31, 2002
-----------------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 28,360
========
Short-term debt............................................. $ 923
Long-term debt:
Secured revolving credit facility......................... 5,000
7 3/8% Senior Notes due 2008.............................. 149,800
10 1/2% Senior Notes due 2009............................. 118,545
Other..................................................... 1,724
--------
Total long-term debt................................... 275,069
--------
Total debt............................................. 275,992
Shareholders' equity........................................ 206,797
--------
Total capitalization................................... $482,789
========
</Table>
Concurrently with the closing of the sale of the Old Notes on March 27,
2002, we entered into a $37.5 million secured revolving credit facility with
Wachovia Bank, National Association, under which our U.S. subsidiaries and
certain of our Canadian subsidiaries are co-borrowers. We used the proceeds from
the sale of the Old Notes to repay and terminate our former revolving credit
facility and to cash collateralize approximately $4.4 million in letters of
credit issued under our former revolving credit facility. The new secured
revolving credit facility is secured by certain of our assets and those of our
subsidiaries. See "Description of Other Obligations." Borrowings, including
letters of credit, of up to $37.5 million (subject to a $2.0 million ongoing
excess availability requirement) are available under our new secured revolving
credit facility on a revolving basis and are available for general corporate
purposes, including capital expenditures.
21
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The tables below present selected financial information for our company.
You should read this information together with the information set forth under
"Use of Proceeds," "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes thereto of our company included elsewhere in
this prospectus.
The balance sheet data presented below as of December 31, 2000 and 2001 and
the income statement data presented below for each of the years in the
three-year period ended December 31, 2001, are derived from the audited
Consolidated Financial Statements of our company included elsewhere in this
prospectus. The balance sheet data presented below as of March 31, 2002 and the
income statement data presented below for each of the three-month periods ended
April 1, 2001 and March 31, 2002 are derived from our unaudited interim
consolidated financial statements, also included elsewhere in this prospectus.
The remaining balance sheet and income statement data presented below are
derived from audited Consolidated Financial Statements of our company, which are
not presented herein, as adjusted to retroactively reflect the change in method
of accounting for inventories and the discontinued operations treatment of a
consolidated subsidiary as described in the Notes to the financial statements.
The pro forma information described in footnote (g) gives effect to (i) the
issuance of the Old Notes on March 27, 2002, (ii) our obtaining the new credit
facility on March 27, 2002 and (iii) our using the proceeds from the sale of the
Old Notes and borrowings under the new credit facility to repay and terminate
our revolving credit facility that was outstanding on December 31, 2001, which
events we refer to collectively as the Transactions. The pro forma information
is derived from our Consolidated Financial Statements included elsewhere in this
prospectus. The pro forma information gives effect to the Transactions as if the
Transactions had occurred as of January 1, 2001.
<Table>
<Caption>
QUARTER ENDED
YEAR ENDED DECEMBER 31, ----------------------
----------------------------------------------- APRIL 1, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
------- ------- ------- ------- ------- --------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR PRICE OF COPPER AND PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales:
Commercial............................. $477.3 $445.4 $436.7 $487.4 $444.2 $136.6 $106.3
Wholesale.............................. 116.8 104.1 118.9 97.0 97.6 23.5 22.0
Rod, bar and other..................... 37.6 29.7 30.6 37.1 41.3 12.3 9.2
------ ------ ------ ------ ------ ------ ------
Total net sales...................... 631.7 579.2 586.2 621.5 583.1 172.4 137.5
Gross profit:
Commercial............................. 74.8 65.2 50.5 70.0 50.1 18.5 12.2
Wholesale.............................. 2.4 4.9 12.2 12.6 9.3 2.3 1.6
Rod, bar and other..................... 2.0 1.0 0.9 2.5 2.8 1.0 0.5
------ ------ ------ ------ ------ ------ ------
Total gross profit................... 79.2 71.0 63.6 85.1 62.2 21.8 14.3
Selling, general and administrative
expenses............................... 22.5 25.5 30.3 32.0 32.3 8.1 7.9
Restructuring and other charges(a)....... 4.4 11.9 19.9 -- 1.5 -- --
------ ------ ------ ------ ------ ------ ------
Operating income from continuing
operations............................. 52.3 33.6 13.4 53.1 28.4 13.7 6.4
Interest expense, net.................... 7.4 6.6 12.2 12.2 13.1 3.8 3.7
Amortization and other, net.............. 0.2 0.8 1.7 0.4 (0.4) (0.1) 0.1
------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing operations
before income taxes.................... 44.7 26.2 (0.6) 40.6 15.8 10.0 2.6
Income tax provision (benefit)........... 16.3 9.1 (1.0) 14.7 4.3 3.0 0.9
------ ------ ------ ------ ------ ------ ------
Income from continuing operations........ 28.4 17.1 0.4 25.9 11.4 7.0 1.7
</Table>
22
<Table>
<Caption>
QUARTER ENDED
YEAR ENDED DECEMBER 31, ----------------------
----------------------------------------------- APRIL 1, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
------- ------- ------- ------- ------- --------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR PRICE OF COPPER AND PER SHARE DATA)
Income (loss) from discontinued
operations, net of tax(b).............. 0.2 1.3 1.4 0.8 (31.2) (0.9) --
Extraordinary item, net of income tax
benefit................................ (4.7) -- -- -- -- -- --
Effect of change in accounting principle,
net of tax(c).......................... -- -- (5.8) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)........................ $ 23.9 $ 18.4 $ (4.0) $ 26.7 $ 19.8 $ 6.1 $ 1.7
INCOME FROM CONTINUING OPERATIONS PER
SHARE:
Basic.................................. $ 2.00 $ 1.21 $ 0.01 $ 2.11 $ 0.92 $ 0.57 $ 0.13
Diluted................................ $ 1.97 $ 1.19 $ 0.01 $ 2.08 $ 0.91 $ 0.56 $ 0.13
EFFECT OF CHANGE IN METHOD OF ACCOUNTING
FOR GOODWILL:(D)
Income from continuing operations, as
reported............................... $ 0.4 $ 25.9 $ 11.4 $ 7.0 $ 1.7
Add back: Goodwill amortization (net of
tax)................................... 2.2 2.3 2.7 0.5 --
------ ------ ------ ------ ------
Adjusted income from continuing
operations............................. $ 2.6 $ 28.2 $ 14.1 $ 7.5 $ 1.7
====== ====== ====== ====== ======
Adjusted income from continuing
operations per share:
Basic.................................. $ 0.18 $ 2.30 $ 1.15 $ 0.62 $ 0.14
Diluted................................ $ 0.18 $ 2.27 $ 1.13 $ 0.61 $ 0.13
Net income (loss), as reported........... $ (4.0) $ 26.7 $(19.8) $ 6.1 $ 1.7
Add back: Goodwill amortization (net of
tax)................................... 2.3 2.5 2.9 0.8 --
------ ------ ------ ------ ------
Adjusted net income (loss)............... $ (1.7) $ 29.2 $(16.9) $ 6.9 $ 1.7
====== ====== ====== ====== ======
Adjusted net income (loss) per share:
Basic.................................. $(0.15) $ 2.38 $(1.42) $ 0.57 $ 0.13
Diluted................................ $(0.15) $ 2.34 $(1.39) $ 0.56 $ 0.13
OTHER FINANCIAL DATA:
EBITDA(e).............................. $ 68.1 $ 49.5 $ 27.4 $ 69.8 $ 47.6 $ 18.2 $ 10.5
EBITDA margin.......................... 10.8% 8.6% 4.7% 11.2% 8.1% 10.5% 7.6%
Adjusted EBITDA(e)..................... $ 72.5 $ 61.4 $ 47.4 $ 69.8 $ 49.1 $ 18.2 $ 10.5
Adjusted EBITDA margin................. 11.5% 10.6% 8.1% 11.2% 8.4% 10.5% 7.6%
Net cash provided by (used for)
operating activities................. $ 46.7 $ 35.8 $ 16.0 $ 46.6 $ 26.6 $ (0.8) $(11.2)
Net cash used for investing
activities........................... $(26.3) $(70.5) $(23.5) $(75.6) $(29.2) $(12.8) $ (1.9)
Net cash provided by (used for)
financing activities................. $ (8.1) $(99.8) $(49.2) $ 40.7 $ 16.3 $ 16.7 $ 18.7
Depreciation and amortization.......... $ 16.2 $ 16.7 $ 15.8 $ 17.0 $ 18.7 $ 4.4 $ 4.2
Cash interest expense.................. 9.3 5.3 16.1 15.2 15.5 6.5 6.7
Ratio of earnings to fixed
charges(f)(g)........................ 6.2x 3.1x -- 3.6x 2.0x 3.1x 1.7x
Capital expenditures................... $ 21.0 $ 34.3 $ 23.1 $ 31.7 $ 27.6 $ 11.4 $ 1.9
</Table>
23
<Table>
<Caption>
QUARTER ENDED
YEAR ENDED DECEMBER 31, ----------------------
----------------------------------------------- APRIL 1, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
------- ------- ------- ------- ------- --------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR PRICE OF COPPER AND PER SHARE DATA)
OTHER OPERATING DATA:
Pounds shipped in millions:
Commercial........................... 210.5 219.0 224.7 238.0 210.3 62.2 51.7
Wholesale............................ 77.4 80.9 87.5 67.8 76.3 17.2 18.5
Rod, bar and other................... 27.3 26.7 26.4 29.0 21.5 7.8 5.8
Average COMEX price of copper per
pound(h)............................. $ 1.04 $ 0.75 $ 0.72 $ 0.84 $ 0.73 $ 0.82 $ 0.72
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.............. $ 15.1 $ 78.9 $ 26.9 $ 23.5 $ 22.7 $ 22.9 $ 28.4
Total assets........................... 427.2 541.5 499.5 584.9 539.4 605.8 561.1
Long-term debt and redeemable
cumulative preferred stock........... 104.7 219.9 182.2 233.2 249.7 249.7 275.1
Total stockholders' equity............. 228.4 226.5 212.5 228.4 201.4 228.4 206.8
Book value per share -- diluted........ $16.05 $15.97 $16.05 $18.51 $16.37 $18.62 $16.85
</Table>
- ---------------
(a) We recognized restructuring and other charges of approximately $19.9 million
($12.5 million after tax) in 1999 and $1.5 million ($1.0 million after tax)
in 2001. See Note 18 of the Notes to Consolidated Financial Statements.
During 1998, we 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 our 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; $2.3 million in
expenses for the write-down of impaired assets related to the
discontinuation of casting at our North Carolina facility; $0.4 million of
other costs related to the discontinuation of the casting process at the
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, we 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 our 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 our
company).
(b) We have reclassified the operating results of Wolverine Ratcliffs, Inc.,
equal to $0.2 million, $1.3 million, $1.4 million, $0.8 million, $(7.4)
million and $(0.8) million (in each case net of tax) for the years ended
1997, 1998, 1999, 2000 and 2001 and for the three months ended April 1,
2001, respectively, as discontinued operations. In addition, we recorded an
estimated $23.9 million (net of tax) loss on the disposal of the Wolverine
Ratcliffs operations in 2001. See Note 2 of the Notes to Consolidated
Financial Statements.
(c) Effective January 1, 1999, we adopted Statement of Position 98-5, Reporting
on the Costs of Start-Up Activities, or SOP 98-5, which requires that costs
related to start-up activities be expensed as incurred. The cumulative
effect of adopting SOP 98-5 as of the beginning of 1999 was a charge of $5.8
million, net of tax.
(d) In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement addresses financial accounting and reporting for
acquired goodwill and intangible assets. SFAS No. 142 eliminates
amortization of goodwill and requires an impairment-only model for recording
the value of goodwill. SFAS No. 142 presumes that goodwill has an indefinite
useful life and thus should
24
not be amortized, but rather tested at least annually for impairment using a
lower of cost or fair value approach. Other intangible assets will still be
amortized over their useful lives under SFAS No. 142. On January 1, 2002, we
adopted SFAS No. 142. Accordingly, we ceased amortization of all previously
recorded goodwill (approximately $99.8 million as of December 31, 2001) as
of that date. The data shown under the caption "Effect of Change in the
Method of Accounting for Goodwill" depicts the impact on income from
continuing operations, net income and related per share amounts had the
non-amortization provisions of SFAS No. 142 been applied for the periods
indicated. We completed the transitional impairment test of goodwill (as of
January 1, 2002) required by the new rules during the second quarter of
fiscal 2002. Based on the results of these tests, the fair value of the
tested business units exceeded the carrying value of goodwill and no
transitional impairment charge will be recorded.
(e) We define EBITDA, for this purpose, as income (loss) from continuing
operations before interest expense, income taxes, depreciation and
amortization. Adjusted EBITDA, for this purpose, means EBITDA plus
restructuring and other charges. We have included EBITDA and Adjusted EBITDA
because we believe that these measures provide useful information to
investors and analysts in evaluating our ability to service debt. However,
EBITDA and Adjusted EBITDA are not measures of financial performance under
accounting principles generally accepted in the United States. EBITDA and
Adjusted EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from continuing operations or other consolidated
income or cash flow data prepared in accordance with accounting principles
generally accepted in the United States or as a measure of a company's
profitability or liquidity. Our method for calculating EBITDA or Adjusted
EBITDA may not be comparable to methods used by other companies, and the
amount of EBITDA will not necessarily be the same as the amount of EBITDA as
calculated for purposes of the indenture governing the notes. The
calculation of Adjusted EBITDA is as follows:
<Table>
<Caption>
QUARTER ENDED
YEAR ENDED DECEMBER 31, --------------------
----------------------------------------- APRIL 1, MARCH 31,
1997 1998 1999 2000 2001 2001 2002
----- ----- ----- ----- ----- -------- ---------
EBITDA........................... $68.1 49.5 $27.4 $69.8 $47.6 $18.2 $10.5
Restructuring and other charges
(described in Note (a)
above)......................... 4.4 11.9 19.9 -- 1.5 -- --
----- ----- ----- ----- ----- ----- -----
Adjusted EBITDA.................. $72.5 $61.4 $47.4 $69.8 $49.1 $18.2 $10.5
===== ===== ===== ===== ===== ===== =====
</Table>
We believe that the adjustments to EBITDA to eliminate the effects of
restructuring and other unusual charges are appropriate for purposes of
supplemental analysis because they relate to isolated decisions and events,
a substantial portion of the charges did not require the use of cash, and
the presentation is intended to provide objective and meaningful information
about our cash flows and liquidity excluding the effects of these unusual
items.
(f) Earnings consist of income (loss) from continuing operations before income
taxes plus fixed charges. Fixed charges consist of interest expense
(including capitalized interest) on debt and amortization of deferred debt
issuance costs, and the portion of rental expense that we believe is
representative of the interest component of rental expense of approximately
$0.3 million for each of 1999, 2000 and 2001. The interest component of
rental expense was approximately $0.1 million for the quarters ended April
1, 2001 and March 31, 2002. For the year ended December 31, 1999, our
earnings were insufficient to cover our fixed charges by approximately $0.9
million.
(g) On a pro forma basis, the ratio of earnings to fixed charges would have been
1.2x and 1.1x for the year ended December 31, 2001 and for the quarter ended
March 31, 2002, respectively, had our average outstanding balance under our
former revolving credit facility during 2001 been refinanced from the
issuance of the Old Notes.
(h) Source: Metals Week.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our results of operations and financial
condition. This discussion should be read in conjunction with our financial
statements and related notes included elsewhere in this prospectus.
GENERAL
The following general factors should be considered in analyzing our results
of operations:
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We base this discussion and analysis of results of operations, cash flow
and financial condition on our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. When we prepare these financial statements, we make estimates and
judgments that affect the amounts of assets, liabilities, revenues and expenses
and related disclosure of contingent assets and liabilities that we report. On
an on-going basis, we evaluate our estimates, including those related to bad
debts, inventories, intangible assets, long-lived assets, income taxes,
restructuring reserves, pensions and other post-retirement benefits,
environmental and other contingencies and litigation. We consider market
conditions, customers' demand for our products, historical trends and various
other factors when we make judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates when different assumptions or conditions
are considered. We believe the critical accounting policies impacted by our more
significant judgments and estimates relate to inventory, long-lived assets,
income taxes and retirement and pension plans.
Inventory
We reduce the inventory that we report on our financial statements for
estimated obsolescence or unmarketable inventory. The amount of this reduction
is equal to the estimated market value of our inventory less the cost of our
inventory. We estimate market value based on assumptions about future demand and
market conditions.
During 2001, we changed our method of accounting for portions of raw
materials, work-in-process and finished goods inventories from the last-in,
first-out, or LIFO, method to the first-in, first-out, or FIFO, method. We
believe the FIFO method better matches costs of inventories with revenues
because copper prices have steadily declined since the mid 1990s, and the FIFO
method will result in better matching of costs of inventories with revenues. We
believe that the FIFO method also provides a more meaningful presentation of
financial position because it reflects more recent costs in our balance sheet.
Moreover, the change also conforms all of our raw materials, work-in-process and
finished goods inventories to a single costing method. We applied this change in
method of inventory costing retroactively by restating the prior years'
financial statements. This increased (decreased) previously reported net income
by $(0.7) million ($0.05 loss per diluted share) for 2001, $3.2 million ($0.26
per diluted share) for 2000, and $(0.2) million ($0.02 loss per diluted share)
for the quarter ended April 1, 2001. The impact on the consolidated statement of
income for the year ended December 31, 1999 was not material.
Long-lived assets
We estimate the depreciable lives of property, plant and equipment and
review them for impairment if events or changes in circumstances indicate that
we may not recover the carrying amount of an asset.
Assets held for sale include the net assets of our unoccupied Greenville,
Mississippi and Roxboro, North Carolina facilities. We have estimated the
carrying value for these assets based on their appraised value less estimated
costs to sell. Also included in assets held for sale is the net property, plant
and equipment of Wolverine Ratcliffs, Inc., whose operations we decided to
discontinue in 2001. We have
26
estimated the carrying value for these assets based on our estimates of the net
realizable value from the sale of these assets. Although we believe we have
appropriately reduced the carrying values of all assets held for sale to their
estimated recoverable amounts, net of disposal costs where appropriate, actual
results could be different and our result of operations in future periods could
reflect gains or losses on those assets.
We assess the recoverability of our goodwill and other intangibles by
estimating the fair value of these assets based on assumptions regarding
estimated future cash flows and other factors. If these estimates or their
related assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded.
Income taxes
We record the estimated future tax effects of temporary differences between
the tax bases of assets and liabilities and the amounts reported in our
consolidated balance sheets, as well as operating loss and tax credit carry
forwards. The carrying value of our net deferred tax liability reflects our
assumption that we will be able to generate sufficient future taxable income in
certain tax jurisdictions, particularly in Canada, to realize our deferred tax
assets. We considered carry back opportunities, reversing taxable temporary
differences, future taxable income and ongoing prudent and feasible tax planning
strategies when we assessed whether our deferred tax assets are realizable. If
our estimates and related assumptions regarding these factors change in the
future, we may be required to record a valuation allowance against a portion of
our deferred tax assets. This would result in additional income tax expense in
our consolidated statement of operations.
In addition, we operate within multiple taxing jurisdictions and are
subject to audit in these jurisdictions. These audits can involve complex
issues, which may require an extended period of time to resolve. We believe
adequate provision for income taxes has been made for any potential audits.
Retirement and pension plans
We account for our defined benefit pension plans in accordance with SFAS
No. 87, Employers' Accounting for Pensions, and we have significant pension
benefit costs and credits that are developed from actuarial valuations. Inherent
in these valuations are key assumptions including expected return on plan
assets, and we are required to consider current market conditions in selecting
these assumptions. In 2001, 2000 and 1999, we have assumed the expected
long-term rate of return on plan assets to be 9.5%. The plan assets have earned
a rate of return substantially less than 9.5% in 2001 and 2000. Should this
trend continue, we would be required to reconsider our assumed expected rate of
return on plan assets, and if we were to lower this rate, future pension costs
would likely increase.
COMPONENTS OF COST OF GOODS SOLD
The cost of raw materials, principally copper, is a substantial portion of
our cost of goods sold. The cost of raw materials, which fluctuates with the
markets for raw material, are generally passed along to our customers.
Accordingly, the rise and fall of copper prices and other metals affects the
levels of our net sales and costs of goods sold, even in the absence of
increases or decreases in business activity. The rise and fall of copper prices
impacts our gross margin, calculated as gross profit as a percentage of net
sales, but has little direct impact on our levels of gross profit.
VARIABILITY OF WHOLESALE PRODUCT GROSS PROFIT
Gross profit attributable to sales of our wholesale products has fluctuated
and may continue to fluctuate substantially from period to period. Gross profit
derived from the sale of wholesale products is mainly affected by changes in
selling prices. Selling prices for these products are affected principally by
general economic conditions, especially the rate of housing starts, industry
competition and manufacturing capacity, industry production levels and other
market factors. All of these factors are beyond our control.
27
IMPACT OF PRODUCT MIX
Our 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. Our overall profitability from period to period is affected by the
mix in sales within these categories. We have substantial sales in Canada, and
our product mix in that market, as compared to the U.S. market, reflects a much
higher percentage of our commodity-type products.
CYCLICAL AND SEASONAL NATURE OF DEMAND
Demand for our products, particularly our wholesale products, is cyclical
and is significantly affected by changes in general economic conditions that
affect our customers' markets. Demand in some industries to which we sell,
including the residential air conditioning industry and, to a lesser extent, the
commercial air conditioning industry, is also seasonal. Our sales to the
residential air conditioning market are generally greater in the first and
second quarters of the year and lower in the third and fourth quarters because
manufacturers typically increase inventories in the early part of the year in
anticipation of summer air conditioning sales and housing starts. In addition,
sales of industrial tube are adversely affected in years with unusually cool
summers.
DISCONTINUED OPERATIONS
In December 2001, we made the decision to discontinue the operations of
Wolverine Ratcliffs, Inc. As of December 31, 2001, we held a 74.5% ownership
interest in this business, which we jointly formed in 1999 with Ratcliff-Severn,
Ltd. We have subsequently acquired the remaining 25.5% interest in Wolverine
Ratcliffs, Inc. to facilitate the liquidation of the business. The business,
which was previously included in our rod bar, strip and other reportable
segments, produces both heavy-gauge and light-gauge copper and copper alloy
strip used primarily by automotive, hardware and electrical equipment
manufacturers. The strip business has been impacted by fundamental changes in
the marketplace, including aggressive foreign competition for heavy-gauge strip
and increasing preference by customers for extremely light-gauge strip, which
our facility is unable to produce efficiently without further substantial
capital investment. We determined that because of these changing market
conditions, the business was unlikely to produce an acceptable return on
investment and shareholder value would be enhanced by exiting this business. The
strip product line represented $48.9 million, or 7.7%, $79.9 million, or 11.4%,
and $60.2 million, or 9.3%, of our total sales for the years ended 2001, 2000
and 1999, respectively. We engaged a financial advisor to pursue opportunities
to dispose of the strip business. We have not been able to dispose of the
business as a going concern and thus have commenced liquidation of this business
with a targeted completion date of no later than December 31, 2002. Accordingly,
we have classified certain assets of the discontinued operations in the
consolidated balance sheets as of December 31, 2001 and 2000 and as of March 31,
2002 and April 1, 2001 as "assets held for sale" and have segregated the
operating results and cash flows of the discontinued operations in the
consolidated statements of operations and cash flows for the years ended
December 31, 2001, 2000 and 1999 and the three month periods ended March 31,
2002 and April 1, 2001.
We recorded a pretax loss from discontinued operations of $11.9 million or
$7.4 million after tax in 2001, pretax income of $1.3 million or $0.8 million
after tax in 2000, and pretax income of $2.1 million or $1.4 million after tax
in 1999. We recorded a pretax loss from the disposal of discontinued operations
of $31.5 million, or $23.9 million after tax, in 2001, which included a $2.5
million ($1.6 million after tax) provision for estimated losses during the
expected phase-out period. The loss on disposal of discontinued operations
assumes approximately $10.0 million of pretax proceeds from the realization or
sale of the assets of the business, net of our cash payments to settle the
liabilities of the discontinued operations. The expected loss on disposal of
Wolverine Ratcliffs, Inc. and the expected operating losses during the period
from January 1, 2002 through April 30, 2002, or the phase-out period, are based
on our best estimates of the most likely outcome, considering, among other
things, our knowledge of valuations of strip production assets. However, the
actual amounts ultimately realized on disposal and losses incurred during the
expected phase-out period could differ materially from the amounts assumed in
arriving at the loss on
28
disposal. To the extent actual results differ from our estimate, the difference
will be reported in discontinued operations in future periods.
RESULTS OF CONTINUING OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 2002 COMPARED TO THREE-MONTH PERIOD ENDED
APRIL 1, 2001
Consolidated net sales from continuing operations decreased by $34.9
million, or 20.2%, to $137.5 million for the first quarter ended March 31, 2002
from $172.4 million for the quarter ended April 1, 2001. Pounds shipped
decreased by 11.2 million pounds, or 12.9%, to 76.0 million in 2002 from 87.2
million in 2001. Sales decreased due to lower fabrication revenues, primarily
related to lower volumes of technical tube and industrial tube, a decrease in
average COMEX copper prices in 2002 as compared to 2001 and to a much lesser
extent, modest price decreases in each reporting segment. The average COMEX
copper price for the first quarter of 2002 was $0.72 per pound, as compared to
$0.82 per pound in the first quarter of 2001.
Pounds of commercial products shipped decreased by 10.5 million pounds, or
16.9%, to 51.7 million in the first quarter of 2002 from 62.3 million in the
first quarter of 2001. This decrease in shipments was primarily due to decreased
shipments of technical tube and industrial tube and to a lesser extent,
decreased shipments of fabricated products and alloy tube, all of which reflect
the impact of a slow economy. Sales of commercial products decreased $30.3
million, or 22.2%, to $106.4 million in the first quarter of 2002 from $136.6
million in 2001. This decrease in sales was attributable to decreased
fabrication revenues, primarily related to lower volumes of technical tube,
industrial tube and fabricated products, a decrease in average COMEX copper
prices in 2002 and to a much lesser extent, a change in mix of products and
modest price decreases. Gross profit from commercial products decreased by $6.3
million, or 34.2%, to $12.2 million in the first quarter of 2002 from $18.5
million in 2001, primarily attributable to decreases in volumes and to a much
lesser extent, an unfavorable mix of products and modest price decreases.
Pounds of wholesale products shipped increased by 1.3 million pounds, or
7.5%, to 18.5 million in the first quarter of 2002 from 17.2 million pounds in
2001. We believe that shipments were positively impacted by an increase in
housing starts due to low mortgage rates and a mild winter. Sales of wholesale
products decreased $1.5 million, or 6.3%, to $22.0 million in the first quarter
of 2002 from $23.5 million in 2001, due to pricing volatility for this commodity
product and lower average COMEX copper pricing in 2002. Gross profit from
wholesale products decreased $0.7 million, or 30.1%, to $1.6 million in the
first quarter of 2002 from $2.3 million in 2001, due to the decline in pricing
and to an increase in the relative amount of our fixed costs attributed to this
segment as sales volumes in other segments declined.
Pounds of rod, bar and other products shipped decreased by 2.0 million
pounds, or 25.6%, to 5.8 million in the first quarter of 2002 from 7.8 million
in 2001, primarily due to the negative impact of a slow economy on the heavy
industrial applications of rod and bar products. Sales of rod, bar and other
products decreased $3.1 million, or 25.5%, to $9.2 million in the first quarter
of 2002 from $12.3 million in 2001, reflecting decreased fabrication revenues
related to lower volumes and lower average COMEX copper pricing in 2002. Gross
profit from rod, bar and other products decreased $0.4 million, or 44.0%, to
$0.6 million in the first quarter of 2002 from $1.0 million in 2001, primarily
related to a decline in volume of rod and bar products shipped.
Consolidated gross profit decreased $7.4 million or 34.2% to $14.3 million
in the first quarter of 2002 from $21.8 million in 2001. Gross profit in 2002
decreased primarily due to lower shipments of technical tube, industrial tube
and fabricated products and to a much lesser extent, unfavorable mix changes and
price decreases. Our manufacturing costs per pound remained approximately the
same for both the first quarter of 2002 and 2001.
Consolidated selling, general and administrative expenses for the first
quarter of 2002 decreased by $0.2 million, or 1.9%, to $7.9 million, compared
with $8.1 million in 2001, while remaining approximately five percent of sales
for both the first quarter of 2002 and 2001. Excluding $0.6 million of
amortization of
29
goodwill in the first quarter of 2001, selling, general and administrative
expenses in the first quarter of 2001 were $7.5 million. Selling, general and
administrative expenses in the first quarter of 2002 include $0.5 million of
charges for professional fees pertaining to the industry-wide competition
related investigation.
Consolidated net interest expense was approximately $3.7 million for both
the first quarter of 2002 and 2001. During the first quarter of 2002 there was
an average of $97.3 million in outstanding borrowings under our revolving credit
facilities as compared to an average of $93.3 million during 2001. The average
interest rate under our revolving credit facilities was 4.9% in the first
quarter of 2002 versus 6.5% in 2001. On March 27, 2002, we obtained new
financing to replace our old revolving credit facility. We issued $120 million
in principal amount of the Old Notes and concurrently, we entered into a new
secured revolving credit facility providing for up to a $37.5 million line of
credit dependent on levels of and secured by our eligible accounts receivable
and inventory and subject to a $2.0 million excess availability requirement. As
a result of these new financing arrangements, we expect interest expense to
increase to approximately $6.0 million per quarter beginning in the second
quarter of 2002.
Amortization and other, net was $0.1 million of expense in the first
quarter of 2002, as compared to $0.1 million of income in the first quarter of
2001. Amortization and other, net in 2002 included $0.1 million of foreign
currency losses, as compared to $0.2 million of foreign currency gains in 2001.
These foreign currency gains and losses are largely attributable to fluctuations
in the Canadian to U.S. dollar exchange rate. Amortization and other, net in
2002 also included $0.2 million of income related to the administration and
collection of receivables sold to us by our discontinued operations.
Amortization expense was $0.2 million in the first quarter of 2002 as compared
to $0.1 million in the first quarter of 2001.
The effective tax rate for continuing operations for the first quarter of
2002 was 35.4%, as compared to 30.3% in 2001. Absent a $0.4 million
non-recurring tax benefit recorded by the Company for its Canadian operations in
the first quarter of 2001, the effective tax rate for the first quarter of 2001
would have been approximately 34.2%. The increase in the effective tax rate in
the first quarter of 2002 resulted from higher statutory tax rates in certain
tax jurisdictions. In particular, the tax rate for our operations in China
increased from 0% to 7.5% beginning January 1, 2002, reflecting our contractual
tax holiday agreement with the Chinese government. Under this agreement, the tax
rate will remain at 7.5% for the next three years, increasing in 2005 to a 15%
maximum.
YEAR ENDED DECEMBER 31, 2001, COMPARED WITH YEAR ENDED DECEMBER 31, 2000
Consolidated net sales from continuing operations decreased by $38.4
million, or 6.2%, to $583.1 million for the year ended December 31, 2001 from
$621.5 million for the year ended December 31, 2000. Pounds shipped decreased by
26.7 million pounds, or 8.0%, to 308.2 million in 2001 from 334.8 million in
2000. Sales decreased due to lower fabrication revenues, primarily related to
lower volumes of fabricated products, industrial tube and technical tube sold
and to a lesser extent the decrease in average COMEX copper prices in 2001 as
compared to 2000. These declines in sales were partially offset by sales from
the addition of our metal joining products business, or Wolverine Joining
Technologies, and sales generated by our distribution center in The Netherlands,
both of which we acquired in September 2000. The average COMEX copper price for
2001 was $0.73 per pound, as compared to $0.84 per pound in 2000.
Pounds of commercial products shipped decreased by 27.7 million pounds, or
11.6%, to 210.3 million in 2001 from 238.0 million in 2000. This decrease in
shipments was primarily due to decreased demand for industrial tube used in the
residential air conditioning industry, as well as decreased shipments of
fabricated products and technical tube, reflecting a weak economy and a
relatively cool summer in North America. Lower alloy tube shipments primarily
resulted from our product rationalization efforts to enhance the operating
results of this product by discontinuing some of our lower margin products.
Sales of commercial products decreased $43.2 million, or 8.9%, to $444.2 million
in 2001 from $487.4 million in 2000. This decrease in sales was attributable to
decreased fabrication revenues, primarily related to lower
30
volumes of fabricated products, industrial tube, technical tube and alloy tube
and lower average COMEX copper prices in 2001. The decrease in sales was
partially offset by the addition of sales of metal joining products for the full
year of 2001 as compared to sales of metal joining products for only the last
quarter of 2000. Gross profit from commercial products decreased by $19.8
million, or 28.4%, to $50.1 million in 2001 from $70.0 million in 2000.
Excluding the effect of $1.4 million of charges recorded in 2001 related to the
write-down of slow-moving or obsolete inventory, gross profit for commercial
products decreased by $18.5 million, or 26.4%, to $51.5 million in 2001 from
$70.0 million in 2000. The decrease in gross profit for commercial products was
primarily attributable to decreased shipments of fabricated products, technical
tube and industrial tube.
Pounds of wholesale products shipped increased by 8.5 million pounds, or
12.5%, to 76.3 million in 2001 from 67.8 million in 2000. We believe that
shipments were positively impacted by an increase in housing starts and lower
interest rates. Sales of wholesale products remained basically flat, increasing
$0.6 million, or 0.6%, to $97.6 million in 2001 from $97.0 million in 2000,
reflecting aggressive and competitive pricing as well as lower average COMEX
copper pricing in 2001. Gross profit from wholesale products decreased $3.3
million, or 26.2%, to $9.3 million in 2001 from $12.6 million in 2000, due to an
increase in the relative amount of our fixed costs attributed to this segment as
sales volumes in other segments declined.
Pounds of rod, bar and other products shipped decreased by 7.4 million
pounds, or 25.7%, to 21.5 million in 2001 from 29.0 million in 2000, primarily
due to the weak economy which had a particularly negative impact on the heavy
industrial applications of rod and bar products. Sales of rod, bar and other
products increased $4.3 million, or 11.6%, to $41.3 million in 2001 from $37.1
million in 2000. Sales increased approximately $15.0 million due to sales
generated by our distribution center in The Netherlands. This increase in sales
was partially offset by a decrease in fabrication revenues for rod and bar
products due to competitive pricing and a decrease in average COMEX copper
pricing in 2001. Gross profit from rod, bar and other products increased $0.3
million, or 11.5%, to $2.8 million in 2001 from $2.5 million in 2000, due to the
operating results of the distribution center in The Netherlands offset by a
decline in the volume of rod and bar products shipped.
Consolidated gross profit decreased $22.9 million, or 26.9%, to $62.2
million in 2001 from $85.1 million in 2000. In 2001, unusual charges of $1.4
million were recognized in cost of goods sold. These charges related to realized
and anticipated reductions in demand for our products and were for the
write-down of slow-moving or obsolete inventory. Excluding the effect of these
charges, consolidated gross profit decreased $21.5 million, or 25.3%, to $63.6
million in 2001 from $85.1 million in 2000. Gross profit in 2001 decreased
primarily due to lower shipments of fabricated products, technical tube and
industrial tube. Additionally, gross profit was negatively impacted by
approximately $3.4 million of higher healthcare costs and by approximately $3.4
million in higher energy costs for 2001.
Consolidated selling, general and administrative expenses for the year
ended December 31, 2001 remained relatively flat, increasing by $0.3 million, or
0.9%, to $32.3 million, from $32.0 million in 2000. Consolidated selling,
general and administrative expenses were approximately five percent of sales for
both 2001 and 2000. Excluding the selling, general and administrative expenses
of Wolverine Joining Technologies and the distribution center in The
Netherlands, both of which we acquired in September 2000, selling, general and
administrative expenses decreased approximately 6.0% or $1.9 million, primarily
due to a $1.5 million reduction in incentive compensation, partially offset by a
$1.0 million increase in legal expenses.
Operating income from continuing operations decreased $24.8 million to
$28.4 million for the year ended December 31, 2001, from $53.2 million in 2000.
In 2001, restructuring and other charges of $1.5 million were recognized, as
described in the "Restructuring and Other Charges" section below, as well as the
previously described $1.4 million of unusual charges that were recognized in
cost of goods sold. Excluding the effect of the unusual charges to cost of goods
sold and restructuring and other charges recorded in 2001, income from
continuing operations decreased 41.0% to $31.4 million in 2001 from $53.2
million in 2000.
31
Consolidated net interest expense increased $0.9 million to $13.1 million
in 2001 from $12.2 million in 2000. There was an average of $86.7 million in
outstanding borrowings and obligations under our former revolving credit
facility during 2001 as compared to an average of $46.7 million during 2000.
This increase was attributable to the funding of our capital programs as well as
our acquisition of Wolverine Joining Technologies in September 2000. The average
interest rate under our former revolving credit facility was 5.5% for 2001
versus 7.0% for 2000. Interest expense in 2001 is net of interest income of $0.6
million and capitalized interest of $1.1 million, and interest expense in 2000
is net of interest income of $1.2 million and capitalized interest of $1.3
million. Interest expense also is net of interest allocated to the discontinued
operations of Wolverine Ratcliffs, Inc., which was $1.3 million in 2001 and $0.5
million in 2000.
Amortization and other, net was $0.4 million of income in 2001, as compared
to $0.4 million of expense in 2000. Amortization and other, net in 2001 included
$0.5 million of foreign currency gains, as compared to $0.1 million of foreign
currency gains in 2000. These foreign currency gains are largely attributable to
fluctuations in the Canadian to U.S. dollar exchange rate. Amortization and
other, net in 2001 also included $0.6 million of income related to the
administration and collection of receivables sold to us by our discontinued
operations. Amortization expense was $0.7 million in 2001, as compared to $0.4
million in 2000.
The effective tax rate for continuing operations for 2001 was 27.5%, as
compared to 36.1% in 2000. Excluding the effect of a $0.4 million non-recurring
tax benefit that we recorded for our Canadian operations in the first quarter of
2001 and a tax benefit of $1.1 million resulting from the recognition of charges
in cost of goods sold and restructuring and other charges, the effective tax
rate applicable to continuing operations would have been 31.3% in 2001, as
compared to 36.1% in 2000. The decrease in the effective tax rate in 2001
resulted from more income from foreign tax jurisdictions, which had lower
statutory tax rates.
Consolidated income from continuing operations in 2001 decreased by $14.5
million to $11.4 million, or $0.91 per diluted share, from $25.9 million, or
$2.08 per diluted share, in 2000. Excluding the unusual charges totaling $2.9
million or $1.8 million net of tax that we recognized in 2001, consolidated
income and diluted earnings per share from continuing operations for 2001 was
$13.3 million or $1.05 per diluted share.
YEAR ENDED DECEMBER 31, 2000, COMPARED WITH YEAR ENDED DECEMBER 31, 1999
Consolidated net sales from continuing operations increased by $35.3
million, or 6.0%, to $621.5 million for the year ended December 31, 2000, from
net sales of $586.2 million in 1999. Pounds shipped decreased 3.7 million
pounds, or 1.1%, to 334.8 million in 2000 from 338.6 million in 1999 due to a
significant decline in wholesale product shipments. Sales increased as a result
of a richer mix of products sold, which included increased fabrication revenues
for technical tube and industrial tube, the addition of sales of metal joining
products and to a lesser extent the increase in average COMEX copper prices in
2000 as compared to 1999. The average COMEX copper price increased by $0.12 per
pound to $0.84 per pound in 2000, from $0.72 per pound in 1999.
Pounds of commercial products shipped increased by 13.3 million pounds, or
5.9%, to 238.0 million in 2000 from 224.7 million in 1999. This increase in
shipments was primarily due to increased volumes of technical tube used in the
commercial air conditioning industry and industrial tube used in the residential
air conditioning industry. Sales of commercial products increased $50.7 million,
or 11.6%, to $487.4 million in 2000 from $436.7 million in 1999. The increase in
sales was attributable to increased fabrication revenues for technical and
industrial tube resulting primarily from higher volumes, as well as the addition
of sales of metal joining products, namely brazing alloys, fluxes and solders.
Higher average COMEX copper pricing in 2000 increased sales. Gross profit from
commercial products increased by $19.5 million, or 38.7%, to $70.0 million in
2000 from $50.4 million in 1999. Excluding the effect of $4.2 million of charges
recorded in 1999 related to the write-down of inventory and other assets, gross
profit increased by $15.4 million, or 28.2%, to $70.0 million in 2000 from $54.6
million in 1999. The increase in gross profit
32
from commercial products was primarily attributable to the increased volumes of
technical and industrial tube sold as well as the addition of sales of metal
joining products.
Pounds of wholesale products shipped decreased by 19.6 million pounds, or
22.4%, to 67.8 million in 2000 from 87.5 million in 1999. We believe that
shipments in 2000 were negatively impacted by higher interest rates, which
caused a slowdown in the residential construction markets in both the United
States and Canada. This adversely affected both demand and pricing for wholesale
products. Sales of wholesale products decreased $21.8 million, or 18.4%, to
$97.0 million in 2000 from $118.8 million in 1999, reflecting lower shipments
and pricing, partially offset by higher average COMEX copper pricing in 2000.
Gross profit from wholesale products increased $0.4 million, or 3.2%, to $12.6
million in 2000 from $12.2 million in 1999. Excluding the effect of $1.2 million
of charges recorded in 1999 related to the write-down of inventory and other
assets, gross profit decreased $0.8 million, or 5.8%, to $12.6 million in 2000
from $13.4 million in 1999.
Pounds of rod, bar and other products shipped increased 2.6 million pounds,
or 9.8%, to 29.0 million in 2000 from 26.4 million in 1999. Sales of rod, bar
and other products increased $6.4 million, or 20.9%, to $37.1 million in 2000
from $30.7 million in 1999. The increase in sales was attributable to the
increased fabrication revenues due primarily to an increase in shipments as well
as higher average COMEX copper pricing in 2000. Gross profit from rod, bar and
other products increased $1.6 million to $2.5 million in 2000 from $0.9 million
in 1999. This improvement in gross profit was due primarily to increased volumes
of rod and bar products sold and cost reductions in the manufacture of these
products.
Consolidated gross profit increased $21.5 million, or 33.8%, to $85.1
million in 2000 from $63.6 million in 1999. In 1999, we recognized unusual
charges of $5.4 million (as restated) in cost of goods sold. These charges
primarily consisted of $3.7 million related to obsolete inventory, $0.8 million
net book value of idled and obsolete machinery and equipment and $0.9 million of
other charges related to the realignment of our manufacturing operations.
Excluding the effect of these charges, as adjusted, consolidated gross profit
increased $16.1 million, or 23.4%, to $85.1 million in 2000 from $69.0 million
in 1999. We were able to largely offset overall cost increases in 2000 through
our cost reduction efforts and capital improvement programs, but gross profit in
2000 was negatively impacted by higher energy and transportation costs of $1.9
million and higher employee healthcare costs of $0.8 million.
Consolidated selling, general and administrative expenses increased $1.7
million, or 5.4%, to $32.0 million for the year ended December 31, 2000, from
$30.3 million in 1999. This increase was primarily the result of increased
employee compensation expenses relating to performance incentives and relocation
costs of approximately $1.3 million and approximately $0.6 million of costs due
to the addition of Wolverine Joining Technologies in the fourth quarter of 2000.
Operating income from continuing operations increased $39.8 million to
$53.2 million for the year ended December 31, 2000, from $13.4 million in 1999.
In 1999, restructuring and other charges of $19.9 million were recognized, as
described in the "Restructuring and Other Charges" section below, as well as the
previously described $5.4 million of charges that were recognized in cost of
goods sold. Excluding the effect of the unusual charges recorded in 1999, income
from operations increased $14.5 million, or 37.5%, to $53.2 million in 2000 from
$38.7 million in 1999.
Consolidated net interest expense was $12.2 million in both 2000 and 1999.
There were an average of $46.7 million in outstanding borrowings and obligations
under our former revolving credit facility during 2000 as compared to an average
of $52.2 million during 1999. Interest expense in 2000 is net of interest income
of $1.2 million and capitalized interest of $1.3 million and interest expense in
1999 is net of interest income of $2.9 million and capitalized interest of $0.3
million. The average interest rate under our former revolving credit facility
was 7.0% for 2000 versus 8.6% for 1999. Interest expense is also net of interest
income from loans to the discontinued operations of Wolverine Ratcliffs, Inc.
which was $0.5 million in 2000 and $0.2 million in 1999.
Amortization and other, net was $0.4 million in 2000, as compared to $1.7
million in 1999. Amortization and other, net included $0.1 million of foreign
currency gains, as compared to a $1.0 million
33
foreign currency loss in 1999. These foreign currency gains and losses are
largely attributable to fluctuations in the Canadian to U.S. dollar exchange
rate.
For the year ended December 31,1999, we recognized a tax benefit of $9.6
million resulting from the recognition of unusual charges recorded in 1999.
Excluding the effect of the tax benefit and the related unusual charges, the
effective tax rate for continuing operations would have been 36.1% in 2000 and
34.7% in 1999.
Consolidated income from continuing operations increased by $25.5 million
to $25.9 million, or $2.08 per diluted share, from $0.4 million, or $0.01 per
diluted share, in 1999. Excluding the unusual charges of $25.3 million or $15.8
million after tax in 1999, income from continuing operations for 1999 was $16.2
million and diluted earnings per share from continuing operations for 1999 were
$1.20.
RESTRUCTURING AND OTHER CHARGES
2001 RESTRUCTURING AND OTHER CHARGES
During the third quarter of 2001, we recognized restructuring and other
charges of $1.5 million or $1.0 million net of tax. We accrued and charged to
expense $1.1 million for severance benefits for approximately 40 salaried and
hourly employees. We offered a voluntary separation program to employees at
several of our facilities due to lack of demand for these facilities' products,
the criteria for which were dependent on the employee's age, job duties and
years of service. We separated these employees to reduce costs because we
anticipated continued weakness in sales volumes and mix and reductions in
capacity utilization. We also accrued and charged to expense a $0.2 million
write-off of impaired assets and an additional $0.2 million write-off related to
a previously closed facility. As of December 31, 2001, we had separated 40
employees and we believe the accrued restructuring costs of $0.3 million as of
December 31, 2001 represent our remaining cash obligations. We expect to realize
approximately $2.1 million or $1.3 million after taxes in reduced salary and
related expenses per year as a result of the restructuring.
1999 RESTRUCTURING AND OTHER CHARGES
In 1999, we recognized restructuring and other charges of $19.9 million or
$12.5 million net of tax. These charges included:
- $10.0 million in expenses relating to the announced closing of our
Roxboro, North Carolina facility completed in June 2000, of which $8.6
million related to the write-down of impaired assets;
- $2.8 million related to the implementation of an indirect workforce
reduction program of approximately 100 employees;
- $3.6 million related to the write-off of impaired assets caused when
relocated machinery from Roxboro displaced existing equipment and
necessitated changes in production;
- $1.9 million in expenses related to previously closed facilities, 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.
From October 1999 through December 31, 2001, we paid approximately $4.9
million in cash related to the restructuring. We believe the accrued
restructuring costs of $0.1 million as of December 31, 2001 represent our
remaining obligations. See Note 18 of the Notes to Consolidated Financial
Statements.
During the third quarter of 1999, we implemented an indirect workforce
reduction program affecting approximately 100 employees. Each terminated
employee's severance pay was, in general, calculated in accordance with our
severance pay 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. At the end of the fourth quarter
34
of 1999, the implementation of the indirect workforce reduction program was
substantially complete. We realized cost savings of approximately $2.5 million
in reduced salary and related expenses in 2000 as a result of this workforce
reduction. 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 were $2.1 million in severance and
vacation pay and $0.7 million in increased post-retirement medical and life
insurance benefits.
START-UP COSTS
Effective January 1, 1999, we adopted Statement of Position 98-5, Reporting
on the Costs of Start-Up Activities, or SOP 98-5, as issued by the American
Institute of Certified Public Accountants, which requires that pre-operating
costs related to start-up activities be expensed as incurred. In accordance with
the provisions of SOP 98-5, we recognized a charge for the cumulative effect of
a change in accounting principle of $8.0 million or $5.8 million after taxes.
The implementation of SOP 98-5 required us to write off the remaining deferred
start-up costs relating primarily to our Roxboro, North Carolina; Jackson,
Tennessee; and Shanghai, China facilities.
Prior to January 1, 1999, we capitalized pre-operating costs related to the
start-up of new operations to the extent that these costs:
(i) could be separately identified and segregated from ordinary period
costs;
(ii) provided a quantifiable benefit to a future period; and
(iii) were directly attributable to the quantifiable benefit within a
relatively short period of time after the costs were incurred.
These costs were comprised of expenditures such as payroll, travel and
other costs incurred during the pre-operating period. The pre-operating period
was defined as the period prior to the commencement of production. These
capitalized costs were generally being amortized on a straight-line basis over a
five-year period.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of our liquidity for the first quarter ended March 31,
2002 were cash on hand at the beginning of the year, $118.5 million from the
issuance of the Old Notes and $5.0 million of borrowings under our new secured
revolving credit facility. We issued the Old Notes and entered into the new
secured revolving credit facility on March 27, 2002 to replace our old revolving
credit facility. The primary uses of our funds for the first quarter of 2002
were $96.2 million to repay our old revolving credit facility, $6.8 million of
financing fees related to the issuance of the Old Notes and new secured
revolving credit facility, $11.2 million for continuing operations, $1.9 million
for investments in our property, plant and equipment and $1.0 million related to
the mandatory redemption of our preferred stock. The primary sources of our
liquidity for the first quarter ended April 1, 2001 were cash on hand at the
beginning of the year and borrowings under our former revolving credit facility.
The primary uses of our funds for the first quarter of 2001 were for investments
in our property, plant and equipment and Wolverine Ratcliffs, Inc., discontinued
in the fourth quarter of 2001.
The primary sources of our liquidity for the years ended December 31, 2001,
2000 and 1999 were cash provided from continuing operating activities, cash on
hand at the beginning of each year and borrowings under our former revolving
credit facility. The primary uses of our funds were for investments in our
property, plant and equipment in 2001, 2000 and 1999, the discontinued
operations of Wolverine Ratcliffs, Inc., the acquisition of Wolverine Joining
Technologies in 2000 and the repurchase of 1.4 million shares of our common
stock in 1999 and 2000.
Net cash used by continuing operating activities was $11.2 million for the
first quarter of 2002 and $0.8 million for the first quarter of 2001. We
participate in a seasonal business which typically produces greater sales in the
first and second quarters compared to the second half of the year, and thus we
tend to
35
use cash in the first part of the year and generate cash in the latter part of
the year. The net reduction in operating cash flows in the first quarter of 2002
was primarily the result of less income in 2002, $7.3 million of income tax
refunds received in 2001 and a reduction in accounts payable in 2002 relative to
2001. As a result of the slow economy, we experienced less favorable terms for
accounts payable in 2002, principally from our metal vendors.
Net cash provided by continuing operating activities totaled $26.6 million
for 2001, $46.6 million for 2000 and $16.0 million for 1999. The net reduction
in operating cash flows in 2001 was primarily the result of less income in 2001
as compared to 2000 offset by the reduction in accounts receivable and accounts
payable in 2001 relative to 2000. In 2000, improved earnings as compared to 1999
contributed to stronger reported operating cash flows.
As of December 31, 2001, our former revolving credit facility was scheduled
to mature on April 30, 2002. Our former revolving credit facility originally
provided for a $200.0 million line of credit and a floating base interest rate
that was LIBOR plus a specified margin of 0.25% to 1.00%. On August 8, 2001, we
and our lenders agreed to amend and waive some of the financial covenants under
our former revolving credit facility and to increase our former revolving credit
facility's floating base interest rate to LIBOR plus a margin ranging from 0.75%
to 2.00% for the second half of 2001.
On February 4, 2002, we and our lenders executed a limited waiver, another
amendment to our former revolving credit facility's credit agreement and a
security agreement. Under the terms of these documents, the lenders waived
compliance with the financial covenants contained in our former revolving credit
facility from December 31, 2001 through April 16, 2002, and we agreed to limit
borrowings under our former revolving credit facility to an aggregate amount of
$130.0 million, limit some of our non-operating activities, adjust the floating
base interest rate on our former revolving credit facility to LIBOR plus 3.00%
and grant a security interest in all our U.S. accounts receivable and inventory
to secure all new borrowings under our former revolving credit facility after
the date of the limited waiver.
On February 28, 2002, we and our lenders executed a limited waiver of
certain terms of the credit agreement governing our former revolving credit
facility. Under the terms of the waiver, the lenders waived our compliance with
certain financial reporting and letter of credit requirements set forth in the
credit agreement.
As of December 31, 2001, we had approximately $103.0 million in outstanding
borrowings and off-balance sheet obligations (consisting of standby letters of
credit) and approximately $27.0 million in additional borrowing capacity
available under our former revolving credit facility. As of December 31, 2000,
we had approximately $85.0 million in outstanding borrowings and off-balance
sheet obligations (consisting of standby letters of credit) and approximately
$115.0 million in additional borrowing capacity available under our former
revolving credit facility.
On March 27, 2002, we obtained new financing agreements to replace our
former revolving credit facility. We issued $120 million in principal amount of
our Old Notes pursuant to an Indenture, dated as of March 27, 2002, between us
and Wachovia Bank, National Association (successor to First Union National
Bank), as Trustee. The Old Notes (i) have interest payment dates of April 1 and
October 1 of each year; (ii) are redeemable after the dates and at the prices
(expressed in percentages of principal amount on the redemption date), as set
forth below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
April 1, 2006............................................... 105.250%
April 1, 2007............................................... 102.625%
April 1, 2008 and thereafter................................ 100.000%
</Table>
(iii) are senior unsecured obligations and are senior in right of payment to any
of our future subordinated obligations; and (iv) are subject to the terms of the
Indenture, which contain certain covenants that limit our ability to incur
additional indebtedness, make certain restricted payments and dispose of certain
assets.
36
We also entered into a new secured revolving credit facility concurrently
with the closing of the offering of the Old Notes. The new secured revolving
credit facility provides for up to a $37.5 million line of credit dependent on
the levels of and secured by our eligible accounts receivable and inventory. The
new secured revolving credit facility provides for interest at the Eurodollar
rate plus 2.5% or the U.S. base rate plus 1%. Commitment fees on the unused
available portion of the facility are 0.5%. The new secured revolving credit
facility matures on March 27, 2005. As of March 31, 2002, we had approximately
$9.1 million in outstanding borrowings and off-balance sheet obligations
(consisting of standby letters of credit) under the new secured revolving credit
facility and approximately $28.4 million (subject to a $2.0 million excess
availability requirement) in additional borrowing availability thereunder. With
our new financing in place and with anticipated cash flow from our continuing
operations, we believe that we will be able to satisfy our existing working
capital needs, interest obligations and capital expenditure requirements.
Because we used proceeds from our new long-term financing agreements to
refinance the current maturities on our former revolving credit facility, we
have reclassified all outstanding borrowings under the former facility as
non-current in our consolidated balance sheet as of December 31, 2001. See Note
8 of the Notes to Consolidated Financial Statements.
We have summarized below our payment obligations under the terms of our
existing contracts and commercial commitments as of December 31, 2001:
<Table>
<Caption>
PAYMENTS DUE OR COMMITMENTS EXPIRING IN PERIOD:
-------------------------------------------------------
AFTER
2002 2003 2004 2005 2005 TOTAL
------ ------ ------ ------ -------- --------
(IN THOUSANDS)
Contractual obligations:
Short-term debt............. $1,684 $ -- $ -- $ -- $ -- $ 1,684
Long-term debt.............. -- -- -- -- 247,906 247,906
Operating leases............ 2,459 2,110 1,573 1,548 2,655 10,345
Commitments for capital
expenditures............. 2,306 -- -- -- -- 2,306
------ ------ ------ ------ -------- --------
Total contractual
obligations................. $6,449 $2,110 $1,573 $1,548 $250,561 $262,241
====== ====== ====== ====== ======== ========
Other commercial commitments:
Standby letters of credit... $5,450 -- -- -- -- $ 5,450
====== ====== ====== ====== ======== ========
</Table>
Capital expenditures for continuing operations were $1.9 million in the
first quarter of 2002 as compared to $11.4 million in the first quarter of 2001,
primarily due to decreased spending under our capital improvement program,
Project 21. Capital expenditures for continuing operations were $27.6 million in
2001, $31.7 million in 2000 and $23.1 million in 1999. We currently expect to
spend approximately $15.0 to $17.0 million for capital items in 2002. Our
capital expenditures include asset replacement, environmental compliance and
asset improvement items.
Over the period from 1999 to 2000, we purchased 1,395,700 shares of our
outstanding common stock in the open market for a total of $22.8 million. The
impact on net diluted earnings per share of purchasing the shares, based on the
weighted average borrowing rate under our former revolving credit facility and
the effective U.S. tax rate of each year, is a favorable per share impact of
$0.04 for 2001 and $0.20 for 2000. In 1999, income per diluted common share
decreased by an additional $0.09 per share. Under the stock repurchase program
approved by our board of directors on April 6, 2000 and extended on February 23,
2001, we were authorized to purchase an additional 820,100 shares of our stock
through the period ending March 31, 2002. This stock repurchase program expired
and was not renewed.
The ratio of current assets to current liabilities was 4.2 at March 31,
2002 and 3.3 at April 1, 2001. The ratio of current assets to current
liabilities was 3.3 in 2001, 3.1 in 2000 and 3.1 in 1999, in each case
calculated as of December 31.
37
SENIOR NOTES DUE 2008
In August 1998, we issued $150.0 million in principal amount of our 7 3/8%
Senior Notes. Our 7 3/8% Senior Notes were issued pursuant to an indenture,
dated as of August 4, 1998, between us and Wachovia Bank, National Association
(successor to First Union National Bank), as trustee. We used the net proceeds
from the sale of our 7 3/8% Senior Notes to reduce borrowings by approximately
$58.0 million under our former revolving credit facility. We used the remaining
net proceeds for capital expenditures, working capital and other general
corporate purposes. Our 7 3/8% Senior Notes:
- have interest payment dates on February 1 and August 1 of each year,
which commenced February 1, 1999;
- are redeemable at our option at a redemption price equal to the greater
of (a) 100% of the principal amount of our 7 3/8 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 semi annual
basis at the Treasury Rate plus 25 basis points, plus, in each case,
accrued interest thereon to the date of redemption;
- are our senior unsecured obligations and are equal priority in right of
payment with any of our existing and future senior unsecured
indebtedness;
- are guaranteed by our subsidiaries, all of which are also guarantors
under the Old Notes issued in March 2002;
- are subject to the terms of the indenture governing our 7 3/8% Senior
Notes, which contains certain covenants that limit our ability to incur
indebtedness secured by certain liens and to engage in sale/leaseback
transactions.
MARKET RISKS
We are 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. We do not enter
into derivatives or other financial instruments for trading or speculative
purposes. In the ordinary course of business, we enter into various types of
transactions involving financial instruments to manage and reduce the impact of
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 our total long-term fixed interest rate debt as of March
31, 2002 was $249 million, versus a carrying value of $268 million. A 1%
increase from prevailing interest rates would result in a decrease in fair value
of this debt by approximately $12 million as of March 31, 2002. The estimated
fair value of our total long-term fixed interest rate debt as of December 31,
2001 was $127.5 million, as compared to $130.4 million as of December 31, 2000.
A 1% increase from prevailing interest rates would result in a decrease in fair
value of this debt by approximately $6.1 million as of December 31, 2001 and
$7.0 million as of December 31, 2000.
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. The annual pretax earnings and
cash flow impact resulting from a 1% increase in interest rates based on the
amount of outstanding variable interest rate debt and the interest rates in
effect as of March 31, 2002 would be approximately $0.1 million. The annual
pretax earnings and cash flow impact resulting from a 1% increase in interest
rates based on the amount of outstanding variable interest rate debt and the
interest rates in effect as of December 31, 2001 would be approximately $1.0
million.
38
COMMODITY PRICE RISK
In connection with the sale of some raw materials, principally copper, we
have entered into commodity forward contracts as we deemed appropriate to reduce
the risk of price increases with respect to both firm price sale commitments and
anticipated sales. These forward contracts are accounted for in accordance with
SFAS No. 133 (subsequently amended by SFAS No. 137 and 138), Accounting For
Derivative Instruments and Hedging Activities. As of March 31, 2002, we had
entered into contracts hedging the raw material requirements for committed and
anticipated future sales through December 2003 having a notional value of $37.0
million. The estimated fair value of these outstanding contracts was
approximately $2.1 million as of March 31, 2002. A 10% adverse change in
commodity prices would decrease the estimated fair value of these outstanding
contracts by $3.9 million at March 31, 2002.
As of December 31, 2001, we had entered into contracts hedging the raw
material requirements for committed and anticipated future sales through
December 2003 having a notional value of $46.1 million. As of December 31, 2000,
we had entered into contracts hedging the raw material requirements for
committed and anticipated future sales through December 2001 having a notional
value of $32.7 million. The estimated fair value of these outstanding contracts
was approximately $3.9 million as of December 31, 2001 and $0.9 million as of
December 31, 2000. A 10.0% adverse change in commodity prices would decrease the
estimated fair value of these outstanding contracts by $4.2 million and $3.2
million at December 31, 2001 and December 31, 2000, respectively.
In connection with the purchase of natural gas, we have entered into
commodity futures contracts for natural gas to reduce our risk of future price
increases. These contracts are accounted for in accordance with SFAS No. 133 and
accordingly, realized gains and losses are recognized when the hedged natural
gas purchases occur and are recognized in cost of goods sold. Unrealized gains
and losses are recognized as a component of other comprehensive income. As of
March 31, 2002, we had commodity futures contracts to purchase natural gas for
the period May 2002 through December 2002 with a carrying amount of $1.3 million
and an unrealized gain of $0.3 million, based on futures prices as of March 31,
2002. The effect of a 10% adverse change in commodity prices as of March 31,
2002 for these futures contracts would result in a potential loss in fair value
of approximately $0.2 million.
As of December 31, 2001, we had commodity futures contracts to purchase
natural gas for the period February 2002 through October 2002 with a carrying
amount of $1.4 million and an unrealized loss of $0.2 million, based on futures
prices as of December 31, 2001. As of December 31, 2000, we had commodity
options to purchase natural gas for the period January 2001 through March 2001
with an open position of $0.3 million and an unrealized gain of $0.2 million,
based on futures prices as of December 31, 2000. The effect of a 10.0% adverse
change in commodity prices as of December 31, 2001 for these futures contracts
would result in a potential loss in fair value of approximately $0.1 million.
FOREIGN CURRENCY RISK
Some of our operations use foreign exchange forwards to hedge fixed
purchase and sales commitments denominated in a foreign currency. Our foreign
currency exposures relate primarily to nonfunctional currency assets and
liabilities denominated in euros and British pounds.
We do not enter into forward exchange contracts for trading purposes.
Realized gains and losses on the contracts are included in other income and
expense. We mitigate the risk that the parties with whom we enter into these
over-the-counter agreements will fail to perform by only entering into
agreements with major international financial institutions.
As of March 31, 2002, we had forward exchange contracts outstanding to
purchase foreign currency with a notional amount of $1.0 million and to sell
foreign currency with a notional amount of $0.8 million. As of March 31, 2002,
we had an unrealized gain of $8,800 associated with these forward contracts. The
potential loss in fair value for these forward contracts from a hypothetical
10.0% adverse change in quoted foreign currency exchange rates would be
approximately $0.2 million.
39
As of December 31, 2001, we had forward exchange contracts outstanding to
purchase foreign currency with a notional amount of $1.4 million and to sell
foreign currency with a notional amount of $1.0 million. As of December 31,
2001, we had an unrealized loss of $9,334 associated with these forward
contracts. The potential loss in fair value for these forward contracts from a
hypothetical 10.0% adverse change in quoted foreign currency exchange rates
would be approximately $0.2 million. As of December 31, 2000, we had forward
exchange contracts outstanding to purchase foreign currency with a notional
amount of $3.2 million and to sell foreign currency with a notional amount of
$1.9 million. As of December 31, 2000, we had an unrealized loss of $16,800
associated with these forward contracts. The potential loss in fair value for
these forward contracts from a hypothetical 10.0% adverse change in quoted
foreign currency exchange rates would be approximately $0.5 million.
ENVIRONMENTAL
Our facilities and operations are subject to extensive environmental laws
and regulations. During the three months ended March 31, 2002, we spent
approximately $0.1 million on environmental matters, which included remediation
costs, monitoring costs, and legal and other costs. During the year ended
December 31, 2001, we spent approximately $0.4 million on environmental matters,
which include remediation costs, monitoring costs and legal and other costs. As
of March 31, 2002, we had a reserve of $1.8 million for environmental
remediation costs which is reflected in our Condensed Consolidated Balance
Sheet. We have approved and intend to spend $0.9 million for capital
expenditures relating to environmental matters during 2002. Based on currently
available information, we believe that the costs of the environmental matters
described below are not reasonably likely to have a material adverse effect on
our business, financial condition or results of operations.
OKLAHOMA CITY, OKLAHOMA
We are one of a number of Potentially Responsible Parties, commonly
referred to as PRPs, named by the United States Environmental Protection Agency,
commonly referred to as 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 PRPs, because the site owner has filed for bankruptcy protection.
In March 1993, twenty-three PRPs named with respect to the soil and groundwater
contamination of the site, including us, submitted a settlement offer to the
EPA. On June 15, 2001, we received a final proposed Administrative Order on
Consent from the EPA. On July 30, 2001, we agreed to this order with the EPA and
submitted the required documentation. The order provides for each PRP's
liability to be limited to a pro rata share of an aggregate amount based on the
EPA's worst-case cost scenario to remediate the site. On April 30, 2002 we were
notified that the EPA had concluded the matter and we paid a $0.4 million
settlement on June 12, 2002, completely satisfying our obligations with regard
to this matter.
DECATUR, ALABAMA
In 1999, we negotiated a new Consent Order under Section 3008(h) of the
Resource Conservation and Recovery Act. This order incorporated the Corrective
Measures Study, commonly referred to as the CMS, 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 proposed
current monitoring and site maintenance. Part of the ground water contamination
plume is underneath a section of property not owned by us. There are monitoring
wells and recovery wells on this property. However, these wells have not been
activated because the level of contamination currently is below regulated
levels. To date, we have not received or been threatened by any claim from the
owner of this property. If the owner of this property does make a claim, we
could incur additional costs.
On May 31, 2001, the EPA ordered modifications to the previously approved
CMS and operations and maintenance plan to include continued monitoring of the
burial site and the development of a contingency plan if contamination is
detected. In addition, the EPA requested that we have a deed restriction placed
on the burial site area to restrict any future development. We filed a deed
restriction on
40
4.35 acres of the 165 acre manufacturing facility site in February 2002. The
cost to us to comply with the CMS, as currently approved, is not expected to
have an adverse effect on our business, financial condition or results of
operations.
In July of 2000, we notified the Alabama Department of Environmental
Management that we detected low levels of volatile organic compounds and
petroleum hydrocarbons in the groundwater at the Decatur, Alabama facility
during the expansion of the facility. On June 13, 2001, we received a letter
from the department stating that a preliminary assessment would not be conducted
until 2002. We expect to further define the extent of any contamination and
execute any necessary remedies in conjunction with the department's forthcoming
assessment. We may voluntarily institute a pump and treat system in order to
remediate the contamination.
The estimated remaining investigative, monitoring, remedial, legal and
other costs related to the environmental matters of our Decatur, Alabama
facility are $0.8 million.
ARDMORE, TENNESSEE
On December 28, 1995, we entered into a Consent Order and Agreement with
the Tennessee Division of Superfund, or Tennessee Division, relating to the
Ardmore, Tennessee facility, under which we agreed to conduct a preliminary
investigation on whether volatile organic compounds 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 revealed
contamination, including elevated concentrations of volatile organic compounds,
in the soil in areas of the Ardmore facility and also has revealed elevated
levels of certain volatile organic compounds in the shallow residuum groundwater
zone at the Ardmore facility.
Under the terms of the order, we submitted a Remedial Investigation and
Feasibility Study work plan, which was accepted by the Tennessee Division, and
we have initiated this work plan. The Tennessee Division approved a Groundwater
Assessment Plan as a supplement to the work plan, and additional groundwater
sampling to determine the lateral and vertical extent of possible contamination
began in July 2000. The data from the groundwater assessment, the subsequent
risk assessment and a preliminary review of remedial alternatives completed the
work plan portion of the project, which we submitted to the Tennessee Division
in April 2002. A CMS will follow the work plan and will recommend any required
remediation. On June 13, 2001, we purchased 22 acres immediately north of the
Ardmore facility because of the potential migration of ground water
contamination to this property. We believe that owning the property will reduce
both potential liability and long-term remediation costs. We are proposing to
the Tennessee Division that an interim corrective measure be implemented at the
facility. The interim measure will consist of a system to extract water and
vapors from the areas of highest concentration. The system can be expanded to
conduct additional remediation if required. Based on recent testing efforts at
the facility and the available information, we preliminarily estimate that it
will cost between $0.5 million and $1.6 million to complete the investigation
and develop the remediation plans for this site.
The water currently delivered to residents by the municipality is treated
prior to human consumption, and thus does not contain volatile organic compounds
above acceptable drinking water standards. We do not know whether the
municipality may have delivered untreated water to its water consumers. However,
due to dilution with non-contaminated water, which we believe occurs in the
operation of the municipal well system, we believe that it is unlikely that any
consumer was exposed in the past to volatile organic compounds above acceptable
drinking water standards. To date, we have not received or been threatened by
any claim from the municipality or its residents with respect to the drinking
water.
A report of a 1995 EPA site inspection of the Ardmore facility recommended
further action for the site. We believe, 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, we could incur additional costs for any
further investigation or remedial action required.
41
GREENVILLE, MISSISSIPPI
Following our acquisition of the Greenville, Mississippi facility, a
preliminary investigation disclosed certain volatile organic compounds in soil
and groundwater at the site. We entered into a consent agreement with the
Mississippi Department of Environmental Quality on July 15, 1997. We began
remediation efforts in the third quarter of 1997 and expected these efforts to
last approximately three years. In February 2000, we submitted a report of
remediation activities and were granted approval by the Mississippi department
to cease active remediation and begin post-closure monitoring. However, there
can be no assurance that the department will allow us to permanently discontinue
remediation efforts, 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 facility pursuant to the
terms of an escrow agreement established at the time the facility was acquired.
Subsequent to October 3, 1998, we released the former owners of the facility
from liability related to the remediation of the Greenville facility after
receiving a $145,000 settlement payment. We estimate the remaining investigative
and remedial costs could total $0.1 million under the remediation plan we
adopted, but these costs could increase if additional remediation is required.
In March of 2000, we applied for entry into the Mississippi Brownfield
Program for industrial site redevelopment. We have delineated the Brownfield
site, prepared and submitted a Brownfields Contingency Monitoring Plan, and are
implementing passive remediation at the site. We anticipate long-term monitoring
of the site to continue until the concentration of contaminants reach the
Mississippi division's target goals.
ALTOONA, PENNSYLVANIA
We have entered our Altoona, Pennsylvania facility into the State of
Pennsylvania Department of Environmental Protection Act II Program. The Program
addresses contamination issues related to closed hazardous waste lagoons and oil
contamination of soil at this facility. The hazardous waste lagoons were closed
in 1982. The program is a voluntary site remediation program, which allows us to
direct the site evaluation and any eventual remediation. Preliminary costs are
estimated at $0.2 million 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. It is our position that
the previous owner indemnified us for any liability in the matter, and we are
pursuing this indemnification claim with Millennium Chemicals, formerly National
Distillers. As of March 31, 2002, we recorded $30,000 in accrued liability for
this matter.
In 1998, we entered into a consent agreement with the municipality with
regard to its wastewater discharge limits. We anticipate that we will be able to
resolve the violation of the wastewater discharge limits through the use of
wastewater discharge credits from the municipality. However, if this method is
unsuccessful, we may have to install equipment that is estimated to cost
approximately $0.1 million.
LEGAL PROCEEDINGS
Our facilities and operations are subject to extensive environmental laws
and regulations, and we are currently involved in various proceedings relating
to environmental matters as described above. We are not involved in any legal
proceeding that we believe could have a material adverse effect upon our
business, operating results or financial condition.
In 2001, we became aware of three competition-related investigations
involving the copper fittings industry and the copper tube industry. The
European Commission initiated an investigation of producers of copper fittings
and tubes in the European Union, contending that certain companies participated
in mutual agreements and/or common procedures. In addition, the Commission of
Competition for Canada issued a court order for the production of records to a
number of producers and distributors of copper fittings. We have not been
contacted in respect of, or otherwise received any information that would
indicate that we are involved in, either of these investigations.
42
In the United States, a Grand Jury in the Northern District of Indiana has
undertaken an investigation into possible violations of U.S. antitrust laws in
the copper fittings industry and the copper tube industry. In March 2001, we
received a subpoena for documents in connection with this investigation. We
recently completed production of documents we believe are responsive to this
subpoena. We understand this to be an industry-wide investigation and that most
U.S. manufacturers of copper fittings and most of our competition in the copper
tube industry in the United States have also received subpoenas relating to this
investigation.
To our knowledge, no allegations or claims have been made against us and we
are neither a target nor the subject of any investigation relating to these
matters. With respect to any matters relating to the copper fittings industry,
we do not participate in that industry. We believe that our operations, policies
and practices are in compliance with the requirements of the U.S. antitrust laws
and competition laws in other jurisdictions where we do business. However, we
are unable to predict the scope or outcome of the investigations or the extent,
if any, to which our business, financial condition or operations may be affected
by these matters.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. This statement addresses financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
No. 142 presumes that goodwill has an indefinite useful life and thus should not
be amortized but rather tested at least annually for impairment using a lower of
cost or fair value approach. Other intangible assets will still be amortized
over their useful lives under SFAS No. 142.
On January 1, 2002 we adopted SFAS No. 142. Accordingly, we ceased
amortization of all previously recorded goodwill (approximately $99.8 million as
of December 31, 2001) as of that date. We completed the transitional impairment
test of goodwill (as of January 1, 2002) required by the new rules during the
second quarter of 2002. Based on the results of these tests, the fair value of
the tested business units exceeded the carrying value of goodwill and no
transitional impairment charge will be recorded. Our adoption of SFAS No. 142 is
expected to increase our income from continuing operations by approximately $2.7
million (net of tax) in 2002 due to the elimination of amortization of goodwill.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets that
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and provides a single accounting model
for long-lived assets to be disposed of. Although retaining many of the
fundamental recognition and measurement provisions of SFAS No. 121, the new
rules significantly change the criteria that would have to be met to classify an
asset as held-for-sale. The new rules also supersede the provision of Accounting
Principle Board, or APB, Opinion No. 30 with regard to reporting the effects of
a disposal of a segment of a business and require expected future operating
losses from discontinued operations to be displayed in discontinued operations
in the periods in which the losses are incurred rather than as of the
measurement date as presently required by APB No. 30. In addition, more
dispositions will qualify for discontinued operation treatment in the income
statement. We adopted SFAS No. 144 in the first quarter of 2002. The adoption of
this statement had no significant impact on us.
CHANGE TO SECURITIES AND USE OF PROCEEDS
On March 1, 2002, the Company redeemed all 20,000 shares of its Cumulative
Compounding Redeemable Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), held solely by Kerr Worthy Holdings Inc. The Company paid
$1.0 million of the redemption price with 116,100 shares of its common stock.
The common stock was not registered under the Securities Act of 1933 and was
exchanged with the holder of the Preferred Stock under the exemption set forth
in Section 3(a)(9) of the Securities Act of 1933. No commission or other
remuneration was paid or given for soliciting such exchange.
43
BUSINESS
OVERVIEW
We are a world-class quality manufacturer of copper and copper alloy tube,
fabricated and metal joining products and copper and copper alloy rod and bar
products. We focus on custom-engineered, higher value-added tubular, fabricated
and metal joining products which enhance performance and energy efficiency in
many applications, including commercial and residential heating, ventilation and
air conditioning, refrigeration, home appliances, automotive, industrial
equipment, power generation, petrochemicals and chemical processing. We believe
that we have the broadest product offering of any North American manufacturer of
copper and copper alloy tube, which allows us to offer packaged solutions and
pursue cross-selling opportunities. Our technological expertise has helped us to
establish strong and long-standing relationships with many of the leading users
of higher value-added copper tube in North America and enables us to maintain
leading market shares in our most important product and geographic markets.
HISTORY AND STRUCTURE
We are a Delaware corporation organized in 1987. We are the successor to a
business founded in Detroit in 1916. In August 1993, we and certain stockholders
engaged in an initial public offering of 6,555,000 shares of common stock and
the net proceeds to us were approximately $46.4 million. In September 1995, we
completed a secondary public offering of 4,882,700 shares of common stock. No
additional shares of common stock were issued by us in conjunction with this
secondary stock offering.
We have expanded our operations through acquisitions and joint ventures
over the past five years. In September 1996, we 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, we acquired a 240,000 square foot welded tube manufacturing
facility in Jackson, Tennessee, and the related equipment and technology, from
Korea-based Poongsan Corporation, for approximately $35.4 million in cash. In
July 1998, we opened our Shanghai, China facility. This 60,000 square foot plant
specializes in the manufacture of higher value added copper and copper alloy
technical tube.
In September 2000, we acquired from Engelhard Corporation its joining
products business, a leading manufacturer of brazing alloys and fluxes, as well
as a supplier of lead-free solder, based in Warwick, Rhode Island, for
approximately $41.8 million in cash.
In December 2001, we completed construction of our 33,000 square foot
technical tube manufacturing facility in Esposende, Portugal. We invested
approximately $9.0 million to complete the facility, which began commercial
production in January 2002.
INDUSTRY
The industry in which we operate is multi-faceted. Several of our
competitors produce tube products of a single type. In contrast, we produce a
broad array of products, such as technical tube for large commercial air
conditioners used in high-rise buildings, industrial tube and fabricated
products used in residential and light commercial air conditioning units,
wholesale tube used in commercial and residential construction, and copper and
copper alloy tube used in power generation, petrochemical and marine
applications. Moreover, our metal joining products are used in almost all of
these applications.
COMPETITION
While no single company competes with us in all of our product lines, we
face significant competition in each of our product lines. Cerro Copper Products
Co., Inc., Industrias Nacobre S.A. de C.V., Kobe Copper Products Inc.,
Wieland -- Werke AG, Mueller Industries Inc., Olin Corporation, Outokumpu
American Brass Company, J.W. Harris Company, Inc. and others compete with us in
one or more product lines. Minimal product differentiation among competitors in
our wholesale and rod and bar product lines
44
creates a pricing structure that enables customers to differentiate products
almost exclusively on price. In these product areas, certain of our competitors
have significantly larger market shares than us, and tend to be the industry
pricing leaders. If our competitors in these product lines were to significantly
reduce prices, our business, operating results or financial condition could be
adversely affected.
We currently face limited competition for certain of our higher value-added
commercial products, which have higher margins. Because we compete primarily on
the basis of the technical advantages of our commercial products, technical
improvements by competitors could reduce our competitive advantage in these
product lines and thereby adversely affect our business, operating results or
financial condition. We could also be adversely affected if new technologies
emerge in the air conditioning, refrigeration or other consumer industries that
reduce or eliminate the need for copper and copper alloy tube, fabricated
products and metal joining products. Certain of our 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 our business, operating results or financial
condition.
PRODUCTS
We classify our products as commercial products, wholesale products or rod,
bar and other products.
COMMERCIAL PRODUCTS
Commercial products consist of several types of technically enhanced tube
and fabricated products made to customer specifications, as well as our metal
joining products. We believe that we are the primary supplier of one or more
commercial products to some of the world's largest and best known manufacturers,
particularly in the commercial and residential heating, ventilation and
air-conditioning, refrigeration and home appliance industries. Our technical
tube and fabricated products are custom designed for specific customer
applications and manufactured and sold directly to customers. Because of the
higher level of added value, profitability tends to be higher for commercial
products than for our other products.
Our 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. Our 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. We were the first to develop integral
finned tube, in which the fins are formed directly from the wall of the
tube, and we hold patents in this area.
Copper Alloy Tube. Copper alloy tube (principally copper mixed with
nickel) is manufactured for certain severe uses and corrosive environments
such as condenser tubes and heat exchangers in power generating plants,
chemical plants, refineries and ships. Our copper alloy tube products
include smooth and surface enhanced tube produced from a variety of alloys,
U-bends for heat exchangers and our patented Korodense(R) corrugated heat
transfer tube. Also included in the alloy tube category are surface
enhanced titanium and steel tube we produce from smooth tube supplied by
outside sources.
45
Fabricated Products. Fabricated products encompass a wide variety of
copper, copper alloy, steel and aluminum tube products and subassemblies
for a number of different applications. Precision drawn tube can be
supplied in exact tolerance cut lengths or coils. Specialty fabricated
parts, sub-assemblies and components (such as return bends and manifolds)
are also produced. Capabilities which include cutting, bending/swaging, end
spinning, hole piercing/drilling, specialized coiling and brazing, can be
applied to a wide range of products.
Metal Joining Products. Metal joining products include brazing
alloys, fluxes and lead-free solder used in the air conditioning, plumbing,
electronic, lighting, shipbuilding, aerospace, general industrial and other
metal-joining industries. There are over 2,000 product variations in this
Category, marketed under such brand names as Silvaloy(R), Silvabrite(R),
Silvabrite 100(R), Black Flux(TM) and Ultra Flux(R).
Commercial product sales accounted for 76%, 78% and 75% of our sales in
2001, 2000 and 1999, respectively, and 77% of our sales in the first quarter of
2002.
WHOLESALE PRODUCTS
Wholesale products consist of plumbing and refrigeration service tube
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.
Wholesale product sales accounted for 17%, 16% and 20% of our sales in
2001, 2000 and 1999, respectively, and 16% of our sales in the first quarter of
2002.
ROD, BAR AND OTHER PRODUCTS
Rod, bar and other products consist of 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 switch gear. Copper and copper alloy rod and
bar products are sold directly to manufacturers and to service centers that keep
an inventory of standard sizes. Other products consist of various tube, rod, bar
and other items sold by our product distribution facility in The Netherlands.
Rod, bar and other products accounted for 7%, 6% and 5% of our sales in
2001, 2000 and 1999, respectively, and 7% of our sales in the first quarter of
2002.
SALES AND MARKETING
We use a sales force augmented by independently contracted sales agents to
pursue global sales opportunities. In addition, we employ customer service
representatives responsible for responding to customer questions and undertaking
or initiating any required customer service response. We believe our sales
structure forms a critical link in communicating with our customers. Our sales
and marketing employees are particularly important in the higher value-added
product segments, in which we often work with customers in their product
enhancement and new product development efforts. The sales function is
coordinated through key senior executives responsible for our sales and
marketing efforts.
North America. Our sales structure in North America consists of sales
officers and managers, field marketing representatives and independent sales
agents who are responsible for selling and servicing accounts for the entire
product line.
International. Our overseas export sales are carried out both directly
with major overseas customers and through foreign sales agents. We have sales,
marketing and business development offices in Apeldoorn, The Netherlands and
Hong Kong, China.
46
For information concerning the amount of sales, gross profit and certain
other financial information about foreign and domestic operations see Note 17 of
the Notes to Consolidated Financial Statements.
ENERGY EFFICIENCY AND GOVERNMENTAL REGULATIONS
We expect that demand for our higher value-added, energy efficient tubes
will continue as manufacturers continue to seek ways to produce more energy
efficient and lower operating cost units and as existing commercial air
conditioners continue to be replaced in response to the ban on production of
chlorofluoro-carbons. Government regulations at local, state and federal levels
periodically provide various incentives for more energy efficient products, such
as air conditioners, refrigerators and similar appliances, which may also
increase demand for our products. However, there can be no assurance that this
anticipated demand will materialize, or that we will not face increased
competition, with an adverse effect on profitability, from other manufacturers
in this higher value-added segment.
MARKETS
Major markets for each of our product lines are set forth below:
<Table>
<Caption>
PRODUCTS MAJOR MARKETS
- -------- -------------
Commercial Products
Technical Tube......................... Commercial air conditioning
manufacturers, power and process
industry, heat exchanger manufacturers,
water, swimming pool and spa heater
manufacturers and oil cooler
manufacturers.
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).
Copper Alloy Tube...................... Utilities and other power generating
companies, refining and chemical
processing companies, heat exchanger
manufacturers and shipbuilders.
Fabricated Products.................... Commercial and residential air
conditioning manufacturers, refrigeration
manufacturers and consumer appliance
manufacturers. Automotive, controls,
welding, electrical, marine, building and
heating industries.
Metal Joining Products................. Residential and commercial air
conditioning manufacturers, plumbing,
electronic, lighting, shipbuilding,
aerospace and other metal-joining
industries.
Wholesale Products....................... Plumbing wholesalers and refrigeration
service wholesalers.
Rod, Bar and Other Products.............. Electrical equipment and automotive parts
manufacturers, locomotive and other
industrial equipment manufacturers and
metal service centers.
</Table>
47
KEY CUSTOMERS
In 2000 and 2001, our 10 largest customers accounted for approximately 45%
and 44%, respectively, of our consolidated net sales. No customer accounted for
10% or more of our consolidated net sales in 2001, 2000 or 1999.
BACKLOG
A significant part of our sales are based on short-term purchase orders.
For this reason, we do not maintain a backlog and we believe that backlog is not
necessarily a meaningful indicator of future results. A significant amount of
our sales result from customer relationships wherein we provide a high degree of
specialized service and generally become the largest supplier of a customer's
copper and copper alloy requirements. Under these arrangements, our customers
provide forecasts of their requirements, against which purchase orders are
periodically released. In several cases we have entered into multi-year
arrangements with major customers to continue to serve as the predominant
supplier and in many cases the exclusive supplier on a global basis.
MANUFACTURING
The manufacture of copper and copper alloy tube, fabricated products and
metal joining 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. The material is either drawn to smaller sizes or
reduced on a forging machine and then drawn to smaller sizes. The outside and/or
inside surface may be enhanced to achieve the desired heat transfer qualities.
Depending on customer needs, bending, shaping, precision cutting, forming,
annealing (heating to restore flexibility), coiling or other operations may be
required to finish the product.
Virtually all of our tube products are seamless as opposed to welded tube,
with the exception of the tube manufactured at our 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
Our principal raw materials are copper, nickel, zinc, tin and silver. In
2001, we purchased approximately 359 million pounds of metal, approximately 90%
of which was copper. We contract for our copper requirements with a variety of
sources, including producers, merchants, brokers, dealers and industrial
suppliers. Our raw materials are available from a variety of sources, and we do
not believe that the loss of any one source would materially affect our
business, operating results or financial condition.
The key elements of our 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 we purchase is based on fluctuating
market prices, usually with the COMEX price as a benchmark. We generally have an
"open pricing" option under which we 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 of our products to our customers
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, we quote a firm price to the customer,
which covers both the metal price and the fabrication charge. In either case, we
minimize our exposure to metal price fluctuations through various strategies.
Generally, at the time the metal price for the customer is established, we
either price an equivalent amount of metal under our open pricing arrangements
with our suppliers or purchase a copper forward contract for the equivalent
amount of metal. It is not our policy to attempt to profit from fluctuations in
copper prices by taking commodity risks or speculative commodity positions, and
generally our profitability is not affected to a material degree by copper price
fluctuations.
48
RESEARCH AND DEVELOPMENT
Our research and development efforts are devoted to new product
development, new applications and manufacturing process improvements. We engage
in new product development efforts with certain of our major customers, as well
as universities and government agencies. To further support our advancements in
product and process development, we completed construction of our 21,000 square
foot Technology Center in Decatur, Alabama in 1998. Our Technology Center
supports the engineering and testing of specialized products and enhancement of
our custom-engineering processes through which we customize products to the
specifications of our customers.
Our new product development will continue to be concentrated in the heat
transfer area. In 2001, we introduced to the marketplace nine new heat transfer
products for specific customer use and four new heat transfer products for
general use. Additionally, we have jointly participated in several industry,
university and government research projects relating to alternative refrigerants
and more energy efficient tube for the commercial and residential heating,
ventilation and air conditioning, refrigeration, power generation and
petrochemical industries. Our research and development expense was $3.7 million
in 2001, $3.7 million in 2000 and $3.0 million in 1999. We use our extensive
manufacturing facilities and personnel to assist in manufacturing process
research and development efforts.
ENVIRONMENTAL MATTERS
Our facilities and operations are subject to extensive environmental
regulations imposed by federal, state, provincial and local authorities in the
United States, Canada, China and Portugal with respect to emissions to air,
discharges to waterways, and the generation, handling, storage, transportation,
treatment and disposal of waste materials. In addition, we have incurred, and in
the future may incur, liability under environmental statutes and regulations
with respect to the contamination of sites we own or operate (including
contamination caused by prior owners and operators of such sites, abutters or
other persons) and the off-site disposal of hazardous substances.
We believe our operations are in substantial compliance with the terms of
all applicable environmental laws and regulations as currently interpreted. We
utilize an active environmental auditing and evaluation process to facilitate
compliance with applicable environmental laws and regulations. However, we
expect that future regulations and changes in the text or interpretation of
existing regulations may subject our operations to increasingly stringent
standards. While the precise effect of these changes on our business 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.
As of March 31, 2002, we have a reserve of approximately $1.8 million for
environmental remediation costs. 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 we believe 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.
EMPLOYEES
As of March 31, 2002, we had a total of 3,172 employees. None of our
employees are represented by a union except for a majority of the hourly
employees at the Montreal, Quebec plant, which is unionized and covered by a new
collective bargaining agreement that was ratified by unionized employees on June
22, 2002 and formally executed on August 2, 2002. As a whole, we believe our
relations with our employees are satisfactory.
49
PATENTS AND TRADEMARKS
We own a number of trademarks and patents (in the United States and other
jurisdictions) on our products and related manufacturing processes, and we have
granted licenses with respect to some of our trademarks and patents. While we
believe that our patents and trademarks have competitive value, we do not
consider our success as a whole to be primarily dependent on our patents, patent
rights or trademarks.
PROPERTIES
UNITED STATES FACILITIES
We own and operate each of the U.S. facilities described below, with the
exception of our Altoona, Pennsylvania facility that is partially owned and
partially leased from a local industrial development agency for $3,500 per year
in perpetuity:
<Table>
<Caption>
PROPERTY EMPLOYEES AT
SIZE PLANT SIZE YEAR MARCH 31,
LOCATION (ACRES) (SQUARE FEET) OPENED 2002 DESCRIPTION
- -------- -------- ------------- ------ ------------ ----------------------------
Decatur, AL................. 166 620,000 1948 821 Produces a majority of our
copper tube product lines. A
significant portion of
production is industrial and
technical tube. Produces
smooth feedstock tube for
the Ardmore and Booneville
facilities. Also houses a
portion of our corporate
staff.
Shawnee, OK................. 51 309,000 1974 488 Produces a majority of our
copper tube product lines.
Capable of producing
feedstock tube for the
Ardmore, Carrollton and
Booneville facilities.
Jackson, TN................. 36 240,000 1998 66 Produces welded copper
enhanced surface tube. Also
houses a U.S. wholesale
product distribution center.
Altoona, PA................. 32 169,000 1956 266 A redraw facility that
produces higher margin
commercial products such as
capillary tube and specialty
fabricated components.
Carrollton, TX.............. 8 165,000 1999 316 A fabrication facility that
produces higher-margin
commercial products such as
specialty fabricated parts,
return bends and manifolds.
Booneville, MS.............. 30 152,000 1989 135 Processes feedstock tube
from the Decatur facility
into enhanced surface
industrial tube and
technical copper tube.
Warwick, RI................. 3 70,000 1978 142 Produces brazing alloys and
fluxes.
Ardmore, TN................. 6 68,000 1974 84 A redraw facility that
produces higher-margin
commercial products such as
capillary tube and specialty
fabricated components.
</Table>
In addition to the manufacturing facilities described above, we also have a
50,000 square foot facility in Greenville, Mississippi and a 232,000 square foot
facility in Roxboro, North Carolina that are not being used for production and
are currently being held for sale. Our corporate offices, with 32 employees at
50
March 31, 2002, are comprised of approximately 15,000 square feet in a leased
facility in Huntsville, Alabama.
CANADIAN FACILITIES
We own and operate the following Canadian manufacturing facilities:
<Table>
<Caption>
PROPERTY EMPLOYEES AT
SIZE PLANT SIZE YEAR MARCH 31,
LOCATION (ACRES) (SQUARE FEET) OPENED 2002 DESCRIPTION
- -------- -------- ------------- ------ ------------ ----------------------------
Montreal, Quebec............ 25 424,000 1942 395 Produces plumbing tube and
refrigeration service tube,
copper alloy tube and copper
and copper alloy rod and
bar.
London, Ontario............. 45 195,000 1958 299 Produces plumbing tube,
refrigeration service tube
and industrial tube. Also
houses corporate offices for
Wolverine Tube (Canada) Inc.
</Table>
OTHER FACILITIES
We own a 33,000 square foot technical tube facility in Esposende, Portugal.
Our 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 our facilities in China and Portugal:
<Table>
<Caption>
PROPERTY EMPLOYEES AT
SIZE PLANT SIZE YEAR MARCH 31,
LOCATION (ACRES) (SQUARE FEET) OPENED 2002 DESCRIPTION
- -------- -------- ------------- ------ ------------ ----------------------------
Shanghai, China............. 3 60,000 1998 86 Produces technical copper
tube from feedstock supplied
by local copper tube
manufacturers.
Esposende, Portugal......... 3 33,000 2001 34 Produces technical copper
tube from feedstock supplied
by local copper tube
manufacturers.
</Table>
We currently lease minor square footage for a sales office in Hong Kong,
China. We also lease a facility in Apeldoorn, The Netherlands, comprised of a
16,000 square foot warehouse and 3,000 square feet of office space. There were
eight employees at the Apeldoorn facility at March 31, 2002.
LEGAL PROCEEDINGS
Our facilities and operations are subject to extensive environmental laws
and regulations, and we are currently involved in various proceedings relating
to environmental matters as described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental." We
are not involved in any legal proceeding that we believe could have a material
adverse effect upon our business, operating results or financial condition.
In 2001, we became aware of three competition-related investigations
involving the copper fittings industry and the copper tube industry. The
European Commission initiated an investigation of producers of copper fittings
and tubes in the European Union, contending that certain companies participated
in mutual agreements and/or common procedures. In addition, the Commission of
Competition for Canada issued a court order for the production of records to a
number of producers and distributors of copper fittings. We have not been
contacted in respect of, or otherwise received any information that would
indicate that we are involved in, either of these investigations.
In the United States, a Grand Jury in the Northern District of Indiana has
undertaken an investigation into possible violations of U.S. antitrust laws in
the copper fittings industry and the copper tube industry. In March 2001, we
received a subpoena for documents in connection with this investigation. We
recently completed production of documents we believe are responsive to this
subpoena. We
51
understand this to be an industry-wide investigation and that most U.S.
manufacturers of copper fittings and most of our competition in the copper tube
industry in the United States have also received subpoenas relating to this
investigation.
To our knowledge, no allegations or claims have been made against us and we
are neither a target nor the subject of any investigation relating to these
matters. With respect to any matters relating to the copper fittings industry,
we do not participate in that industry. We believe that our operations, policies
and practices are in compliance with the requirements of the U.S. antitrust laws
and competition laws in other jurisdictions where we do business. However, we
are unable to predict the scope or outcome of the investigations or the extent,
if any, to which our business, financial condition or operations may be affected
by these matters.
52
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We sold the Old Notes on March 27, 2002 to the initial purchasers with
further distribution permitted only to (i) qualified institutional buyers under
Rule 144A under the Securities Act and (ii) persons in offshore transactions in
reliance on Regulation S under the Securities Act. In connection with the sale
of the Old Notes, we and the initial purchasers entered into a Registration
Rights Agreement, dated March 22, 2002, which requires us to file with the SEC
the registration statement of which this prospectus is a part within 60 days of
the date of the issuance of the Old Notes (the "Issuance Date") with respect to
a registered offer to exchange the Old Notes for New Notes, identical in all
material respects to the Old Notes except for certain transfer restrictions and
registration rights related to the outstanding Old Notes, and to use our
reasonable best efforts to cause such registration statement to become effective
under the Securities Act within 150 days of March 27, 2002. We will keep the
Exchange Offer open for not less than 30 days after the date notice of the
Exchange Offer is mailed to the holders. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this prospectus is a part. The Exchange Offer is being made pursuant to the
Registration Rights Agreement to satisfy our obligations thereunder.
Based on SEC staff interpretations contained in several no-action letters
regarding similar exchange offers, we believe that, except as described below,
the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any holder of the
New Notes (other than any holder which is a broker-dealer or an "affiliate" of
Wolverine within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that:
(i) you acquired such New Notes in the ordinary course of your
business;
(ii) you have no arrangement or understanding with any person to
participate in the distribution of such New Notes; and
(iii) you are not engaged in, and do not intend to engage in, a
distribution of such New Notes.
By tendering Old Notes for New Notes, you will represent to us that, among
other things:
(i) the New Notes issued in the Exchange Offer are being acquired in
the ordinary course of business of the person receiving the New Notes,
whether or not such person is the holder;
(ii) neither you nor any such other person is engaging in or intends
to engage in or has an arrangement or understanding with any person to
participate in a distribution of such New Notes within the meaning of the
Securities Act;
(iii) neither you nor any such other person is an affiliate of
Wolverine, or if you or such other person is an affiliate of Wolverine, you
or such other person will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable; and
(iv) you are not a broker-dealer, or if you are a broker-dealer, that
you will receive the New Notes for your own account, you will deliver a
prospectus on resale of your New Notes and you acquired your Old Notes as a
result of market-making activities or other trading activities.
In the event that you cannot make the requisite representations to us, you
cannot rely on such interpretations by the staff of the SEC and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K under the
Securities Act. This prospectus may be used for an offer to resell, resale or
other retransfer of New Notes only as specifically set forth herein.
53
As noted above, we base our belief on interpretations by the SEC staff in
no-action letters issued to other issuers in exchange offers like ours. We have
not, however, asked the SEC to consider this particular Exchange Offer in the
context of a no-action letter. Therefore, you cannot be sure that the SEC will
treat this Exchange Offer in the same way it has treated other exchange offers
in the past. If our belief is wrong, you could incur liabilities under the
Securities Act. We will not protect you against any loss incurred as a result of
this liability under the Securities Act.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept for exchange any and all Old
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date (as defined below). We will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes surrendered pursuant to the Exchange Offer. Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and therefore will not bear legends restricting the transfer thereof. The
New Notes will evidence the same debt as the Old Notes. The New Notes will be
issued under and entitled to the benefits of the Indenture, dated March 27, 2002
among Wolverine Tube, Inc., certain of its subsidiaries and Wachovia Bank,
National Association (successor to First Union National Bank), as Trustee, which
also authorized the issuance of the Old Notes, such that both series will be
treated as a single class of debt securities under the Indenture.
As of the date of this prospectus, $120 million in aggregate principal
amount of the Old Notes is outstanding. This prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Old Notes.
There will be no fixed record date for determining registered holders of Old
Notes entitled to participate in the Exchange Offer. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the obligation to accept Old Notes for exchange pursuant to
the Exchange Offer is subject to certain conditions, as described under
"-- Conditions."
We intend to conduct the Exchange Offer in accordance with the provisions
of the Registration Rights Agreement and the applicable requirements of the
Exchange Act, and the rules and regulations of the Commission thereunder. Old
Notes which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the Indenture and the Registration Rights
Agreement.
We will be deemed to have accepted for exchange properly tendered Old Notes
when, as and if we have given oral or written notice thereof to the Exchange
Agent and complied with the provisions of the Indenture. The Exchange Agent will
act as agent for the tendering holders for the purposes of receiving the New
Notes from us.
If you tender Old Notes in the Exchange Offer you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. We will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange Offer.
See "-- Fees and Expenses."
54
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 2002, unless we, in our sole discretion, extend the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date to which the
Exchange Offer is extended. If the Exchange Offer is not completed by October 3,
2002, the interest rate on the Old Notes shall be increased by one quarter of
one percent (0.25%) per annum for the first 90-day period immediately following
the failure to meet this required deadline and such rate will increase by an
additional 0.25% per annum with respect to each subsequent 90-day period until
all such defaults have been cured, up to a maximum additional interest rate of
1.0% per year. We will pay such additional interest on regular interest payment
dates. Such additional interest will be in addition to any other interest
payable from time to time with respect to the notes.
If we extend the Exchange Offer, we will notify the Exchange Agent of any
extension by oral or written notice and will mail to the holders an announcement
thereof, prior to 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date.
We reserve the right, in our sole discretion, (i) to delay accepting any
Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer and
not permit acceptance of Old Notes not previously accepted, if any of the
conditions set forth below under "-- Conditions" have not been satisfied, by
giving oral or written notice of the delay, extension or termination to the
Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner
which, in our good faith judgment, is advantageous to the holders of the Old
Notes, whether before or after any tender of the New Notes. Any delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the holders. If the Exchange
Offer is amended in a manner determined by us to constitute a material change,
we will promptly notify holders of the amendment by means of a prospectus
supplement that will be distributed to the registered holders, if required by
law, and we will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, we will have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones news service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at 10 1/2% per year. Interest on the New
Notes will be payable semi-annually, in arrears, on April 1 and October 1 of
each year, commencing on October 1, 2002. Interest on the New Notes will accrue
from the last interest payment date on which interest was paid on the Old Notes
surrendered in exchange therefor or, if no interest has been paid on the Old
Notes, from the date of the original issuance of the Old Notes.
CONDITIONS
We may terminate the Exchange Offer if, prior to the Expiration Date:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in our reasonable judgment, might materially impair our ability to
proceed with the Exchange Offer, or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in our reasonable judgment, might
materially impair our ability to proceed with the Exchange Offer, or
(c) any governmental approval has not been obtained, which approval we
shall, in our reasonable discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
55
If we determine in our reasonable discretion that any of these conditions
are not satisfied, we may, no later than the Expiration Date, (i) refuse to
accept any Old Notes and return all tendered Old Notes to the tendering holders,
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders who
tendered such Old Notes to withdraw their tendered Old Notes, or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn.
The foregoing conditions are for our benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our
reasonable discretion prior to the Expiration Date. Our failure at any time to
exercise any of our rights shall not be deemed a waiver of any such right, and
each such right will be deemed an ongoing right which may be asserted at any
time and from time to time.
PROCEDURES FOR TENDERING
BOOK-ENTRY INTERESTS
The Old Notes were issued as global securities in fully registered form
without interest coupons. Beneficial interests in the global securities, held by
direct or indirect participants in DTC, are shown on, and transfers of these
interests are effected only through, records maintained in book-entry form by
DTC with respect to its participants.
If you hold your Old Notes in the form of book-entry interests and you wish
to tender your Old Notes for exchange pursuant to the Exchange Offer, you must
transmit to the Exchange Agent on or prior to the Expiration Date either:
(1) a written or facsimile copy of a properly completed and duly
executed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at the address set forth
on the cover page of the Letter of Transmittal; or
(2) a computer-generated message transmitted by means of DTC's
Automated Tender Offer Program system and received by the Exchange Agent
and forming a part of a confirmation of book-entry transfer, in which you
acknowledge and agree to be bound by the terms of the Letter of
Transmittal.
In addition, in order to deliver Old Notes held in the form of book-entry
interests:
(1) a timely confirmation of book-entry transfer of such notes into
the Exchange Agent's account at DTC pursuant to the procedure for
book-entry transfers described below under "-- Book-Entry Transfer" must be
received by the Exchange Agent prior to the Expiration Date; or
(2) you must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL FOR YOUR
OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR
ELECTION AND RISK. INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU
SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. YOU MAY REQUEST
YOUR BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE TO EFFECT THE
ABOVE TRANSACTIONS FOR YOU.
CERTIFICATED OLD NOTES
Only registered holders of certificated Old Notes, if any, may tender those
notes in the Exchange Offer. If your Old Notes are certificated notes and you
wish to tender those notes for exchange pursuant to the Exchange Offer, you must
transmit to the Exchange Agent on or prior to the Expiration Date a written or
facsimile copy of a properly completed and duly executed Letter of Transmittal,
including all
56
other required documents, to the address set forth below under "-- Exchange
Agent." In addition, in order to validly tender your certificated Old Notes:
(1) the certificates representing your Old Notes must be received by
the Exchange Agent prior to the Expiration Date; or
(2) you must comply with the guaranteed delivery procedures described
below.
PROCEDURES APPLICABLE TO ALL HOLDERS
If you tender an Old Note and you do not withdraw the tender prior to the
Expiration Date, you will have made an agreement with us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
Letter of Transmittal.
If your Old Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your Old
Notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the Letter of Transmittal
and delivering your Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(1) Old Notes tendered in the Exchange Offer are tendered either
(A) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on
the holder's Letter of Transmittal or
(B) for the account of an eligible institution; and
(2) the box entitled "Special Issuance Instructions" on the Letter of
Transmittal has not been completed.
If signatures on a Letter of Transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that is a participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.
If the Letter of Transmittal is signed by a person other than you, your Old
Notes must be endorsed or accompanied by a properly completed bond power and
signed by you as your name appears on those Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, those
persons should so indicate when signing. Unless we waive this requirement, in
this instance you must submit with the Letter of Transmittal proper evidence
satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered Old Notes. This determination will be final and binding.
We reserve the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. Our
interpretation of the terms and conditions of the Exchange Offer, including the
instructions in the Letter of Transmittal, will be final and binding on all
parties.
You must cure any defects or irregularities in connection with tenders of
your Old Notes within the time period we will determine unless we waive that
defect or irregularity. Although we intend to notify you
57
of defects or irregularities with respect to your tender of Old Notes, neither
we, the Exchange Agent nor any other person will incur any liability for failure
to give this notification. Your tender will not be deemed to have been made and
your Old Notes will be returned to you if:
(1) you improperly tender your Old Notes;
(2) you have not cured any defects or irregularities in your tender;
and
(3) we have not waived those defects, irregularities or improper
tender.
The Exchange Agent will return your notes, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the expiration of the
Exchange Offer.
In addition, we reserve the right in our sole discretion to:
(1) purchase or make offers for, or offer registered notes for, any
Old Notes that remain outstanding subsequent to the expiration of the
Exchange Offer;
(2) terminate the Exchange Offer; and
(3) to the extent permitted by applicable law, purchase Old Notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers could differ from the terms
of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange in the Exchange Offer will be made only after timely receipt by the
Exchange Agent of certificates for your Old Notes or a timely book-entry
confirmation of your Old Notes into the Exchange Agent's account at DTC, a
properly completed and duly executed Letter of Transmittal, or a
computer-generated message instead of the Letter of Transmittal, and all other
required documents. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than you desire to exchange, the
unaccepted or non-exchanged Old Notes, or Old Notes in substitution therefor,
will be returned without expense to you. In addition, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described below, the
non-exchanged Old Notes will be credited to your account maintained with DTC, as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
If you desire to tender your Old Notes and your Old Notes are not
immediately available or one of the situations described in the immediately
preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the Expiration
Date, the Exchange Agent receives from an eligible institution a written or
facsimile copy of a properly completed and duly executed Letter of
Transmittal and Notice of Guaranteed Delivery, substantially in the form
provided by us; and
(3) the certificates for all certificated Old Notes, in proper form
for transfer, or a book-entry confirmation, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within three New York Stock Exchange trading days after the date of
execution of the Notice of Guaranteed Delivery.
58
The Notice of Guaranteed Delivery may be sent by facsimile transmission,
mail or hand delivery. The Notice of Guaranteed Delivery must set forth:
(1) your name and address;
(2) the amount of Old Notes you are tendering; and
(3) a statement that your tender is being made by the Notice of
Guaranteed Delivery and that you guarantee that within three New York Stock
Exchange trading days after the execution of the Notice of Guaranteed
Delivery, the eligible institution will deliver the following documents to
the Exchange Agent:
(A) the certificates for all certificated Old Notes being tendered,
in proper form for transfer or a book-entry confirmation of tender;
(B) a written or facsimile copy of the Letter of Transmittal, or a
book-entry confirmation instead of the Letter of Transmittal; and
(C) any other documents required by the Letter of Transmittal.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the book-entry
interests at DTC for purposes of the Exchange Offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the applicable account maintained by the Exchange Agent at DTC. Any
financial institution that is a participant in DTC's systems may make book-entry
delivery of book-entry interests by causing DTC to transfer the book-entry
interests into the Exchange Agent's applicable account at DTC in accordance with
DTC's procedures for transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry
delivery of your book-entry interests into the Exchange Agent's applicable
account at DTC; or
(2) you cannot deliver all other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date,
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
WITHDRAWAL RIGHTS
You may withdraw tenders of your Old Notes at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For your withdrawal to be effective, the Exchange Agent must receive a
written or facsimile transmission notice of withdrawal at its address set forth
below under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date.
The notice of withdrawal must:
(1) state your name;
(2) identify the specific Old Notes to be withdrawn, including the
certificate number or numbers, if any, and the principal amount of
withdrawn notes;
(3) be signed by you in the same manner as you signed the Letter of
Transmittal when you tendered your Old Notes, including any required
signature guarantees or be accompanied by documents of transfer sufficient
for the Exchange Agent to register the transfer of the Old Notes into your
name; and
(4) specify the name in which the Old Notes are to be registered, if
different from yours.
59
We will determine all questions regarding the validity, form and
eligibility, including time of receipt, of withdrawal notices. Our determination
will be final and binding on all parties. Any Old Notes withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to you without cost as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering" above at any time on or
prior to 5:00 p.m., New York City time, on the Expiration Date.
EXCHANGE AGENT
Wachovia Bank, National Association has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Hand Delivery:
Wachovia Bank, National Association
12 East 49th Street, 37th Floor
New York, New York 10017
By Registered or Certified Mail or Overnight Delivery:
Wachovia Bank, National Association
Customer Information Center
Corporate Trust Operations
1525 West W.T. Harris Boulevard
3C3, NC 1153
Charlotte, North Carolina 28262
Attn: Marsha Rice
By Facsimile:
(704) 590-7628
For Information or Confirmation by Telephone:
(704) 590-7413
FEES AND EXPENSES
We will pay the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telephone, facsimile or in person by officers and our regular
employees and our affiliates.
We have not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. However, we will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. We may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of the prospectus
and related documents to the beneficial owners of the Old Notes and in handling
or forwarding tenders for exchange.
We will pay the cash expenses to be incurred in connection with the
Exchange Offer, which we estimate to be approximately $105,000 in the aggregate.
Such expenses include fees and expenses of the Exchange Agent and Trustee,
accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the Exchange Offer. If, however, New Notes or Old Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be issued in the name of, any person other than the holder of
60
the Old Notes tendered, or if tendered Old Notes are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any transfer taxes (whether
imposed on the holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend on the Old Notes and in
the Indenture as a result of the issuance of the Old Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities law.
Accordingly, the Old Notes may be resold only (i) to us (upon redemption thereof
or otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the Old Notes are eligible for resale pursuant
to Rule 144A, to a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act in a transaction meeting the requirements of Rule 144A,
or (iv) pursuant to another available exemption from the registration
requirements of the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States. We do not
currently anticipate that we will register under the Securities Act the resale
of any Old Notes that remain outstanding after consummation of the Exchange
Offer. However, generally, (i) if any initial purchaser so requests with respect
to Old Notes not eligible to be exchanged for New Notes in the Exchange Offer
and held by it following consummation of the Exchange Offer or (ii) if any
holder of Old Notes is not eligible to participate in the Exchange Offer or, in
the case of any holder of Old Notes that participates in the Exchange Offer,
does not receive freely tradeable New Notes in exchange for Old Notes, we are
obligated to file a registration statement on the appropriate form under the
Securities Act relating to the Old Notes held by such persons.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in our accounting records on the date of the exchange. Accordingly,
we will not recognize a gain or loss for accounting purposes. The expenses of
the Exchange Offer will be amortized over the term of the New Notes.
61
DESCRIPTION OF OTHER OBLIGATIONS
In this description, "we," "us," "our company" and "our" refer only to
Wolverine Tube, Inc., and not to any of our subsidiaries.
SENIOR NOTES DUE 2008
In August 1998, we issued $150.0 million in principal amount of 7 3/8%
Senior Notes due August 1, 2008. The 7 3/8% Senior Notes were issued pursuant to
an indenture, dated as of August 4, 1998, between us and Wachovia Bank, National
Association (successor to First Union National Bank) as Trustee. The net
proceeds from the sale of the 7 3/8% Senior Notes were applied to reduce
borrowings by approximately $58.0 million under our revolving credit facility.
Of the remaining net proceeds, we used the remainder for capital expenditures,
working capital and other general corporate purposes. The 7 3/8% Senior Notes
(i) have interest payment dates on February 1 and August 1 of each year, which
commenced on February 1, 1999; (ii) are redeemable at our option at a redemption
price equal to the greater of (a) 100% of the principal amount of the 7 3/8%
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 our company and are pari passu in right of payment with any
existing and future senior unsecured indebtedness, including borrowings under
our existing revolving credit facility and the New Notes; (iv) are guaranteed by
certain of our subsidiaries; and (v) are subject to the terms of the indenture,
which contains certain covenants that limit our ability to incur indebtedness
secured by certain liens and to engage in sale/leaseback transactions.
At December 31, 2001 and March 31, 2002, we had outstanding $150.0 million
aggregate principal amount of the 7 3/8% Senior Notes.
NEW SECURED REVOLVING CREDIT FACILITY
Concurrently with the sale of the Old Notes on March 27, 2002, we entered
into a three-year $37.5 million secured revolving credit facility with Wachovia
Bank, National Association, under which our U.S. subsidiaries and certain of our
Canadian subsidiaries are co-borrowers. The $37.5 million aggregate amount
available under our new secured revolving credit facility includes a $7.5
million sublimit for standby letters of credit, a $7.5 million sublimit for
advances to our Canadian subsidiaries and a requirement that we maintain $2.0
million of ongoing excess availability. The $7.5 million sublimit for advances
to our Canadian subsidiaries has a 364-day term. On March 27, 2002, we used the
net proceeds from the sale of the Old Notes to repay and terminate our former
revolving credit facility outstanding at that time and to cash collateralize
approximately $4.4 million in letters of credit issued under the former
revolving credit facility. As of March 31, 2002, we have $28.4 million available
to us under our new secured revolving credit facility, and this amount is
available to fund our ongoing working capital and general corporate needs,
including capital expenditures.
The obligations under our new secured revolving credit facility are secured
by a first and only priority security interest in and lien on all of our U.S.
and Canadian accounts receivable and inventory and those of our U.S. and
Canadian subsidiaries and a pledge of 65% of the stock of certain of our foreign
subsidiaries. In addition, the $7.5 million sublimit for advances to our
Canadian subsidiaries is guaranteed by us and our U.S. subsidiaries.
Our new secured revolving credit facility matures on March 27, 2005, and
all amounts we borrow will be due on that date. The $7.5 million sublimit for
advances to our Canadian subsidiaries will mature 364 days from March 27, 2002,
and all amounts borrowed under the sublimit will be due on that date. At
62
any time before the maturity of our new secured revolving credit facility, we
may draw, repay and reborrow amounts available under the borrowing base.
Generally, the borrowing base will equal the sum of:
- 85% of our eligible accounts receivable (excluding certain accounts that
pose elevated credit risks), plus
- the lesser of 60% of our eligible raw material and finished goods
inventory (excluding certain supply parts and work in process) and $17.5
million.
Wachovia may establish reserve requirements, and the reserve requirements
and eligibility standards may be adjusted, during the term of our new secured
revolving credit facility.
Borrowings under our new secured revolving credit facility accrue interest,
at our option, at either (i) the greater of the prime rate, base rate or an
equivalent rate of interest plus 1.0%, or (ii) the eurodollar rate plus 2.5%. In
addition, we have paid and will pay fees and expenses based on available
borrowing, available letters of credit (issuance fees) and administrative and
legal costs.
Our new secured revolving credit facility includes covenants restricting
our activities, including limitations on dividends and other payments, liens,
negative pledges, investments, incurrence of debt, mergers, acquisitions, asset
sales, affiliate transactions, redemption of our 7 3/8% Senior Notes and
redemption of the Old Notes and the New Notes. Our new secured revolving credit
facility contains certain financial and operating covenants, including
limitations on total debt, cash flow requirements, capital expenditure
limitations and a $2.0 million excess availability requirement ongoing
throughout the term of our new secured revolving credit facility.
Under the terms of a covenant in our new secured revolving credit facility,
we and our subsidiaries are generally prohibited from incurring any indebtedness
except for:
(a) indebtedness arising under the new secured revolving credit facility;
(b) indebtedness existing as of March 27, 2002;
(c) indebtedness in respect of current accounts payable and accrued
expenses incurred in the ordinary course of business;
(d) up to $2.5 million in purchase money indebtedness incurred to finance
the purchase of fixed assets;
(e) unsecured intercompany indebtedness among us and our subsidiaries that
are parties to the new revolving credit facility (collectively, the
"credit parties," and each individually a "credit party");
(f) guarantees by one credit party of another credit party's permitted
indebtedness;
(g) up to $150 million in aggregate principal amount of our 7 3/8% Senior
Notes;
(h) up to $120 million in aggregate principal amount of the Old Notes and
the New Notes;
(i) indebtedness in respect of existing letters of credit;
(j) indebtedness of our non-credit party subsidiaries to credit parties,
up to an aggregate of $5.0 million; and
(k) up to $5.0 million in unsecured indebtedness so long as (i) no default
exists immediately before or after this additional indebtedness is
incurred, (ii) we and our borrower subsidiaries are in compliance with
the financial covenants under the new secured revolving credit
facility, and (iii) the documentation evidencing this additional
indebtedness does not contain covenants that are more restrictive than
the covenants under the new secured revolving credit facility.
As of June 30, 2002, the maximum amount of additional unsecured
indebtedness we and our subsidiaries could incur under clause (k) above was
approximately $5.0 million.
63
DESCRIPTION OF THE NEW NOTES
Wolverine Tube, Inc. will issue the New Notes under an Indenture (the
"Indenture") between itself, the Subsidiary Guarantors and Wachovia Bank,
National Association (successor to First Union National Bank), as Trustee. This
Indenture also governs the Old Notes. The terms of the New Notes are identical
in all material respects to the terms of the Old Notes, except for transfer
restrictions under the Securities Act relating to the outstanding Old Notes, and
in the case of both Old Notes and New Notes include those terms stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act.
Certain terms used in this description are defined under the subheading
"-- Certain Definitions." In this description, the word "Company" refers only to
Wolverine Tube, Inc. and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture and the New Notes. We urge you to read the Indenture because it,
not this description, defines your rights as Holders of the New Notes. A copy of
the Indenture has been filed as an exhibit to the registration statement of
which this prospectus is a part.
For purposes of this "Description of the New Notes" section, we have
assumed that all Old Notes will be exchanged for New Notes in the Exchange
Offer. However, if any Old Notes remain outstanding after the Exchange Offer,
the Old Notes and New Notes will be treated as a single class for all purposes
under the Indenture, including calculating percentages and determining rights
respecting waivers, amendments, voting, redemptions, offers to purchase
(including the amount and manner of selection of New Notes and Old Notes to be
purchased) and ranking as to payment. Thus, references in this "Description of
the New Notes" section to New Notes also include any Old Notes that are not
exchanged in the Exchange Offer.
BRIEF DESCRIPTION OF THE NEW NOTES
The New Notes:
- are unsecured senior obligations of the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- are guaranteed by each Subsidiary Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The Company will issue the New Notes with a maximum aggregate principal
amount of $120.0 million. The Company will issue the New Notes in denominations
of $1,000 and any integral multiple of $1,000. The New Notes will mature on
April 1, 2009.
Interest on the New Notes will accrue at the rate of 10 1/2% per annum and
will be payable semiannually in arrears on April 1 and October 1 of each year,
commencing on October 1, 2002. We will make each interest payment to the Holders
of record of the New Notes on the immediately preceding March 15 and September
15. We will pay interest on overdue principal at 1% per annum in excess of the
above rate and will pay interest on overdue installments of interest at such
higher rate to the extent lawful.
Interest on the New Notes will accrue from the last interest payment date
on which interest was paid on the Old Notes surrendered in exchange therefor or,
if no interest has been paid on the Old Notes, from the date of the original
issuance of the Old Notes. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Additional interest may accrue on the New Notes in certain circumstances
pursuant to the Registration Rights Agreement. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
64
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the New Notes
prior to their maturity. On and after April 1, 2006, we will be entitled at our
option to redeem all or a portion of the New Notes upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed in percentages of
principal amount on the redemption date), plus accrued interest to the
redemption date (subject to the right of Holders of record on the related record
date to receive interest due on the relevant interest payment date), if redeemed
during the 12 month period commencing on April 1 of the years set forth below:
<Table>
<Caption>
REDEMPTION
PERIOD PRICE
- ------ ----------
2006........................................................ 105.250%
2007........................................................ 102.625
2008 and thereafter......................................... 100.000%
</Table>
Prior to April 1, 2005, we may at our option on one or more occasions
redeem New Notes in an aggregate principal amount not to exceed 35% of the
aggregate principal amount of the New Notes originally issued at a redemption
price (expressed as a percentage of principal amount) of 110.50%, plus accrued
and unpaid interest to the redemption date, with the net cash proceeds from one
or more Public Equity Offerings; provided, however, that
(1) at least 65% of such aggregate principal amount of New Notes
remains outstanding immediately after the occurrence of each such
redemption (other than New Notes held, directly or indirectly, by the
Company or its Affiliates); and
(2) each such redemption occurs within 60 days after the date of the
related Public Equity Offering.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the New Notes at any time, the Trustee
will select New Notes on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate.
We will redeem New Notes of $1,000 or less in whole and not in part. We
will cause notices of redemption to be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of New Notes
to be redeemed at its registered address.
If any New Note is to be redeemed in part only, the notice of redemption
that relates to that New Note will state the portion of the principal amount
thereof to be redeemed. We will issue a replacement note in a principal amount
equal to the unredeemed portion of the original note in the name of the Holder
thereof upon cancellation of the original note. New Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on New Notes or portions of them called for
redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
We are not required to make any mandatory redemption or sinking fund
payments with respect to the New Notes. However, under certain circumstances, we
may be required to offer to purchase New Notes as described under the captions
"-- Change of Control" and "Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock." We may at any time and from time to time purchase New
Notes in the open market or otherwise.
65
GUARANTIES
The Subsidiary Guarantors will jointly and severally guarantee, on a senior
unsecured basis, our obligations under the New Notes. The obligations of each
Subsidiary Guarantor under its Subsidiary Guaranty will be limited as necessary
to prevent that Subsidiary Guaranty from constituting a fraudulent conveyance
under applicable law. See "Risk Factors -- Our subsidiary guarantees could be
deemed to be fraudulent conveyances."
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guaranty will be entitled upon payment in full of all guarantied obligations
under the Indenture to a contribution from each other Subsidiary Guarantor in an
amount equal to such other Subsidiary Guarantor's pro rata portion of such
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of such payment determined in accordance with GAAP.
If a Subsidiary Guaranty were rendered voidable, it could be subordinated
by a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guaranty could be reduced to zero. See "Risk Factors -- Our
subsidiary guarantees could be deemed to be fraudulent conveyances."
The Subsidiary Guaranty of a Subsidiary Guarantor will be released:
(1) upon the sale or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor;
(2) upon the sale or other disposition of all or substantially all the
assets of a Subsidiary Guarantor; or
(3) upon the designation of such Subsidiary Guarantor as an
Unrestricted Subsidiary;
in each case as permitted by the Indenture and in each case described in clauses
(1) and (2), such sale or other disposition is to a Person other than to the
Company or an Affiliate of the Company.
RANKING
SENIOR INDEBTEDNESS VERSUS NEW NOTES
The indebtedness evidenced by the New Notes and the Subsidiary Guaranties
will be unsecured and will rank pari passu in right of payment to the Senior
Indebtedness of the Company and the Subsidiary Guarantors, as the case may be.
The New Notes will be guaranteed by the Subsidiary Guarantors.
As of June 30, 2002:
(1) the Company's Senior Indebtedness was approximately $271.1
million, none of which was secured indebtedness; and
(2) the Senior Indebtedness of the Subsidiary Guarantors was
approximately $268.4 million. Virtually all of the Senior Indebtedness of
the Subsidiary Guarantors consists of their respective guaranties of Senior
Indebtedness of the Company under the Credit Agreement and with respect to
the Old Notes and the Existing Notes.
The New Notes will be unsecured obligations of the Company. Secured
indebtedness and other secured obligations of the Company (including obligations
with respect to the Credit Agreement) will be effectively senior to the New
Notes to the extent of the value of the assets securing such debt or other
obligations.
We have not issued, nor do we have any arrangements to issue, any
significant indebtedness to which the New Notes would be senior.
66
LIABILITIES OF SUBSIDIARIES VERSUS NEW NOTES
A substantial portion of our operations are conducted through our
subsidiaries. Some of our subsidiaries are not guaranteeing the New Notes.
Claims of creditors of such non-guarantor subsidiaries, including trade
creditors and creditors holding indebtedness or guarantees issued by such
non-guarantor subsidiaries, and claims of preferred stockholders of such
non-guarantor subsidiaries generally will have priority with respect to the
assets and earnings of such non-guarantor subsidiaries over the claims of our
creditors, including Holders of the New Notes. Accordingly, the New Notes will
be effectively subordinated to creditors (including trade creditors) and
preferred stockholders, if any, of our non-guarantor subsidiaries.
The total liabilities of our subsidiaries (other than the Subsidiary
Guarantors) were approximately $37.2 million at December 31, 2001 and $31.9
million at March 31, 2002, including trade payables. Although the Indenture
limits the incurrence of Indebtedness and preferred stock of certain of our
subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not considered
Indebtedness under the Indenture. See "-- Certain Covenants -- Limitation on
Indebtedness."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's New Notes at a purchase price in cash equal to 101% of
the principal amount thereof on the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of
this clause (1) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of the
Voting Stock of the Company;
(2) individuals who on the Issue Date constituted the Board of
Directors (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of the majority of the directors of the
Company then still in office who were either directors on the Issue Date or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then in
office;
(3) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person, other than a transaction following
which (A) in the case of a merger or consolidation transaction, holders of
securities that represented 100% of the Voting Stock of the Company
immediately prior to such transaction (or other securities into which such
securities are converted as part of such merger or consolidation
transaction) own directly or indirectly at least a majority of the voting
power of the Voting Stock of the surviving Person in such merger or
consolidation transaction immediately after such transaction and in
substantially the same proportion as before the transaction and (B) in the
case of a sale of assets transaction, each transferee becomes an obligor in
respect of the New Notes and a Subsidiary of the transferor of such assets.
67
Within 30 days following any Change of Control, we will mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's New Notes at a purchase price
in cash equal to 101% of the principal amount thereof on the date of
purchase, plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control;
(3) the purchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the
covenant described hereunder, that a Holder must follow in order to have
its New Notes purchased.
We will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by us and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of New Notes as a result of a Change of Control.
To the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of our
compliance with such securities laws or regulations.
The Change of Control purchase feature of the New Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the initial
purchasers of the Old Notes. We have no present intention to engage in a
transaction involving a Change of Control, although it is possible that we could
decide to do so in the future. Subject to the limitations discussed below, we
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of Indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings. Restrictions on our ability to Incur additional Indebtedness are
contained in the covenants described under "-- Certain Covenants -- Limitation
on Indebtedness," "-- Limitation on Liens" and "-- Limitation on Sale/Leaseback
Transactions." Such restrictions can only be waived with the consent of the
Holders of a majority in principal amount of the New Notes then outstanding.
Except for the limitations contained in such covenants, however, the Indenture
does not contain any covenants or provisions that may afford Holders of the New
Notes protection in the event of a highly leveraged transaction.
In the event a Change of Control occurs at a time when we are prohibited
from purchasing New Notes, we may seek the consent of our lenders to the
purchase of New Notes or may attempt to refinance the borrowings that contain
such prohibition. If we do not obtain such a consent or repay such borrowings,
we will remain prohibited from purchasing New Notes. In such case, our failure
to offer to purchase New Notes would constitute a Default under the Indenture,
which would, in turn, constitute a default under the Credit Agreement.
Future indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the Holders of their right to require us to repurchase the New
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on us.
Finally, our ability to pay cash to the Holders of New Notes
68
following the occurrence of a Change of Control may be limited by our then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
The definition of "Change of Control" includes a disposition of all or
substantially all of the assets of the Company to any Person. Although there is
a limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, in certain circumstances there may be a degree of uncertainty as to
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of the Company. As a result, it may be unclear
as to whether a Change of Control has occurred and whether a Holder of New Notes
may require the Company to make an offer to repurchase the New Notes as
described above.
The provisions under the Indenture relating to our obligation to make an
offer to repurchase the New Notes as a result of a Change of Control may be
waived or modified with the written consent of the Holders of a majority in
principal amount of the New Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any Restricted
Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided,
however, that the Company and its Subsidiary Guarantors will be entitled to
Incur Indebtedness if, on the date of such Incurrence and after giving
effect thereto on a pro forma basis, no Default has occurred and is
continuing and the Consolidated Coverage Ratio would be greater than 2.25
to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and any
Restricted Subsidiary will be entitled to Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred by the Company or any Restricted
Subsidiary pursuant to the Credit Agreement; provided, however, that,
after giving effect to any such Incurrence, the aggregate principal
amount of all Indebtedness Incurred under this clause (1) and then
outstanding does not exceed $50.0 million;
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that (A) any subsequent issuance or
transfer of any Capital Stock which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence
of such Indebtedness by the obligor thereon and (B) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all obligations
with respect to the New Notes;
(3) the Old Notes and the New Notes;
(4) the Existing Notes and any other Indebtedness outstanding on
the Issue Date (other than Indebtedness described in clause (1), (2) or
(3) of this covenant);
(5) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary (or the
assets and liabilities comprising such Subsidiary on such date) was
acquired by the Company or any Restricted Subsidiary (other than
Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired (or such assets and
liabilities were acquired) by the Company or any Restricted Subsidiary);
provided, however, that on the date of such acquisition and after giving
pro forma effect thereto, the Company would have been able to Incur at
least $1.00 of additional Indebtedness pursuant to paragraph (a) of this
covenant;
69
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) or this
clause (6);
(7) Hedging Obligations entered into in the ordinary course of
business to hedge risks with respect to the Company's or a Restricted
Subsidiary's interest rate, currency, natural gas or commodity exposure
and not for speculative purposes;
(8) obligations in respect of performance, bid, appeal or surety
bonds and completion guarantees provided by the Company or any
Restricted Subsidiary in the ordinary course of business;
(9) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn
against insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two Business Days
of its Incurrence;
(10) Guarantees by the Company or any Restricted Subsidiary of any
Indebtedness of the Company or any Restricted Subsidiary permitted to be
Incurred pursuant to paragraph (a) or pursuant to this paragraph (b);
(11) Indebtedness of Foreign Restricted Subsidiaries in an
aggregate principal amount which, when taken together with all other
Indebtedness of Foreign Restricted Subsidiaries Incurred pursuant to
this clause (11) and then outstanding, does not exceed $10.0 million;
and
(12) Indebtedness of the Company or of any of its Restricted
Subsidiaries in an aggregate principal amount which, when taken together
with all other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (11) above or paragraph
(a)) does not exceed $15.0 million.
(c) Notwithstanding the foregoing, neither the Company nor any
Subsidiary Guarantor will Incur any Indebtedness pursuant to the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations of the Company or any Subsidiary
Guarantor unless such Indebtedness shall be subordinated to the New Notes
or the applicable Subsidiary Guaranty to at least the same extent as such
Subordinated Obligations.
(d) For purposes of determining compliance with this covenant:
(1) any indebtedness outstanding under the Credit Agreement after
the application of the net proceeds from the sale of the Old Notes will
be treated as Incurred on the Issue Date under clause (1) of paragraph
(b) above;
(2) in the event that an item of Indebtedness (or any portion
thereof) meets the criteria of more than one of the types of
Indebtedness described above, the Company, in its sole discretion, will
classify such item of Indebtedness (or any portion thereof) at the time
of Incurrence and will only be required to include the amount and type
of such Indebtedness in one of the above clauses; and
(3) the Company will be entitled to (i) divide and classify an item
of Indebtedness in more than one of the types of Indebtedness described
above and (ii) in the case of Indebtedness Incurred pursuant to clause
(1), (11) or (12) of paragraph (b) above, from time to time reclassify
items of such Indebtedness; provided, however, that the amount and type
of such reclassified Indebtedness (or any portion thereof) will be
required to be included in one of clauses (1), (11) or (12) of paragraph
(b) above.
(e) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that may be Incurred pursuant to any clause of this
covenant will not be deemed to be exceeded, with respect to any outstanding
Indebtedness, due solely to fluctuations in the exchange rates of
currencies.
70
Notwithstanding the Company's ability to incur additional indebtedness permitted
under this Indenture covenant, the covenant contained in the Credit Agreement
governing the Company's ability to incur additional indebtedness is more
restrictive than the Indenture covenant described above in that it generally
prohibits the Company from incurring any additional indebtedness, subject to
limited exceptions. See "Description of Other Obligations -- New Secured
Revolving Credit Facility."
LIMITATION ON RESTRICTED PAYMENTS
(a) The Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to make a Restricted Payment if at the
time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of
(without duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from January 1, 2002 to the date
of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit); plus
(B) 100% of the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an
issuance or sale to a Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit
of their employees) and 100% of any cash capital contribution
received by the Company from its shareholders subsequent to the Issue
Date; plus
(C) the amount by which Indebtedness of the Company is reduced
on the Company's balance sheet upon the conversion or exchange
subsequent to the Issue Date of any Indebtedness of the Company
convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or
the fair value of any other property, distributed by the Company upon
such conversion or exchange); provided, however, that the foregoing
amount shall not exceed the Net Cash Proceeds received by the Company
or any Restricted Subsidiary from the sale of such Indebtedness
(excluding Net Cash Proceeds from sales to a Subsidiary of the
Company or to an employee stock ownership plan or a trust established
by the Company or any of its Subsidiaries for the benefit of their
employees); plus
(D) an amount equal to the sum of (x) the net reduction in the
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person resulting from repurchases,
repayments or redemptions of such Investments by such Person,
proceeds realized on the sale of such Investment and proceeds
representing the return of capital (excluding dividends and
distributions), in each case received by the Company or any
Restricted Subsidiary, and (y) to the extent such Person is an
Unrestricted Subsidiary, the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the
net assets of such Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the
case of any such Person or Unrestricted Subsidiary, the amount of
Investments (excluding Permitted Investments) previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
71
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent sale of, or made by exchange for, Capital Stock
of the Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) or a substantially
concurrent cash capital contribution received by the Company from its
shareholders; provided, however, that (A) such Restricted Payment shall
be excluded in the calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale or such cash capital
contribution (to the extent so used for such Restricted Payment) shall
be excluded from the calculation of amounts under clause (3) (B) of
paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company or any Subsidiary Guarantor made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness which is
permitted to be Incurred pursuant to the covenant described under
"-- Limitation on Indebtedness;" provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement
for value shall be excluded in the calculation of the amount of
Restricted Payments;
(3) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(4) so long as no Default has occurred and is continuing, the
purchase, redemption or other acquisition or retirement for value of
Capital Stock of the Company held by officers, directors or employees or
former officers, directors or employees (or their estates or
beneficiaries), upon death, disability, retirement, severance or
termination of employment, or in order to satisfy tax withholding
obligations of such persons upon the exercise of options or the vesting
of performance shares, or pursuant to any agreement under which such
Capital Stock was issued; provided, however, that the aggregate cash
consideration paid therefor does not exceed an aggregate amount of $1.0
million in any year, with any unused amounts in any year up to a
cumulative maximum amount of $2.0 million being available in any year;
provided further, however, that such purchases will be excluded from the
calculation of the amount of Restricted Payments;
(5) the acquisition in open-market purchases of Capital Stock of
the Company for matching contributions to employee stock purchase and
deferred compensation plans in the ordinary course of business;
provided, however, that such purchases, to the extent the related
Capital Stock is actually contributed to such plans, will be excluded in
the calculation of the amount of Restricted Payments;
(6) repurchases by the Company of Capital Stock of the Company
deemed to occur upon the exercise of options or warrants if such Capital
Stock represents all or a portion of the exercise price thereof;
provided, however, that such repurchases will be excluded from the
calculation of the amount of Restricted Payments;
(7) the purchase by the Company of fractional shares arising out of
stock dividends, splits or combinations, or fractional shares arising
out of business combinations; provided, however, that such purchases
will be included in the calculation of the amount of Restricted
Payments;
(8) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of Wolverine Ratcliffs, Inc. not owned by the
Company or any Restricted Subsidiary as of the Issue Date; provided,
however, that the amount of such purchase, redemption or other
acquisition or retirement individually or in the aggregate, that exceeds
CDN$2.0 million shall be deemed to be prohibited by paragraph (a) above;
provided further, however, that such
72
repurchase, redemption, acquisition or retirement will be excluded from
the calculation of the amount of Restricted Payments;
(9) payments made by the Company as a result of dissenters' rights
related to a merger involving the Company; provided, however, that as a
result of such merger, the Company has made a Change of Control Offer
under the covenant described under "-- Change of Control" to the extent
required by, and in accordance with, the provisions of such covenant and
any New Notes tendered in connection therewith have been purchased;
provided further, however, that any such payments will be excluded from
the calculation of the amount of such Restricted Payments; and
(10) other Restricted Payments subsequent to the Issue Date in an
aggregate amount not to exceed $5.0 million; provided, however, that
such Restricted Payments will be excluded from the calculation of the
amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) any encumbrance or restriction existing on the Issue Date,
including pursuant to the Credit Agreement;
(2) any encumbrance or restriction with respect to any Person existing
on or prior to the date on which such Person was acquired by the Company or
any Restricted Subsidiary (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Person became a Restricted Subsidiary
or was acquired by the Company or any Restricted Subsidiary) and
outstanding on such date;
(3) any encumbrance or restriction that extends, renews, refinances or
replaces any encumbrances or restrictions referred to in clause (1) or (2)
of this covenant or this clause (3); provided, however, that the
encumbrances and restrictions in such extensions, renewals, refinancings or
replacements are no less favorable, taken as a whole, to the New
Noteholders than the encumbrances and restrictions being extended, renewed,
refinanced or replaced;
(4) any encumbrance or restriction imposed pursuant to an agreement
entered into for the sale or disposition of assets permitted by the
covenant described under "-- Limitation on Sale of Assets;" provided,
however, that such encumbrance or restriction applies only to the assets
that are the subject of such agreement;
(5) provisions in agreements for Permitted Joint Ventures with respect
to the disposition or distribution of assets or property of such Permitted
Joint Venture;
(6) any encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder,
(7) any encumbrance or restriction existing under or by reason of
applicable law;
(8) any encumbrance or restriction contained in security agreements or
mortgages securing Indebtedness of a Restricted Subsidiary to the extent
such encumbrance or restriction restricts the transfer of the property
subject to such security agreements or mortgages; and
73
(9) any Liens securing Indebtedness otherwise permitted to be Incurred
under the covenant described under the sub-heading "-- Limitation on Liens"
that limit the right of the debtor to dispose of the assets subject to such
Liens.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
at least equal to the fair market value of the shares and assets subject to
such Asset Disposition;
(2) other than with respect to Designated Assets, at least 80% of the
consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash or Temporary Cash Investments; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness of the Company or Indebtedness (other than any Disqualified
Stock) of a Restricted Subsidiary (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within one year from
the later of the date of such Asset Disposition or the receipt of such
Net Available Cash;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the
Company elects, to acquire, construct or invest in, or improve or repair
(but only to the extent that such improvement or repair has a fair
market value equal to or greater than $500,000 and is accounted for in
the Company's balance sheet under the caption "property, plant and
equipment") Additional Assets that will constitute part of or be used in
the business of the Company or a Restricted Subsidiary within one year
from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
offer to the Holders of the New Notes (and to holders of other Senior
Indebtedness of the Company designated by the Company) to purchase New
Notes (and such other Senior Indebtedness of the Company) pursuant to
and subject to the conditions contained in the Indenture;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and, in respect
of Indebtedness other than Indebtedness Incurred pursuant to paragraph (b) (1)
of the covenant described under "-- Limitation on Indebtedness," shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $7.5 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash shall be invested in
Temporary Cash Investments or applied to temporarily reduce revolving credit
indebtedness.
74
For the purposes of this covenant, the following are deemed to be cash or
Temporary Cash Investments:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition; and
(2) securities, notes or other obligations received by the Company or
any Restricted Subsidiary from the transferee to the extent converted
within 90 days by the Company or such Restricted Subsidiary into cash or
Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of New
Notes (and other Senior Indebtedness of the Company) pursuant to clause
(a)(3)(C) above, the Company will purchase New Notes tendered pursuant to an
offer by the Company for the New Notes (and such other Senior Indebtedness) at a
purchase price of 100% of their principal amount (or, in the event such other
Senior Indebtedness of the Company was issued with significant original issue
discount, 100% of the accreted value thereof) without premium, plus accrued but
unpaid interest (or, in respect of such other Senior Indebtedness of the
Company, such lesser price, if any, as may be provided for by the terms of such
Senior Indebtedness) in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of the securities tendered exceeds the Net Available Cash
allotted to their purchase, the Company will select the securities to be
purchased on a pro rata basis but in round denominations, which in the case of
the New Notes will be denominations of $1,000 principal amount or multiples
thereof. The Company shall not be required to make such an offer to purchase New
Notes (and other Senior Indebtedness of the Company) pursuant to this covenant
until the 45th day after the first day of a calendar month in which the Net
Available Cash available therefor totals at least $5.0 million (with lesser
amounts being carried forward for purposes of determining whether such an offer
is required with respect to the Net Available Cash from any subsequent Asset
Disposition, except as provided in the next sentence). Upon completion of such
an offer to purchase, Net Available Cash will be deemed to be reduced by the
aggregate amount of such offer.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of New Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue of its compliance
with such securities laws or regulations.
In the event of an Asset Disposition that requires the purchase of New
Notes pursuant to clause (a)(3)(C) above, at a time when we are prohibited by
the Credit Agreement from purchasing New Notes, we may seek the consent of our
lenders to the purchase of New Notes or may attempt to refinance the borrowings
that contain such prohibition. If we do not obtain such a consent or repay such
borrowings, we will remain prohibited from purchasing New Notes. In such case,
our failure to offer to purchase New Notes would constitute a Default under the
Indenture, which would, in turn, constitute a default under the Credit
Agreement.
LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to
the Company or such Restricted Subsidiary than those that could be obtained
at the time of the Affiliate Transaction in arm's-length dealings with a
Person who is not an Affiliate;
75
(2) if such Affiliate Transaction involves an amount in excess of $2.0
million, the terms of the Affiliate Transaction are set forth in writing
and a majority of the directors of the Company disinterested with respect
to such Affiliate Transaction have determined in good faith that the
criteria set forth in clause (1) are satisfied and have approved the
relevant Affiliate Transaction as evidenced by a resolution of the Board of
Directors; and
(3) if such Affiliate Transaction involves an amount in excess of $7.5
million, the Board of Directors shall also have received a written opinion
from an Independent Qualified Party to the effect that such Affiliate
Transaction (i) is fair, from a financial standpoint, to the Company and
its Restricted Subsidiaries or (ii) is not less favorable to the Company
and its Restricted Subsidiaries than could reasonably be expected to be
obtained at the time in an arm's-length transaction with a Person who was
not an Affiliate.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment (other than a Permitted Investment) or other
Restricted Payment, in each case permitted to be made pursuant to the
covenant described under "-- Limitation on Restricted Payments;"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors;
(3) loans or advances to employees but in any event not to exceed $2.0
million in the aggregate outstanding at any one time;
(4) the payment of reasonable and customary directors' fees,
indemnification and similar arrangements, employee salaries, bonuses or
employment agreements, compensation or employee benefit arrangements and
incentive arrangements with any officer, director or employee of the
Company or any Restricted Subsidiary entered into in the ordinary course of
business;
(5) any transaction with a Restricted Subsidiary or joint venture or
similar entity which would constitute an Affiliate Transaction solely
because the Company or a Restricted Subsidiary owns an equity interest in
or otherwise controls such Restricted Subsidiary, joint venture or similar
entity;
(6) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company; and
(7) financial advisory, investment banking, commercial banking,
corporate trust and similar financial services provided by Wachovia
Corporation, or any of its affiliates, for which customary fees and
commissions are paid.
LIMITATION ON LINE OF BUSINESS
The Company will not, and will not permit any Restricted Subsidiary, to
engage in any business other than a Related Business.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company
(1) will not, and will not permit any Restricted Subsidiary to, sell,
lease, transfer or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than the Company or a Wholly Owned
Subsidiary), and
(2) will not permit any Restricted Subsidiary to issue any of its
Capital Stock (other than, if necessary, shares of its Capital Stock
constituting directors' or other legally required qualifying shares) to any
Person (other than to the Company or a Wholly Owned Subsidiary),
76
unless
(A) immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary;
(B) immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after
giving effect thereto is treated as a new Investment by the Company and
such Investment would be permitted to be made under the covenant
described under "-- Limitation on Restricted Payments" if made on the
date of such issuance, sale or other disposition; or
(C) in the case of a Restricted Subsidiary created or acquired by
the Company or any Restricted Subsidiary after the Issue Date,
immediately after giving effect to such issuance, sale or other
disposition of Capital Stock, such Restricted Subsidiary would continue
to be a Restricted Subsidiary; provided, however, that for purposes of
this clause (C), a Restricted Subsidiary will not be deemed to have been
created or acquired after the Issue Date if, as of the date of such
issuance, sale or other disposition, such Restricted Subsidiary owns
all, or any substantial portion, of the assets (other than cash and
Temporary Cash Investments) owned on the Issue Date by one or more
Restricted Subsidiaries.
LIMITATION ON LIENS
The Company will not, and will not permit any Restricted Subsidiary to,
issue, assume or guarantee any Indebtedness for borrowed money secured by any
Lien on any property or asset now owned or hereafter acquired by the Company or
such Subsidiary without making effective provision whereby any and all New Notes
then or thereafter outstanding will be secured by a Lien equally and ratably
with any and all other obligations thereby secured for so long as any such
obligations shall be so secured.
The foregoing restriction does not, however, apply to:
(a) Liens existing on the date on which the New Notes are originally
issued or provided for under the terms of agreements existing on such date;
(b) Liens on property securing (i) all or any portion of the cost of
acquiring, constructing, altering, improving or repairing any property or
assets, real or personal, or improvements used or to be used in connection
with such property or (ii) Indebtedness incurred by the Company or any
Subsidiary Guarantor prior to or within one year after the later of the
acquisition, the completion of construction, alteration, improvement or
repair or the commencement of commercial operation of such property, which
Indebtedness is incurred for the purpose of financing all or any part of
the purchase price thereof or construction or improvements thereon;
(c) Liens securing Indebtedness owed by a Subsidiary Guarantor to the
Company or to any other Subsidiary Guarantor;
(d) Liens on the property of any Subsidiary Guarantor existing at the
time such Person becomes a Subsidiary and not incurred as a result of (or
in connection with or in anticipation of) such Person becoming a
Subsidiary; provided, however, that such Liens do not extend to or cover
any property or assets of the Company or any of the Restricted Subsidiaries
other than the property encumbered at the time such Person becomes a
Subsidiary and do not secure Indebtedness with a principal amount in excess
of the principal amount outstanding at such time;
(e) Liens on any property securing (i) Indebtedness incurred in
connection with the construction, installation of financing of pollution
control or abatement facilities or other forms of industrial revenue bond
financing or (ii) Indebtedness issued or guaranteed by the United States or
any State thereof or any department, agency or instrumentality of either;
(f) Liens on any property of the Company or any Subsidiary Guarantor
in favor of governmental bodies;
77
(g) Liens to secure taxes not yet due or which are being contested in
good faith by the Company or a Subsidiary Guarantor;
(h) Liens extending, renewing, refinancing or replacing (or successive
extensions, renewals, refinancing or replacements of) any Lien, in whole or
in part, of any type permitted under the foregoing clauses (a) through (g)
above, provided that such Lien extends to or covers only the property that
is subject to the Lien being extended, renewed, refinanced or replaced and
that the principal amount of the Indebtedness secured thereby shall not
exceed the principal amount of Indebtedness so secured at the time of such
extension, renewal, refinancing or replacement; or
(i) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (h) above) securing Indebtedness for borrowed money of
the Company or any Subsidiary Guarantor in an aggregate principal amount
which, together with the aggregate amount of Attributable Indebtedness
deemed to be outstanding in respect of all Sale/Leaseback Transactions
entered into pursuant to clause (a) of the covenant described under
"-- Limitation of Sale/Leaseback Transactions" below (exclusive of any such
Sale/Leaseback Transactions otherwise permitted under clauses (a) through
(h) above), does not at the time such Indebtedness is incurred exceed the
greater of $50.0 million and 10% of Consolidated Net Tangible Assets, as
determined based on the consolidated balance sheet of the Company as of the
end of the most recent fiscal quarter ending at least 45 days prior
thereto.
Any Lien created for the benefit of the Holders of the New Notes pursuant
to the preceding sentence shall provide by its terms that such Lien shall be
automatically and unconditionally released and discharged upon the release and
discharge of the initial Lien.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/ Leaseback Transaction with any Person (other than the
Company or a Subsidiary Guarantor) unless:
(a) the Company or such Subsidiary would be entitled to incur
Indebtedness, in a principal amount equal to the Attributable Indebtedness
with respect to such Sale/Leaseback Transaction, secured by a Lien on the
property subject to such Sale/Leaseback Transaction pursuant to the
covenant described under "-- Limitation on Liens" above without equally and
ratably securing the New Notes pursuant to such covenant;
(b) after the date on which the New Notes are originally issued and
within a period commencing six months prior to the consummation of such
Sale/Leaseback Transaction and ending six months after the consummation
thereof, the Company or such Subsidiary shall have expended for property
used or to be used in the ordinary course of business of the Company and
its Subsidiary Guarantors an amount equal to all or a portion of the net
proceeds of such Sale/Leaseback Transaction and the Company shall have
elected to designate such amount as a credit against such Sale/Leaseback
Transaction (with any such amount not being so designated to be applied as
set forth in clause (c) below); or
(c) the Company, during the 12-month period after the effective date
of such Sale/Leaseback Transaction, shall have applied to the voluntary
defeasance or retirement of New Notes or any Pari Passu Indebtedness an
amount equal to
(i) the greater of the net proceeds of the sale or transfer of the
property leased in such Sale/Leaseback Transaction and the fair value,
as determined by the Board of Directors of the Company, of such property
at the time of entering into such Sale/Leaseback Transaction (in either
case adjusted to reflect the remaining term of the lease and any amount
expended by the Company as set forth in clause (b) above), less
(ii) an amount equal to the principal amount of New Notes and Pari
Passu Indebtedness voluntarily defeased or retired by the Company within
such 12-month period and not designated as a credit against any other
Sale/Leaseback Transaction entered into by the Company or any Subsidiary
during such period.
78
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, all
the obligations of the Company under the New Notes and the Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;"
(4) immediately after giving pro forma effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is
not less than the Consolidated Net Worth of the Company immediately prior
to such transaction; and
(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture;
provided, however, that clauses (3) and (4) will not be applicable to (A) a
Restricted Subsidiary consolidating with, merging into or transferring all or
part of its properties and assets to the Company or (B) the Company merging with
an Affiliate of the Company principally for the purpose and with the principal
effect of reincorporating the Company in another jurisdiction and not for
evading the foregoing limitations.
For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer or other disposition of all or substantially all of the properties and
assets of one or more Subsidiaries of the Company, which properties and assets,
if held by the Company instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of the Company on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
The Successor Company will be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and the predecessor Company, except in the case
of a lease, shall be released from the obligation to pay the principal of and
interest on the New Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(1) except in the case of a Subsidiary Guarantor that has been
disposed of in its entirety to another Person (other than to the Company or
an Affiliate of the Company), whether through a merger, consolidation or
sale of Capital Stock or assets, if in connection therewith the Company
provides an Officers' Certificate to the Trustee to the effect that the
Company will comply with its obligations under the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock" in respect of such
disposition, the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of
the United States of America, or any State
79
thereof or the District of Columbia, and such Person shall expressly
assume, by a Guaranty Agreement all the obligations of such Subsidiary, if
any, under its Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time
of such transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement, if any, complies with the Indenture.
FUTURE GUARANTORS
The Company will cause each domestic Restricted Subsidiary that Incurs any
Indebtedness in an aggregate principal amount equal to or greater than $250,000
or that Incurs any Indebtedness consisting of a Guarantee of Indebtedness with
respect to the Credit Agreement or the Existing Notes to, at the same time,
execute and deliver to the Trustee a Guaranty Agreement pursuant to which such
Restricted Subsidiary will Guarantee payment of the New Notes on the same terms
and conditions as those set forth in the Indenture.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC (to the extent that the SEC will accept such filing) and provide
the Trustee and New Noteholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filings of such information, documents and reports under
such Sections.
At any time that any of the Company's Subsidiaries are Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
"-- Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, the Company will furnish to the holders of the Old Notes and
to prospective investors, upon the requests of such holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Old Notes are not freely transferable under the Securities Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the New Notes when due,
continued for 30 days;
(2) a default in the payment of principal of any New Note when due at
its Stated Maturity, upon optional redemption, upon required purchase, upon
declaration of acceleration or otherwise;
(3) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with
any of its obligations in the covenants described above under "-- Change of
Control" (other than a failure to purchase New Notes) or under "-- Certain
Covenants," "-- Limitation on Indebtedness," "-- Limitation on Restricted
Payments," "-- Limitation on Restrictions on Distributions from Restricted
Subsidiaries,"
80
"-- Limitation on Sales of Assets and Subsidiary Stock" (other than a
failure to purchase New Notes), "-- Limitation on Affiliate Transactions,"
"-- Limitation on Line of Business," "-- Limitation on the Sale or Issuance
of Capital Stock of Restricted Subsidiaries," "-- Limitation on Liens,"
"-- Limitation on Sale/Leaseback Transactions," "-- Future Guarantors" or
"-- SEC Reports;"
(5) the failure by the Company or any Subsidiary Guarantor to comply
for 60 days after notice with its other agreements contained in the
Indenture;
(6) the occurrence of any default which results in the acceleration of
the maturity of any Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $10.0 million or more
individually or, taken together with all other such Indebtedness that has
been so accelerated, in the aggregate; or any default shall occur in the
payment of any principal or interest in respect of any Indebtedness of the
Company or any Significant Subsidiary having an outstanding principal of
$10.0 million or more individually or, taken together with all other such
Indebtedness with respect to which any such payment has not been made, in
the aggregate and such default shall be continuing for a period of 30 days
without the Company or such Subsidiary, as the case may be, effecting a
cure of such default (the "cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary (the "bankruptcy provisions");
(8) a judgment or order is rendered against the Company or any
Significant Subsidiary, which requires the payment in money by the Company
or any Significant Subsidiary either individually or in the aggregate, of
an amount (to the extent not covered by insurance) in excess of $10.0
million and such judgment or order remains unsatisfied, undischarged,
unvacated, unbonded and unstayed for 30 days (the "judgment default
provision"); or
(9) a Subsidiary Guaranty ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty.
However, a default under clauses (4) and (5) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding New Notes notify the Company of the default in writing and the
Company does not cure such default within the time specified in such clauses
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding New Notes may declare the
principal of and accrued but unpaid interest on all the New Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the New Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding New Notes may
rescind any such acceleration with respect to the New Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the New Notes
unless such Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Holder of a New
Note may pursue any remedy with respect to the Indenture or the New Notes
unless:
(1) such Holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding New
Notes have requested the Trustee to pursue the remedy;
81
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity; and
(5) Holders of a majority in principal amount of the outstanding New
Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding New Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each Holder of the New Notes notice of the Default within 90 days
after it occurs. Except in the case of a Default in the payment of principal of
or interest on any New Note, the Trustee may withhold notice if and so long as a
committee of its Trust Officers determines that withholding notice is not
opposed to the interest of the Holders of the New Notes. In addition, we are
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. We are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action we
are taking or propose to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the New Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the New Notes) and any past default or compliance with any
provisions may also be waived with the consent of the Holders of a majority in
principal amount of the New Notes then outstanding. However, without the consent
of each Holder of an outstanding New Notes affected thereby, an amendment or
waiver may not, among other things:
(1) reduce the amount of New Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any New Note;
(3) reduce the principal of or extend the Stated Maturity of any New
Note;
(4) reduce the amount payable upon the redemption of any New Note or
change the time at which any New Note may be redeemed as described under
"--Optional Redemption" above;
(5) make any New Note payable in money other than that stated in the
New Note;
(6) impair the right of any Holder of the New Notes to receive payment
of principal of and interest on such Holder's New Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's New Notes;
(7) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions;
(8) make any change in the ranking or priority of any New Note that
would adversely affect the New Noteholders; or
(9) make any change in any Subsidiary Guaranty that would adversely
affect the New Noteholders.
82
Notwithstanding the preceding, without the consent of any Holder of the New
Notes, the Company, the Subsidiary Guarantors and Trustee may amend the
Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of the Company or the Subsidiary Guarantors under the
Indenture;
(3) to provide for uncertificated New Notes in addition to or in place
of certificated New Notes (provided that the uncertificated New Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in
a manner such that the uncertificated New Notes are described in Section
163(f) (2) (B) of the Code);
(4) to add guarantees with respect to the New Notes, including any
Subsidiary Guaranties, or to secure the New Notes;
(5) to add to the covenants of the Company or a Subsidiary Guarantor
for the benefit of the Holders of the New Notes or to surrender any right
or power conferred upon the Company or a Subsidiary Guarantor;
(6) to make any change that does not adversely affect the rights of
any Holder of the New Notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the Holders of the New Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required
to mail to Holders of the New Notes a notice briefly describing such amendment.
However, the failure to give such notice to all Holders of the New Notes, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The New Notes will be issued in registered form and will be transferable
only upon the surrender of the New Notes being transferred for registration of
transfer. We may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
At any time, we may terminate all our obligations under the New Notes and
the Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the New Notes, to replace mutilated, destroyed, lost or stolen
New Notes and to maintain a registrar and paying agent in respect of the New
Notes.
In addition, at any time we may terminate our obligations under "-- Change
of Control" and under the covenants described under "-- Certain Covenants"
(other than the covenant described under "-- Merger and Consolidation"), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries and the judgment default provision described
under "-- Defaults" above and the limitations contained in clauses (3) and (4)
of the first paragraph under "-- Certain Covenants -- Merger and Consolidation"
above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the New Notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the New Notes may not be accelerated because of an Event of Default
specified in
83
clause (4), (6), (7) (with respect only to Significant Subsidiaries) or (8)
under "-- Defaults" above or because of the failure of the Company to comply
with clause (3) or (4) of the first paragraph under "-- Certain
Covenants -- Merger and Consolidation" above. If we exercise our legal
defeasance option or our covenant defeasance option, each Subsidiary Guarantor
will be released from all of its obligations with respect to its Subsidiary
Guaranty.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the New
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that Holders of the New Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
Wachovia Bank, National Association (successor to First Union National
Bank) is the Trustee under the Indenture as well as the Exchange Agent for the
Exchange Offer. We have appointed the Trustee as Registrar and Paying Agent with
regard to the New Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the outstanding New Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. If an Event of Default occurs (and is not cured), the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of New Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor will have any liability for any obligations of the
Company or any Subsidiary Guarantor under the New Notes, any Subsidiary Guaranty
or the Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Holder of the New Notes by accepting a New
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the New Notes. Such waiver and release may not
be effective to waive liabilities under the U.S. Federal securities laws, and it
is the view of the SEC that such a waiver is against public policy.
GOVERNING LAW
The Indenture and the New Notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
84
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property, plant or equipment used in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner (other
than a Person that would then be eligible pursuant to Rule 13d-1(g) under the
Exchange Act to file a Schedule 13G under the Exchange Act with respect to its
ownership interest in the Company) of Capital Stock representing 5% or more of
the total voting power of the Voting Stock (on a fully diluted basis) of the
Company or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary
other than, in the case of clauses (1), (2) and (3) above,
(A) a disposition between or among the Company and its Restricted
Subsidiaries;
(B) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only,
(x) a disposition that constitutes a Restricted Payment permitted by the
covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments" or a Permitted Investment, (y) a transaction that
is permitted by the covenant described under "-- Certain
Covenants -- Merger and Consolidation" and (z) a transaction that
constitutes a Sale/Leaseback Transaction permitted by the covenant
described under "-- Certain Covenants -- Limitation on Sale/Leaseback
Transactions;"
(C) a disposition of assets with a fair market value of less than
$500,000;
85
(D) the disposition by the Company or any Restricted Subsidiary of
(i) inventory and other assets acquired or produced and held for sale or
resale in the ordinary course of business (including inventory that is
no longer useful in the conduct of the Company's or its Subsidiaries'
businesses), (ii) obsolete, damaged or worn out personal property that
is no longer useful in the ordinary course of business or (iii) rights
granted to others pursuant to leases, subleases or licenses in the
ordinary course of business;
(E) any disposition of Capital Stock or assets of an Unrestricted
Subsidiary; and
(F) any disposition of the Capital Stock or assets of Wolverine
Ratcliffs, Inc. in existence on the Issue Date.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
set forth or implicit in the terms of the lease included in such transaction) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended); provided, however, that if such
Sale/Leaseback Transaction results in a Capital Lease Obligation, the amount of
Indebtedness represented thereby will be determined in accordance with the
definition of "Capital Lease Obligation."
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty. For purposes of the covenant described under "-- Certain Covenants --
Limitations on Liens," a Capital Lease Obligation will be deemed to be secured
by a Lien on the property being leased.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means any commodity or raw material futures contract,
commodity or raw materials option, or any other agreement designed to protect
against or manage exposure to fluctuations in commodity or raw material prices,
including silver leasing arrangements entered into for such purposes.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of (i) the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination or (ii) if quarterly financial information is
available for the immediately preceding fiscal quarter and such financial
information is included in the reports filed or delivered pursuant to the
covenant described under the sub-heading "-- Certain Covenants -- SEC
86
Reports," the most recent four consecutive fiscal quarters, to (y) Consolidated
Interest Expense for such four fiscal quarters; provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period;
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA for
such period shall be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, which constitutes all or substantially
all of an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire
87
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months or, if less, a remaining term equal to the remaining term of the
Indebtedness).
"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), on a consolidated basis, after
eliminating:
(1) all intercompany items between the Company and any Restricted
Subsidiary; and
(2) all current maturities of long-term Indebtedness, all as
determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication:
(1) interest expense attributable to capital leases (which interest
shall be deemed to accrue at an interest rate reasonably determined in good
faith by the Company to be the rate of interest implicit in such Capital
Lease Obligation in accordance with GAAP) and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(6) net payments pursuant to obligations under Interest Rate
Agreements and, to the extent Currency Agreements relate to Indebtedness or
Interest Rate Agreements, Currency Agreements;
(7) Preferred Stock dividends in respect of all Preferred Stock held
by Persons other than the Company or a Wholly Owned Subsidiary (other than
dividends payable solely in Capital Stock (other than Disqualified Stock)
of the Company); provided, however, that such dividends will be multiplied
by a fraction the numerator of which is one and the denominator of which is
one minus the effective combined tax rate of the issuer of such Preferred
Stock (expressed as a decimal) for such period (as estimated by the Chief
Financial Officer of the Company in good faith);
(8) interest incurred in connection with Investments in discontinued
operations;
(9) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in
88
the case of a dividend or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (3) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(2) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if payment of
dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company is not permitted by the terms of its
charter or by-laws or any other agreement, instrument, judgment, decree,
order, statute, rule or government regulation applicable to such Restricted
Subsidiary, except that:
(A) subject to the exclusion contained in clause (4) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
any gain (or loss) realized upon the sale or other disposition of any
Capital Stock of any Person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any repurchases, repayments or redemptions
of Investments, proceeds realized on the sale of Investments or return of
capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Consolidated Net Tangible Assets" means as of any particular time the
aggregate amount of assets (less depreciation and valuation reserves and other
reserves and items deductible from gross book value of specific asset accounts
under GAAP) after deducting therefrom:
(a) all current liabilities except for (i) notes and loans payable,
(ii) current maturities of long-term debt, and (iii) current maturities of
obligations under capital leases; and
(b) all deferred debt issuance costs, goodwill, patents, and other
like intangibles,
all as set forth on the most recent consolidated balance sheet of the Company
and its consolidated Subsidiaries and computed in accordance with GAAP.
"Consolidated Net Worth" means, at any time of determination, the total of
the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of (i) the most recent fiscal quarter of the Company ending at least 45
days prior to the taking of any action for the purpose of which the
determination is being made or (ii) if quarterly financial information is
available for the immediately preceding fiscal quarter and such financial
information is included in the reports filed or delivered pursuant to the
covenant described under the sub-heading "-- Certain Covenants -- SEC Reports,"
the most recent fiscal quarter of the Company
89
ending prior to the taking of any action for the purpose of which the
determination is being made, as the sum of:
(1) the par or stated value of all outstanding Capital Stock of the
Company plus
(2) paid-in capital or capital surplus relating to such Capital Stock
plus
(3) any retained earnings or earned surplus less (A) any accumulated
deficit and (B) any amounts attributable to Disqualified Stock.
"Credit Agreement" means the Credit Agreement entered into on March 27,
2002 by and among the Company, certain of its Subsidiaries, the lenders referred
to therein, Wachovia Bank, as Administrative Agent, Congress Financial
Corporation (Canada), as Canadian Agent, and First Union Securities, Inc. d/b/a
Wachovia Securities, as Sole Lead Arranger and Book Manager, together with the
related documents thereto (including the term loans and revolving loans
thereunder, any guarantees and security documents), as amended, extended,
renewed, restated, supplemented, replaced (by one or more credit facilities,
debt instruments or related document) or otherwise modified (in whole or in
part, and without limitation as to amount, terms, conditions, covenants and
other provisions) from time to time, and any agreement (and related document)
increasing the amount of, extending the maturity of or Refinancing such Credit
Agreement or a successor Credit Agreement, whether by the same or any other
lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement designed to protect against or manage
exposure to fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Assets" means the property, plant and equipment constituting
the assets held for sale, as represented on the consolidated balance sheet of
the Company dated as of December 31, 2001.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event:
(1) matures or is mandatorily redeemable (other than redeemable only
for Capital Stock of such Person which is not itself Disqualified Stock)
pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the first anniversary of the Stated Maturity of the
New Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to purchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the New Notes shall not constitute
Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such Capital
Stock than the terms applicable to the New Notes and described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary
Stock" and "-- Certain Covenants -- Change of Control;" and
(2) any such requirement only becomes operative after compliance with
such terms applicable to the New Notes, including the purchase of any New
Notes tendered pursuant thereto.
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified
90
Stock were redeemed, repaid or repurchased on any date on which the amount of
such Disqualified Stock is to be determined pursuant to the Indenture; provided,
however, that if such Disqualified Stock could not be required to be redeemed,
repaid or repurchased at the time of such determination, the redemption,
repayment or repurchase price will be the book value of such Disqualified Stock
as reflected in the most recent financial statements of such Person.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in cash in
a prior period); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion,
including by reason of minority interest) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Existing Notes" means the Company's 7 3/8% senior notes due 2008 issued
under an indenture dated as of August 4, 1998 among the Company, the guarantors
named therein and Wachovia Bank, National Association (successor to First Union
National Bank), as trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary not
incorporated or organized under the laws of the United States of America, any
State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting
Standards Board; and
(3) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements
91
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay or to maintain financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the
Company's obligations with respect to the New Notes on the terms provided for in
the Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Commodity Agreement, Natural Gas
Agreement or Currency Agreement.
"Holder" or "New Noteholder" means the Person in whose name a New Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning. Solely for
purposes of determining compliance with "-- Certain Covenants -- Limitation on
Indebtedness:"
(1) amortization of debt discount or the accretion of principal with
respect to a non-interest bearing or other discount security;
(2) the accrual or capitalization of interest;
(3) the payment of regularly scheduled interest in the form of
additional Indebtedness of the same instrument, or the payment of regularly
scheduled dividends on Capital Stock in the form of additional Capital
Stock of the same class and with the same terms; and
(4) the obligation to pay a premium in respect of indebtedness arising
in connection with the issuance of a notice of redemption or the making of
a mandatory offer to purchase such Indebtedness;
will not be deemed to be the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such
Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1)
through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are
92
not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on the
letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Capital Stock of such
Person or any Subsidiary of such Person or that are determined by the value
of such Capital Stock, the principal amount of such Capital Stock to be
determined in accordance with the Indenture;
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets and the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
Notwithstanding the foregoing, in connection with the purchase by the Company or
any Restricted Subsidiary of any business, the term "Indebtedness" will exclude
post-closing payment adjustments to which the seller may become entitled to the
extent such payment is determined by a final closing balance sheet or such
payment depends on the performance of such business after the closing; provided,
however, that, at the time of closing, the amount of any such payment is not
determinable and, to the extent such payment thereafter becomes fixed and
determined, the amount is paid within 60 days thereafter.
The amount of Indebtedness of any Person at any date shall be (A) the
outstanding balance at such date of all unconditional obligations as described
above, (B) the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date, and (C) in
the case of any Indebtedness consisting of Hedging Obligations, the net amount
payable if the related Interest Rate Agreement, Commodity Agreement, Natural Gas
Agreement or Currency Agreement were terminated at that time; provided, however,
that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness at any time will be the accreted value thereof at such time.
"Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing; provided, however, that such firm
is not an Affiliate of the Company.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other financial agreement
or arrangement designed to protect against or manage exposure to fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers or suppliers in the ordinary course of
business that are recorded as accounts receivable, endorsements for collection
or deposits arising in the ordinary course of business) or other extensions of
credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. Except as otherwise provided for herein, the
amount of an Investment shall be its fair value at the time the Investment is
made and without giving effect to subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments:"
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary equal to an amount (if
93
positive) equal to (A) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (B) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors.
"Issue Date" means March 27, 2002.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lenders" has the meaning specified in the Credit Agreement.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Natural Gas Agreement" means any natural gas purchase or hedging
agreement, future contract or option, or any other agreement designed to protect
against or manage exposure to fluctuations in natural gas prices.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred in connection with such Asset Disposition,
(including fees and expenses of counsel, investment bankers, consultants
and accountants), and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of
such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such
Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset
Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock
or Indebtedness, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
94
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall be subordinated in right of payment to the
New Notes.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related
Business;
(3) cash and Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business of the Company or such Restricted Subsidiary;
(7) stock, obligations or securities received in compromise or
settlement of debts created in the ordinary course of business and owing to
the Company or any Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock;"
(9) any Person where such Investment was acquired by the Company or
any of its Restricted Subsidiaries (a) in exchange for any other Investment
or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment
or accounts receivable or (b) as a result of a foreclosure by the Company
or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured
Investment in default;
(10) any Person to the extent such Investments consist of prepaid
expenses, negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits made in the
ordinary course of business by the Company or any Restricted Subsidiary;
(11) any Person to the extent such Investments consist of Hedging
Obligations otherwise permitted under the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness;"
(12) any Person to the extent such Investments consist of the Company
or a Restricted Subsidiary funding a qualified or non-qualified benefit
plan for employees of the Company and the Restricted Subsidiaries;
(13) Persons to the extent such Investments are in existence on the
Issue Date; and
95
(14) Unrestricted Subsidiaries and Permitted Joint Ventures (in
addition to Investments permitted by clauses (1) through (13) of this
definition) in an aggregate amount not to exceed $10.0 million at any time.
"Permitted Joint Venture" means any joint venture between the Company or
any Restricted Subsidiary and any other Person, regardless of legal form and
whether or not such joint venture is a Subsidiary of the Company or any
Restricted Subsidiary, entered into for the purpose of constructing, acquiring,
owning or operating facilities engaged in a Related Business outside of the
United States of America.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a New Note means the principal of the New Note plus the
premium, if any, payable on the New Note which is due or overdue or is to become
due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(1) such Refinancing Indebtedness has a Stated Maturity no earlier
than the date that is the earlier of the Stated Maturity of the
Indebtedness being Refinanced and the first anniversary of the Stated
Maturity of the New Notes;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount
(or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
dated March 22, 2002, among the Company, the Subsidiary Guarantors identified
therein, Credit Suisse First Boston Corporation and First Union Securities, Inc.
"Related Business" means any business in which the Company was engaged on
the Issue Date and any business related, ancillary or complementary to any
business of the Company.
96
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than
pro rata dividends or other distributions made by a Subsidiary that is not
a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including in connection with
any merger or consolidation and including the exercise of any option to
exchange any Capital Stock (other than into Capital Stock of the Company
that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
of such Person (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of such purchase, repurchase or other
acquisition); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company, for a period of more than three years, of any real or tangible personal
property, which property has been or is to be sold or transferred by the Company
or such Subsidiary to such Person in contemplation of such leasing.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred; and
(2) all other Obligations of such Person (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization
relating to such Person whether or not post-filing interest is allowed in
such proceeding) in respect of Indebtedness described in clause (1) above;
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such Indebtedness or other Obligations are subordinate in right of payment
to the New Notes or the Subsidiary Guaranty of such Person, as the case may be;
provided, however, that Senior Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary;
(2) any liability for Federal, state, local or other taxes owed or
owing by such Person;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or other Obligation of such Person which is
subordinate or junior in any respect to any other Indebtedness or other
Obligation of such Person; or
97
(5) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the New Notes or a
Subsidiary Guaranty of such Person, as the case may be, pursuant to a written
agreement to that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means TF Investor, Inc., Tube Forming, L.P.,
Wolverine Finance Company, Wolverine China Investments, LLC, STPC Holding, Inc.,
Small Tube Manufacturing Corporation, Wolverine Joining Technologies, Inc. and
Tube Forming Holdings, Inc. and each other Subsidiary of the Company that
executes the Indenture as a guarantor on the Issue Date and each other
Subsidiary of the Company that thereafter guarantees the New Notes pursuant to
the terms of the Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the New Notes.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof;
(2) investments in demand and time deposit accounts, certificates of
deposit and money market deposits maturing within one year of the date of
acquisition thereof and overnight bank deposits, in each case with or
issued by a bank or trust company which is organized under the laws of the
United States of America, any State thereof or any foreign country
recognized by the United States of America, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of $50.0
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A-2" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than one year
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of
98
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings Group; and
(5) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A-2"
by Standard & Poor's Ratings Group or "P-2" by Moody's Investors Service,
Inc.
"Trustee" means Wachovia Bank, National Association (successor to First
Union National Bank) until a successor replaces it and, thereafter, means the
successor.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the Issue Date.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Restricted Subsidiary; provided, however, that either (A) the Subsidiary to be
so designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
GENERAL
The New Notes initially will be issued in the form of one or more fully
registered notes in global form (the "Global Notes"). The Global Notes will be
deposited upon issuance with the Trustee as custodian for DTC and registered in
the name of DTC or its nominee, in each case for credit to the accounts of
institutions that have accounts with DTC or its nominee (the "DTC participants")
and to the
99
accounts of institutions that have accounts with Euroclear or its nominee
participants (the "Euroclear participants" and, collectively with the DTC
participants, the "participants"). Each of DTC and Euroclear is referred to
herein as a "Book Entry Facility." Ownership of beneficial interests in the
Global Notes will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interest in the Global Notes will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by a Book Entry Facility or its nominee (with respect to
participants interests) for such Global Notes or by participants or persons that
hold interests through participants (with respect to beneficial interests of
persons other than participants). The laws of some jurisdictions may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Notes.
So long as DTC, or its nominee, is the registered holder of the Global
Notes, DTC or such nominee, as the case may be, will be considered the sole
legal owner and holder of such notes represented by such Global Notes for all
purposes under the Indenture and the New Notes. Except as set forth below,
owners of beneficial interests in the Global Notes will not be entitled to have
such Global Notes or any notes represented thereby registered in their names,
will not receive or be entitled to receive physical delivery or certificated
notes in exchange therefor and will not be considered to be the owners or
holders of such Global Notes or any notes represented thereby for any purpose
under the New Notes or the Indenture. We understand that under existing industry
practice, in the event an owner of a beneficial interest in a Global Notes
desires to take any action that DTC, as the holder of such Global Notes, is
entitled to take, DTC would authorize the participants to take such action, and
that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Any payment of principal or interest due on the New Notes on any interest
payment date or at maturity will be made available by us to the Trustee by such
date. As soon as possible thereafter, the Trustee will make such payments to DTC
or its nominee, as the case may be, as the registered owner of the Global Notes
representing such notes in accordance with existing arrangements between the
Trustee and the depositary.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of the Global Notes will credit immediately the accounts
of the related participants with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Notes as
shown on the records of DTC. We also expect that payments by participants to
owners of beneficial interests in the Global Notes held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
participants.
None of us, the Trustee or any payment agent for the Global Notes will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for other aspects of the relationship between
the depositary and its participants or the relationship between such
participants and the owners of beneficial interests in the Global Notes owning
through such participants.
Because of time zone differences, the securities account of a Euroclear
participant purchasing an interest in a Global Note from a DTC participant will
be credited, and any such crediting will be reported to the relevant Euroclear
participant, during the securities settlement processing day (which must be a
business day for Euroclear) immediately following the DTC settlement date. Cash
received in Euroclear as a result of sales of interests in a Global Note by or
through a Euroclear participant to a DTC participant will be received with value
on the DTC settlement date but will be available in the relevant Euroclear cash
account only as of the business day following settlement in DTC.
As long as the New Notes are represented by a Global Note, DTC's nominee
will be the holder of such notes and therefore will be the only entity that can
exercise a right to repayment or repurchase of such notes. See "Description of
the New Notes -- Change of Control" and "-- Certain Covenants --
100
Limitation on Sales of Assets and Subsidiary Stock." Notice by participants or
by owners of beneficial interests in the Global Notes held through such
participants of the exercise of the option to elect repayment of beneficial
interests in notes represented by the Global Note must be transmitted to the
relevant Book Entry Facility in accordance with its procedures on a form
required by the relevant Book Entry Facility and provided to participants. In
order to ensure that DTC's nominee will timely exercise a right to repayment
with respect to a particular note, the beneficial owner of such note must
instruct the broker or other participant to exercise a right to repayment.
Different firms have cut-off times for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other participant through which it holds an interest in a note in order to
ascertain the cut-off time by which such an instruction must be given in order
for timely notice to be delivered to DTC. We will not be liable for any delay in
delivery of notices of the exercise of the option to elect repayment.
Unless and until exchanged in whole or in part for notes in definitive form
in accordance with the terms of the New Notes, the Global Notes may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or by DTC or any such nominee to a successor of
DTC or a nominee of each successor.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of a Book Entry
Facility, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of us or
the Trustee will have any responsibility for the performance by a Book Entry
Facility or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations. We and
the Trustee may conclusively rely on, and shall be protected in relying on,
instructions from a Book Entry Facility for all purposes.
CERTIFICATED NOTES
The Global Notes shall be exchangeable for corresponding notes in
certificated fully registered form ("certificated notes") registered in the name
of persons other than DTC or its nominee only if (A) DTC (i) notifies us that it
is unwilling or unable to continue as depositary for the Global Notes or (ii) at
any time ceases to be a clearing agency registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (B) there shall have occurred and
be continuing an Event of Default (as defined in the Indenture) with respect to
the applicable notes or (C) we execute and deliver to the Trustee an order that
the Global Notes shall be so exchangeable. Any certificated notes will be issued
only in fully registered form, and shall be issued without coupons in
denominations of $1,000 and integral multiples thereof. Any certificated notes
so issued will be registered in such names and in such denominations as DTC
shall request.
THE CLEARING SYSTEM
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and "a clearing agency" registered pursuant to the
provisions of section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of participants, thereby eliminating the need for physical movement of
securities certificates. DTC's participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's book-entry system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, whether directly or
indirectly.
101
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
tax considerations relevant to the exchange of Old Notes for New Notes pursuant
to the Exchange Offer and the sale, exchange, redemption, retirement at maturity
or other taxable disposition of an Old Note or New Note. This discussion is
based upon currently existing provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly on a retroactive
basis. There can be no assurance that the Internal Revenue Service will not take
positions contrary to those taken in this discussion, and no ruling from the
Internal Revenue Service has been or will be sought. This discussion does not
address all of the U.S. federal income tax considerations that may be relevant
to holders of notes in light of their individual circumstances, nor does it
address the U.S. federal income tax considerations that may be relevant to
holders subject to special rules, including, for example, banks and other
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or foreign currencies, partnerships or other entities classified as
partnerships for U.S. federal income tax purposes, certain former citizens or
former long-term residents of the United States, hybrid entities, persons
holding the notes as part of a hedging or conversion transaction or a straddle,
or holders that are U.S. persons, as defined by the Code, that have a functional
currency other than the U.S. dollar.
Beneficial owners of notes are urged to consult their own tax advisors as
to the particular U.S. federal income tax law consequences to them of exchanging
Old Notes for New Notes, as well as the tax consequences under state, local,
foreign, and other tax laws, and the possible effects of changes in tax laws.
We believe that the exchange of Old Notes for New Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for U.S. federal income tax
purposes. Consequently, we believe that a holder that exchanges Old Notes for
New Notes pursuant to the Exchange Offer will not recognize taxable gain or loss
on such exchange, such holder's adjusted tax basis in the New Notes will be the
same as its adjusted tax basis in the Old Notes exchanged therefore immediately
before such exchange, and such holder's holding period for the New Notes will
include the holding period for the Old Notes exchanged therefor. There will be
no U.S. federal income tax consequences to holders that do not exchange their
Old Notes pursuant to the Exchange Offer.
Upon the sale, exchange, redemption, retirement at maturity, or other
taxable disposition of an Old Note or New Note, a holder that is a U.S. person,
as defined by the Code, generally will recognize taxable gain or loss equal to
the difference between the sum of cash plus the fair market value of other
property received on such disposition, except to the extent such cash or
property is attributable to accrued but unpaid interest, and the holder's
adjusted tax basis in the note. If the notes are redeemed, the redemption price
will be the holder's amount realized for purposes of determining gain or loss on
the disposition of the notes. See "Description of the New Notes -- Optional
Redemption" above.
102
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account as a result
of the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
Expiration Date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 2002, all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account as a
result of the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
the prevailing market prices or negotiated prices. Any of these resales may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any of these
broker-dealers or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that it received for its own account as a result of the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any of these resales of New Notes and any
commissions or concessions received by any of these persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. We have agreed to pay all expenses incident to this Exchange Offer
(including the expenses of one counsel for the holders of the notes) other than
commissions or concessions of any brokers or dealers. We will indemnify the
holders of the New Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for us by
Balch & Bingham LLP, Birmingham, Alabama, relying on the opinion of Dewey
Ballantine LLP, New York, New York, with respect to matters of New York law.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 2001 and 2000, and for each of
the three years in the period ended December 31, 2001, as set forth in their
report appearing elsewhere herein. We have included our financial statements and
schedule in this prospectus and elsewhere in the Registration Statement of which
this prospectus is a part in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act to register the New Notes offered hereby. This prospectus does
not contain all of the information that you can find in the registration
statement, as permitted by the rules and regulations of the SEC. As a result,
statements in this prospectus concerning the contents of any contract or other
document are not necessarily complete.
103
You should read the full text of any contract or document filed as an exhibit to
the registration statement for a more complete understanding of the contract or
document or matter involved.
While any Old Notes remain outstanding, we will make available, upon
request, to any holder of notes the information required pursuant to Rule
144(d)(4) under the Securities Act of 1933 during any period in which we are not
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934. Any such
request should be directed to our Director of Investor Relations and
Communications.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Exchange Act. The Exchange Act file number
for our SEC filings is 001-12164. You may read and copy any document we file at
the SEC's public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. You may obtain information on the operation of the
public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330.
We file information electronically with the SEC. Our SEC filings are available
from the SEC's Internet site at http://www.sec.gov, which contains reports,
proxy and information statements and other information regarding issuers that
file electronically. Our common stock is listed on the New York Stock Exchange
under the symbol "WLV." You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
104
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements of Wolverine Tube, Inc.
as of and for the three months ended March 31, 2002
<Table>
Condensed Consolidated Statements of Income
(unaudited) -- for the three month periods ended March 31,
2002 and April 1, 2001.................................... F-2
Condensed Consolidated Balance Sheets--March 31, 2002 and
December 31, 2001......................................... F-3
Condensed Consolidated Statements of Cash Flows
(unaudited)--three month periods ended March 31, 2002 and
April 1, 2001............................................. F-4
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-5
</Table>
Consolidated Financial Statements of Wolverine Tube, Inc.
as of and for the year ended December 31, 2001
<Table>
Report of Independent Auditors.............................. F-17
Consolidated Statements of Operations -- for the years ended
December 31, 2001, 2000 and 1999.......................... F-18
Consolidated Balance Sheets -- December 31, 2001 and 2000... F-19
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity -- for the years ended December 31,
2001, 2000 and 1999....................................... F-20
Consolidated Statements of Cash Flows -- for the years ended
December 31, 2001, 2000 and 1999.......................... F-21
Notes to Consolidated Financial Statements.................. F-22
</Table>
F-1
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<Table>
<Caption>
THREE-MONTH PERIOD ENDED
------------------------------
MARCH 31, 2002 APRIL 1, 2001
-------------- -------------
(RESTATED)
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
Net sales................................................... $137,543 $172,437
Cost of goods sold.......................................... 123,220 150,671
-------- --------
Gross profit................................................ 14,323 21,766
Selling, general and administrative expenses................ 7,904 8,059
-------- --------
Operating income from continuing operations................. 6,419 13,707
Other (income) expenses:
Interest expense, net..................................... 3,730 3,774
Amortization and other, net............................... 78 (79)
-------- --------
Income from continuing operations before income taxes....... 2,611 10,012
Income tax provision........................................ 923 3,037
-------- --------
Income from continuing operations........................... 1,688 6,975
Loss from discontinued operations, net of income tax
provision of $-0- and $0.3 million for 2002 and 2001,
respectively.............................................. -- (848)
-------- --------
Net income.................................................. 1,688 6,127
Less preferred stock dividends.............................. (58) (70)
-------- --------
Net income applicable to common shares...................... $ 1,630 $ 6,057
======== ========
Earnings per common share -- basic:
Income from continuing operations........................... $ 0.13 $ 0.57
Loss from discontinued operations........................... -- (0.07)
======== ========
Net income per common share -- basic........................ $ 0.13 $ 0.50
======== ========
Basic weighted average number of common shares.............. 12,148 12,034
======== ========
Earnings per common share -- diluted:
Income from continuing operations........................... $ 0.13 $ 0.56
Loss from discontinued operations........................... -- (0.07)
======== ========
Net income per common share -- diluted...................... $ 0.13 $ 0.49
======== ========
Diluted weighted average number of common and common
equivalent shares......................................... 12,269 12,262
======== ========
</Table>
See Notes to Condensed Consolidated Financial Statements.
F-2
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
----------- ------------
(UNAUDITED) (NOTE)
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS
Current assets
Cash and equivalents...................................... $ 28,360 $ 22,739
Accounts receivable, net.................................. 87,422 67,164
Inventories............................................... 92,420 103,360
Refundable income taxes................................... 2,828 2,410
Prepaid expenses and other................................ 9,414 7,230
-------- --------
Total current assets........................................ 220,444 202,903
Property, plant and equipment, net.......................... 216,403 218,476
Deferred charges and intangible assets, net................. 109,855 102,995
Assets held for sale........................................ 9,257 9,072
Prepaid pensions............................................ 5,112 5,981
-------- --------
Total assets................................................ $561,071 $539,427
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 34,330 $ 34,137
Accrued liabilities....................................... 17,201 25,689
Short-term borrowings..................................... 923 1,684
-------- --------
Total current liabilities................................... 52,454 61,510
Deferred income taxes....................................... 9,231 9,225
Long-term debt.............................................. 275,069 247,698
Postretirement benefit obligation........................... 15,690 15,720
Accrued environmental remediation........................... 1,830 1,862
-------- --------
Total liabilities........................................... 354,274 336,015
Redeemable preferred stock, par value $1 per share; 500,000
shares authorized; 20,000 issued and outstanding at
December 31, 2001......................................... -- 2,000
Stockholders' equity
Common stock, par value $0.01 per share; 40,000,000 shares
authorized; 14,295,985 and 14,276,831 shares issued as
of March 31, 2002 and December 31, 2001,
respectively........................................... 144 143
Additional paid-in capital................................ 102,683 103,759
Retained earnings......................................... 160,675 159,045
Unearned compensation..................................... (106) (165)
Accumulated other comprehensive loss...................... (19,224) (21,898)
Treasury stock, at cost; 2,063,800 and 2,179,900 shares as
of March 31, 2002 and December 31, 2001,
respectively........................................... (37,375) (39,472)
-------- --------
Total stockholders' equity.................................. 206,797 201,412
-------- --------
Total liabilities, redeemable preferred stock and
stockholders' equity...................................... $561,071 $539,427
======== ========
</Table>
Note: The Balance Sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. See Notes
to Condensed Consolidated Financial Statements.
F-3
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
THREE-MONTH PERIOD ENDED
------------------------------
MARCH 31, 2002 APRIL 1, 2001
-------------- -------------
(RESTATED)
(IN THOUSANDS)
OPERATING ACTIVITIES
Income from continuing operations........................... $ 1,688 $ 6,975
Adjustments to reconcile income from continuing operations
to net cash used for operating activities:
Depreciation and amortization............................. 4,153 4,382
Deferred income taxes..................................... -- (251)
Other non-cash items...................................... 58 144
Changes in operating assets and liabilities:
Accounts receivable, net............................... (19,873) (16,093)
Inventories............................................ 5,445 (5,704)
Refundable income taxes................................ 214 7,257
Prepaid expenses and other............................. 274 (145)
Accounts payable....................................... (3,070) 2,287
Accrued liabilities including pension, postretirement
benefit and environmental............................. (70) 315
-------- --------
Net cash used for operating activities...................... (11,181) (833)
INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (1,948) (11,356)
Acquisition of business assets.............................. -- (1,461)
-------- --------
Net cash used for investing activities...................... (1,948) (12,817)
FINANCING ACTIVITIES
Financing fees and expenses paid............................ (6,843) --
Net borrowings (payments) on revolving credit facilities.... (93,652) 17,109
Net increase (decrease) in note payable..................... 1,711 (329)
Proceeds from issuance of senior notes...................... 118,546 --
Issuance of common stock.................................... 22 --
Redemption of preferred stock............................... (1,000) --
Dividends paid on preferred stock........................... (58) (70)
-------- --------
Net cash provided by financing activities................... 18,726 16,710
Effect of exchange rate on cash and equivalents............. (115) (1,087)
-------- --------
Net cash provided by continuing operations.................. 5,482 1,973
Net cash provided by (used for) discontinued operations..... 139 (2,575)
-------- --------
Net increase (decrease) in cash and equivalents............. 5,621 (602)
Cash and equivalents at beginning of period................. 22,739 23,458
-------- --------
Cash and equivalents at end of period....................... $ 28,360 $ 22,856
======== ========
</Table>
See Notes to Condensed Consolidated Financial Statements.
F-4
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed 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. References to the "Company", "we" or "us" refer to
Wolverine Tube, Inc. and its consolidated subsidiaries, unless the context
otherwise requires. The accompanying condensed consolidated financial statements
have been prepared in accordance with instructions to Form 10-Q and do not
include all the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. The
accompanying condensed consolidated financial statements (and all information in
this report) have not been examined by independent auditors; but, in the opinion
of management, all adjustments, which consist of normal recurring accruals
necessary for a fair presentation of the results for the periods, have been
made. The results of operations for the three-month period ended March 31, 2002
are not necessarily indicative of the results of operations that may be expected
for the year ending December 31, 2002. For further information, refer to the
consolidated financial statements and notes included in our Annual Report on
Form 10-K for the year ended December 31, 2001.
We use our internal operational reporting cycle for quarterly financial
reporting.
NOTE 2. CONTINGENCIES
We are subject to extensive environmental regulations imposed by federal,
state, provincial and local authorities in the United States, Canada, China and
Portugal with respect to emissions to air, discharges to waterways, and the
generation, handling, storage, transportation, treatment and disposal of waste
materials. We have received various communications from regulatory authorities
concerning environmental matters and have been named as a potentially
responsible party ("PRP") at one waste disposal site.
We have accrued estimated environmental remediation costs of $1.8 million
at March 31, 2002, consisting primarily of $0.8 million for the Decatur, Alabama
facility; $0.1 million for the Greenville, Mississippi facility; $0.5 million
for the Ardmore, Tennessee facility and $0.4 million for the Shawnee, Oklahoma
facility (with respect to the Double Eagle Refinery site).
NOTE 3. INVENTORIES
Inventories are as follows:
<Table>
<Caption>
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(IN THOUSANDS)
Finished products...................................... $24,224 $ 22,565
Work-in-process........................................ 16,097 20,850
Raw materials and supplies............................. 52,099 59,945
------- --------
Totals................................................. $92,420 $103,360
======= ========
</Table>
During the year ended December 31, 2001, we changed our method of
accounting for inventories from the last-in, first-out (LIFO) method to the
first-in, first-out (FIFO) method for portions of our finished products,
work-in-process and raw materials inventories. We believe the change is
preferable because copper prices have steadily declined since the mid 1990s and
the FIFO method will result in a better matching of the costs of inventories
with revenues. We believe that the FIFO method also provides a more meaningful
presentation of financial position because it reflects more recent costs in our
balance sheet. Moreover, the change also conforms all of our raw materials,
work-in process and finished goods
F-5
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inventories to a single costing method. We applied this change in method of
inventory costing retroactively by restating the prior years' financial
statements. The effect of the change in method on previously reported operating
results for the quarter ended April 1, 2001 was to decrease net income by $0.2
million ($0.02 loss per diluted share).
NOTE 4. DEFERRED CHARGES AND INTANGIBLE ASSETS
Deferred charges and intangible assets are as follows:
<Table>
<Caption>
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(IN THOUSANDS)
Net Deferred Charges:
Deferred debt issuance costs.............................. $ 8,101 $ 1,380
Other..................................................... 1,867 1,697
-------- --------
Total net deferred charges........................ $ 9,968 $ 3,077
-------- --------
Intangible Assets:
Goodwill.................................................. $118,444 $118,455
Other..................................................... 1,988 1,988
-------- --------
Gross carrying value...................................... 120,432 120,443
Less accumulated amortization............................. (20,545) (20,525)
-------- --------
Net intangible assets............................. $ 99,887 $ 99,918
======== ========
Total net deferred charges and intangible
assets.......................................... $109,855 $102,995
======== ========
</Table>
We capitalized $6.8 million of deferred debt issuance cost in the first
quarter of 2002 related to the issuance of our 10.5% Senior Notes and the
execution of our new revolving credit facility, both of which occurred on March
27, 2002.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. This statement addresses financial accounting and reporting
for acquired goodwill and other intangible assets. SFAS No. 142 presumes that
goodwill has an indefinite useful life and thus should not be amortized but
rather tested at least annually for impairment using a lower of cost or fair
value approach. Other intangible assets will still be amortized over their
useful lives under SFAS No. 142. On January 1, 2002, we adopted SFAS No. 142. A
transitional impairment test of all goodwill is required to be completed within
six months of adopting SFAS No. 142. We have not yet determined the amount, if
any, of goodwill impairment under the specific guidance of SFAS No. 142.
However, any impairment charge resulting from the transitional impairment test
will be recognized as a cumulative effect of a change in accounting principle.
At March 31, 2002, we had $99.8 million of goodwill, net of amortization.
Income from continuing operations in the first quarter of 2001, adjusted to
exclude amortization expense recognized related to goodwill would have been $7.5
million, or $0.61 per diluted share. Adoption of SFAS No. 142 is expected to
increase our net income in 2002 by approximately $2.7 million net of tax or
$0.22 per share due to the elimination of amortization of goodwill.
NOTE 5. INTEREST EXPENSE, NET
Interest expense is net of interest income and capitalized interest of $25
thousand and $6 thousand for the three-month period ended March 31, 2002, and
$0.3 million and $0.3 million for the three-month period ended April 1, 2001.
F-6
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. DEBT
Long-term debt consists of the following:
<Table>
<Caption>
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(IN THOUSANDS)
Revolving Credit facility, interest at the Eurodollar
rate plus 2.5% or the U.S. base rate plus 1%, due
March 2005........................................... $ 5,000 $ --
Revolving Credit facility, interest averaged 5.5% in
2001, due April 2002 (refinanced on March 27, 2002
from proceeds of $120 million 10.5% Senior Notes).... -- 97,906
Senior Notes, 10.5%, due April 2009.................... 120,000 --
Discount on 10.5% Senior Notes, original issue discount
amortized over 7 years............................... (1,455) --
Senior Notes, 7.375%, due August 2008.................. 150,000 150,000
Discount on 7.375% Senior Notes, original issue
discount amortized over 10 years..................... (200) (208)
Netherlands facility, 5.11%, due on demand............. 923 1,671
Other foreign facilities............................... 1,724 13
-------- --------
275,992 249,382
Less short-term borrowings............................. (923) (1,684)
-------- --------
Totals................................................. $275,069 $247,698
======== ========
</Table>
On March 27, 2002 we entered into two new financing agreements to replace
our existing revolving credit facility, which was scheduled to mature on April
30, 2002. We issued $120 million in principal amount of 10.5% Senior Notes that
will mature in 2009. We sold these notes for 98.8% of their face amount and
recorded a discount of $1.5 million, which we will amortize over the seven year
term of the Senior Notes. The 10.5% Senior Notes were issued pursuant to an
Indenture, dated as of March 27, 2002, between us and First Union National Bank,
as Trustee. The 10.5% Senior Notes (i) have interest payment dates of April 1
and October 1 of each year, (ii) are redeemable after the dates and at the
prices (expressed in percentages of principal amount on the redemption date), as
set forth below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
April 1, 2006............................................... 105.250%
April 1, 2007............................................... 102.625%
April 1, 2008 and thereafter................................ 100.000%
</Table>
and (iii) are senior unsecured obligations and are senior in right of payment to
any of our future subordinated obligations.
We also entered into a secured revolving credit facility concurrently with
the closing of the 10.5% Senior Notes offering. The new revolving credit
facility provides for up to a $37.5 million line of credit dependent on the
levels of and secured by our eligible accounts receivable and inventory. The new
revolving credit facility provides for interest at the Eurodollar rate plus 2.5%
or the U.S. base rate plus 1%. Commitment fees on the unused available portion
of the facility are 0.5%. The new revolving credit facility matures on March 27,
2005.
As of March 31, 2002, we had approximately $9.1 million in outstanding
borrowings and off-balance sheet obligations (consisting of standby letters of
credit) under the new revolving credit facility and
F-7
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $28.4 million (subject to a $2 million excess availability
requirement) in additional borrowing availability thereunder.
NOTE 7. COMPREHENSIVE INCOME (LOSS)
For the three-month periods ended March 31, 2002 and April 1, 2001,
comprehensive income (loss) was $4.4 million and $(0.1) million, respectively.
Comprehensive income differs from net income due to foreign currency translation
adjustments and adjustments related to accounting for derivative instruments and
hedging activities.
Comprehensive income (loss) is as follows:
<Table>
<Caption>
THREE-MONTH
PERIOD ENDED
--------------------
MARCH 31, APRIL 1,
2002 2001
--------- --------
(IN THOUSANDS)
Net income.................................................. $1,688 $ 6,127
Translation adjustment for financial statements denominated
in a foreign currency..................................... (122) (4,927)
Unrealized gain (loss) on cash flow hedges, net of tax...... 2,796 (1,346)
------ -------
Comprehensive income (loss)................................. $4,362 $ (146)
====== =======
</Table>
NOTE 8. INDUSTRY SEGMENTS
Our reportable segments are based on our three product groups: commercial
products, wholesale products and rod, bar and other products. Commercial
products consist primarily of high value added products sold directly to
original equipment manufacturers. Wholesale products are commodity-type plumbing
tube products, which are primarily sold to plumbing wholesalers and
distributors. Rod, bar and other consist of products sold to a variety of
customers. We evaluate the performance of our operating segments based on sales
and gross profit; however, we do not allocate asset amounts and items of income
and expense below gross profit or depreciation and amortization.
Summarized financial information concerning our reportable segments is
shown in the following table:
<Table>
<Caption>
ROD, BAR
COMMERCIAL WHOLESALE & OTHER CONSOLIDATED
---------- --------- -------- ------------
(IN THOUSANDS)
Three-month period ended March 31, 2002
Net sales............................... $106,353 $22,004 $ 9,186 $137,543
Gross profit............................ 12,174 1,590 559 14,323
Three-month period ended April 1, 2001
Net sales............................... $136,618 $23,495 $12,324 $172,437
Gross profit............................ 18,492 2,275 999 21,766
</Table>
The financial information for the period ended April 1, 2001 concerning our
reportable segments has been restated to reflect the change in method of
accounting for inventories (Note 3) and the reclassification of Wolverine
Ratcliffs, Inc. as discontinued operations (Note 10).
F-8
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<Table>
<Caption>
THREE-MONTH
PERIOD ENDED
----------------------
MARCH 31, APRIL 1,
2002 2001
---------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Income from continuing operations........................... $1,688 $6,975
Loss from discontinued operations, net of tax............... -- (848)
====== ======
Net income.................................................. 1,688 6,127
====== ======
Dividends on preferred stock................................ (58) (70)
====== ======
Net income applicable to common shares...................... $1,630 $6,057
====== ======
Basic weighted average common shares........................ 12,148 12,034
Stock options............................................... 121 228
====== ======
Diluted weighted average common and common equivalent
shares.................................................... 12,269 12,262
====== ======
Earnings per common share -- basic:
Income from continuing operations......................... $ 0.13 $ 0.57
Loss from discontinued operations......................... -- (0.07)
====== ======
Net income per common share -- basic........................ $ 0.13 $ 0.50
====== ======
Earnings per common share -- diluted:
Income from continuing operations......................... $ 0.13 $ 0.56
Loss from discontinued operations......................... -- (0.07)
====== ======
Net income per common share -- diluted...................... $ 0.13 $ 0.49
====== ======
</Table>
The financial information for the period ended April 1, 2001 has been
restated to reflect the change in method of accounting for inventories (Note 3)
and the reclassification of Wolverine Ratcliffs, Inc. as discontinued operations
(Note 10).
On April 11, 2002, we granted 383,075 stock options to our employees,
management and directors in conjunction with an option exchange offer that we
made available to our U.S. and Canadian stock option holders under our 1993
Equity Incentive Plan and 1993 Stock Option Plan for Outside Directors in the
third quarter of 2001. Under this option exchange offer, eligible optionees were
given the right to exchange options with an exercise price of $20.00 per share
or greater for new options to purchase one share for every two shares exchanged.
New options granted under the 1993 Equity Incentive Plan have an exercise price
of $8.60 per share, which was the closing price of our common stock on April 11,
2002. New options granted under the 1993 Stock Option Plan for Outside Directors
have an exercise price of $8.84 per share, which was determined by the average
market price of our stock on April 11, 2002 and the four preceding trading days.
NOTE 10. DISCONTINUED OPERATIONS
During the year ended December 31, 2001, we decided to discontinue the
operations of Wolverine Ratcliffs, Inc. ("WRI"), which were previously included
in the rod, bar and other products reportable
F-9
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
segment. Accordingly, the operating results of WRI have been restated and
reported in discontinued operations in the consolidated financial statements. In
the fourth quarter of 2001, we recorded a $31.5 million ($23.9 million after
tax) estimated loss on the disposal of the WRI operations, which included a $2.5
million ($1.6 million after tax) provision for estimated losses during the
expected phase-out period. The expected operating losses during the phase-out
period, which we anticipate will conclude by the end of the second quarter of
2002, are based on our best estimates of the most likely outcome and include a
$1.5 million loss in the first quarter of 2002. To the extent actual results
should differ from our estimate, the difference will be reported in discontinued
operations in future periods.
Operating results of the discontinued WRI operations are as follows:
<Table>
<Caption>
THREE MONTH
PERIOD ENDED
--------------------
MARCH 31, APRIL 1,
2002 2001
--------- --------
(IN THOUSANDS)
Net sales................................................... $8,126 $17,112
Net loss.................................................... (1,460) (848)
</Table>
Assets and liabilities of the discontinued WRI operations have been
reflected in the consolidated balance sheets as current or non-current based on
the original classification of these accounts, net of any necessary valuation
allowances, except that property, plant and equipment to be disposed of $3.9
million, net of a necessary valuation allowance, have been included in "assets
held for sale". Although we believe we have appropriately reduced the carrying
value of the assets to their estimated recoverable amounts, net of disposal
costs where appropriate, actual results could be different and the difference
will be reported in discontinued operations in future periods.
NOTE 11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial information
for: (a) Wolverine Tube, Inc. (the "Parent") on a stand-alone basis; (b) on a
combined basis, the guarantors of the 10.5% Senior Notes ("Subsidiary
Guarantors"), which include TF Investor, Inc.; Tube Forming, L.P.; Wolverine
Finance Company; Wolverine China Investments, LLC; STPC Holding, Inc.; Small
Tube Manufacturing Corporation; Wolverine Joining Technologies, Inc.; and Tube
Forming Holdings, Inc.; and (c) on a combined basis, the Non-Guarantor
Subsidiaries, which include Wolverine Tube (Canada) Inc.; 1263143 Ontario, Inc.;
1158909 Ontario, Inc.; 1105836 Ontario, Inc.; Wolverine Tube (Shanghai) Co.,
Limited; Wolverine European Holdings BV; Wolverine Scholte-Metalen BV; Wolverine
Tube, BV; Wolverine Tubagem (Portugal), Lda; Wolverine Joining Technologies
Canada, Inc.; Wolverine Ratcliffs, Inc.; Ratcliffs Copper and Brass Sales, Ltd.;
Wolverine Europe; Wolverine Asia, Limited; Wolverine Tube International, Ltd.;
Small Tube Europe NV; and Small Tube Poland, Inc. Each of the Subsidiary
Guarantors is wholly-owned. The guarantees issued by each of the Subsidiary
Guarantors are full, unconditional, joint and several. Accordingly, separate
financial statements of the wholly-owned Subsidiary Guarantors are not presented
because the Subsidiary Guarantors are jointly, severally and unconditionally
liable under the guarantees, and we believe separate financial statements and
other disclosures regarding the Subsidiary Guarantors are not material to
investors. Furthermore, there are no significant legal restrictions on the
Parent's ability to obtain funds from its subsidiaries by dividend or loan.
The parent is comprised of Alabama, Oklahoma, Tennessee, and Mississippi
manufacturing operations and certain corporate management, sales and marketing,
information services and finance functions.
F-10
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
Net sales........................ $70,768 $32,754 $43,674 $(9,653) $137,543
Cost of goods sold............... 66,327 28,394 38,152 (9,653) 123,220
------- ------- ------- ------- --------
Gross profit..................... 4,441 4,360 5,522 -- 14,323
Selling, general and
administrative expenses........ 6,334 787 783 -- 7,904
------- ------- ------- ------- --------
Operating income (loss).......... (1,893) 3,573 4,739 -- 6,419
Other (income) expenses:
Interest expense, net.......... 4,087 (5) (352) -- 3,730
Amortization and other, net.... 386 (940) 632 -- 78
------- ------- ------- ------- --------
Income (loss) from continuing
operations before income
taxes.......................... (6,366) 4,518 4,459 -- 2,611
Income tax provision (benefit)... (2,238) 1,814 1,347 -- 923
------- ------- ------- ------- --------
Income (loss) from continuing
operations..................... (4,128) 2,704 3,112 -- 1,688
Equity in earnings (losses) of
subsidiaries................... 5,816 -- -- (5,816) --
------- ------- ------- ------- --------
Net income (loss)................ $ 1,688 $ 2,704 $ 3,112 $(5,816) $ 1,688
======= ======= ======= ======= ========
</Table>
F-11
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED APRIL 1, 2001
(UNAUDITED)
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
Net sales........................ $95,060 $37,980 $48,413 $(9,016) $172,437
Cost of goods sold............... 81,793 34,252 43,642 (9,016) 150,671
------- ------- ------- ------- --------
Gross profit..................... 13,267 3,728 4,771 -- 21,766
Selling, general and
administrative expenses........ 5,821 1,382 856 -- 8,059
------- ------- ------- ------- --------
Operating income from continuing
operations..................... 7,446 2,346 3,915 -- 13,707
Other (income) expenses:
Interest expense, net.......... 3,928 (86) (68) -- 3,774
Amortization and other, net.... 3,246 (3,161) (164) -- (79)
------- ------- ------- ------- --------
Income from continuing operations
before income taxes............ 272 5,593 4,147 -- 10,012
Income tax provision (benefit)... (172) 2,330 879 -- 3,037
------- ------- ------- ------- --------
Income from continuing
operations..................... 444 3,263 3,268 -- 6,975
Loss from discontinued
operations, net of tax......... -- -- (848) -- (848)
Equity in earnings (losses)of
subsidiaries................... 5,683 -- -- (5,683) --
------- ------- ------- ------- --------
Net income (loss)................ $ 6,127 $ 3,263 $ 2,420 $(5,683) $ 6,127
======= ======= ======= ======= ========
</Table>
F-12
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 2002
(UNAUDITED)
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and equivalents.......... $ 10,195 $ -- $ 18,165 $ -- $ 28,360
Accounts receivable, net...... 94 58,331 28,997 -- 87,422
Inventories................... 53,560 14,307 24,553 -- 92,420
Refundable income taxes....... 4,182 (1,511) 157 -- 2,828
Prepaid expenses and other.... 4,422 4,053 939 -- 9,414
-------- -------- -------- --------- --------
Total current assets............ 72,453 75,180 72,811 -- 220,444
Property, plant and equipment,
net........................... 147,010 35,357 34,036 -- 216,403
Deferred charges and intangible
assets, net................... 32,621 75,571 1,663 -- 109,855
Assets held for sale............ 5,381 -- 3,876 -- 9,257
Prepaid pensions................ 3,964 -- 1,148 -- 5,112
Investments in subsidiaries..... 350,091 302 -- (350,393) --
-------- -------- -------- --------- --------
Total assets.................... $611,520 $186,410 $113,534 $(350,393) $561,071
-------- -------- -------- --------- --------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable.............. $ 17,644 $ 3,333 $ 14,116 $ (763) $ 34,330
Accrued liabilities........... 5,907 1,337 9,957 -- 17,201
Short-term borrowings......... -- -- 923 -- 923
Intercompany balances......... 84,244 (92,196) 7,189 763 --
-------- -------- -------- --------- --------
Total current liabilities....... 107,795 (87,526) 32,185 -- 52,454
Deferred income taxes........... 11,070 6,144 (7,983) -- 9,231
Long-term debt.................. 273,345 -- 1,724 -- 275,069
Postretirement benefit
obligation.................... 10,691 -- 4,999 -- 15,690
Accrued environmental
remediation................... 1,822 -- 8 -- 1,830
-------- -------- -------- --------- --------
Total liabilities............... 404,723 (81,382) 30,933 -- 354,274
-------- -------- -------- --------- --------
Stockholders' equity............ 206,797 267,792 82,601 (350,393) 206,797
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity.......... $611,520 $186,410 $113,534 $(350,393) $561,071
======== ======== ======== ========= ========
</Table>
F-13
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and equivalents......... $ -- $ -- $ 22,739 $ -- $ 22,739
Accounts receivable, net..... (6) 43,786 23,384 -- 67,164
Inventories.................. 57,849 17,266 28,245 -- 103,360
Refundable income taxes...... 2,823 (808) 395 -- 2,410
Prepaid expenses and other... 3,327 3,291 612 -- 7,230
-------- --------- -------- --------- --------
Total current assets........... 63,993 63,535 75,375 -- 202,903
Property, plant and equipment,
net.......................... 148,041 36,018 34,417 -- 218,476
Deferred charges and intangible
assets, net.................. 25,767 75,582 1,646 -- 102,995
Assets held for sale........... 5,381 -- 3,691 -- 9,072
Prepaid pensions............... 4,866 -- 1,115 -- 5,981
Investments in Subsidiaries.... 344,412 302 -- (344,714) --
-------- --------- -------- --------- --------
Total assets................... $592,460 $ 175,437 $116,244 $(344,714) $539,427
-------- --------- -------- --------- --------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable............. $ 17,274 $ 3,523 $ 14,236 $ (896) $ 34,137
Accrued liabilities.......... 10,960 884 13,845 -- 25,689
Short-term borrowings........ -- -- 1,684 -- 1,684
Intercompany balances........ 89,383 (100,200) 9,922 895 --
-------- --------- -------- --------- --------
Total current liabilities...... 117,617 (95,793) 39,687 (1) 61,510
Deferred income taxes.......... 11,070 6,144 (7,989) -- 9,225
Long-term debt................. 247,698 -- -- -- 247,698
Postretirement benefit
obligation................... 10,809 -- 4,911 -- 15,720
Accrued environmental
remediation.................. 1,854 -- 8 -- 1,862
-------- --------- -------- --------- --------
Total liabilities.............. 389,048 (89,649) 36,617 (1) 336,015
-------- --------- -------- --------- --------
Redeemable preferred stock..... 2,000 -- -- -- 2,000
-------- --------- -------- --------- --------
Stockholders' equity........... 201,412 265,086 79,627 (344,713) 201,412
-------- --------- -------- --------- --------
Total liabilities, redeemable
preferred stock and
stockholders' equity......... $592,460 $ 175,437 $116,244 $(344,714) $539,427
======== ========= ======== ========= ========
</Table>
F-14
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2002
(UNAUDITED)
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net Income (loss)............... $ 1,688 $ 2,704 $ 3,112 $(5,816) $ 1,688
Depreciation and amortization... 2,771 822 560 -- 4,153
Other non-cash items............ 91 -- (33) -- 58
Changes in operating assets and
liabilities................... 5,110 (13,003) (9,187) -- (17,080)
-------- -------- ------- ------- --------
Net cash provided by (used for)
operating activities.......... 9,660 (9,477) (5,548) (5,816) (11,181)
INVESTING ACTIVITIES
Additions to property, plant and
equipment..................... (1,776) (159) (13) -- (1,948)
Equity in earnings of
subsidiaries.................. (5,816) -- -- 5,816 --
-------- -------- ------- ------- --------
Net cash provided by (used for)
investing activities.......... (7,592) (159) (13) 5,816 (1,948)
FINANCING ACTIVITIES
Financing fees and expenses
paid.......................... (6,843) -- -- -- (6,843)
Net payments on revolving credit
facilities.................... (92,904) -- (748) -- (93,652)
Intercompany borrowings......... (9,636) 9,636 -- -- --
Net increase in note payable.... -- -- 1,711 -- 1,711
Proceeds from issuance of senior
notes......................... 118,546 -- -- -- 118,546
Issuance of common stock........ 22 -- -- -- 22
Redemption of preferred stock... (1,000) -- -- -- (1,000)
Dividends paid on preferred
stock......................... (58) -- -- -- (58)
-------- -------- ------- ------- --------
Net cash provided by financing
activities.................... 8,127 9,636 963 -- 18,726
Effect of exchange rate on cash
and equivalents............... -- -- (115) -- (115)
-------- -------- ------- ------- --------
Net cash provided by (used for)
continuing operations......... 10,195 -- (4,713) -- 5,482
Net cash provided by
discontinued operations....... -- -- 139 -- 139
-------- -------- ------- ------- --------
Net increase (decrease) in cash
and equivalents............... 10,195 -- (4,574) -- 5,621
Cash and equivalents at
beginning of period........... -- -- 22,739 -- 22,739
======== ======== ======= ======= ========
Cash and equivalents at end of
period........................ $ 10,195 $ -- $18,165 $ -- $ 28,360
======== ======== ======= ======= ========
</Table>
F-15
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED APRIL 1, 2001
(UNAUDITED)
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Income (loss) from continuing
operations.................... $ 6,127 $ 3,263 $ 3,268 $(5,683) $ 6,975
Depreciation and amortization... 2,547 1,319 516 -- 4,382
Other non-cash items............ 647 (761) 7 -- (107)
Changes in operating assets and
liabilities................... (45,739) 39,116 (5,460) -- (12,083)
-------- -------- ------- ------- --------
Net cash provided by (used for)
operating activities.......... (36,418) 42,937 (1,669) (5,683) (833)
INVESTING ACTIVITIES
Additions to property, plant and
equipment..................... (8,404) (510) (2,442) -- (11,356)
Acquisition of business
assets........................ (1,409) 23 (75) -- (1,461)
Equity in earnings (losses) of
subsidiaries.................. (5,683) -- -- 5,683 --
-------- -------- ------- ------- --------
Net cash provided by (used for)
investing activities.......... (15,496) (487) (2,517) 5,683 (12,817)
FINANCING ACTIVITIES
Net borrowings (payments) on
revolving credit facilities... 65,762 (48,653) -- -- 17,109
Intercompany borrowings......... (13,778) 6,203 7,575 -- --
Net decrease in note payable.... -- -- (329) -- (329)
Dividends paid on preferred
stock......................... (70) -- -- -- (70)
-------- -------- ------- ------- --------
Net cash provided by (used for)
financing activities.......... 51,914 (42,450) 7,246 -- 16,710
Effect of exchange rate on cash
and equivalents............... -- -- (1,087) -- (1,087)
-------- -------- ------- ------- --------
Net cash provided by continuing
operations.................... -- -- 1,973 -- 1,973
Net cash used for discontinued
operations.................... -- -- (2,575) -- (2,575)
-------- -------- ------- ------- --------
Net decrease in cash and
equivalents................... -- -- (602) -- (602)
Cash and equivalents at
beginning of period........... -- -- 23,458 -- 23,458
======== ======== ======= ======= ========
Cash and equivalents at end of
period........................ $ -- $ -- $22,856 $ -- $ 22,856
======== ======== ======= ======= ========
</Table>
F-16
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Wolverine Tube, Inc.
We have audited the accompanying consolidated balance sheets of Wolverine
Tube, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, redeemable preferred stock and
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. 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.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated March 11, 2002,
which report contained an explanatory paragraph regarding the Company's ability
to continue as a going concern, the Company, as discussed in Note 8, has
completed the sale of $120 million in Senior Notes and has obtained a new $37.5
million secured revolving credit facility. Therefore, the conditions that raised
substantial doubt about whether the Company will continue as a going concern no
longer exist.
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, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 to the financial statements, in 1999 the Company
changed its method of accounting for start-up activities. Also as discussed in
Note 3, in 2001 the Company changed its inventory costing method.
/s/ Ernst & Young LLP
March 11, 2002, except for Notes 8 and 21,
as to which the dates are March 27, 2002
and May 16, 2002, respectively
Birmingham, Alabama
F-17
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
-------- ---------- ----------
(RESTATED) (RESTATED)
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Net sales................................................... $583,114 $621,464 $586,202
Cost of goods sold.......................................... 520,874 536,351 522,589
-------- -------- --------
Gross profit................................................ 62,240 85,113 63,613
Selling, general and administrative expenses................ 32,254 31,961 30,314
Restructuring and other charges............................. 1,546 -- 19,938
-------- -------- --------
Operating income from continuing operations................. 28,440 53,152 13,361
Other (income) expenses:
Interest expense, net..................................... 13,100 12,168 12,237
Amortization and other, net............................... (447) 417 1,705
-------- -------- --------
Income (loss) from continuing operations before income
taxes..................................................... 15,787 40,567 (581)
Income tax provision (benefit).............................. 4,345 14,660 (988)
-------- -------- --------
Income from continuing operations........................... 11,442 25,907 407
Income (loss) from discontinued operations, net of income
tax provision (benefit) of $(4.5) million, $0.5 million
and $0.7 million for 2001, 2000, 1999, respectively....... (7,375) 782 1,362
Loss on disposal of discontinued operations, net of income
tax benefit of $7.6 million............................... (23,865) -- --
-------- -------- --------
Income (loss) before effect of a change in accounting
principle................................................. (19,798) 26,689 1,769
Cumulative effect of accounting change, net of income tax
benefit of $2.2 million................................... -- -- (5,754)
-------- -------- --------
Net income (loss)........................................... (19,798) 26,689 (3,985)
Less preferred stock dividends.............................. (280) (280) (280)
-------- -------- --------
Net income (loss) applicable to common shares............... $(20,078) $ 26,409 $ (4,265)
======== ======== ========
Earnings per common share -- basic:
Income from continuing operations........................... $ 0.92 $ 2.11 $ 0.01
Income (loss) from discontinued operations.................. (2.58) 0.06 0.10
Cumulative effect of accounting change...................... -- -- (0.44)
-------- -------- --------
Net income (loss) per common share -- basic................. $ (1.66) $ 2.17 $ (0.33)
======== ======== ========
Basic weighted average number of common shares.............. 12,077 12,153 13,106
======== ======== ========
Earnings per common share -- diluted:
Income from continuing operations........................... $ 0.91 $ 2.08 $ 0.01
Income (loss) from discontinued operations.................. (2.54) 0.06 0.10
Cumulative effect of accounting change...................... -- -- (0.43)
-------- -------- --------
Net income (loss) per common share -- diluted............... $ (1.63) $ 2.14 $ (0.32)
======== ======== ========
Diluted weighted average number of common and common
equivalent shares......................................... 12,307 12,344 13,243
======== ======== ========
</Table>
See accompanying notes.
F-18
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
-------- ----------
(RESTATED)
(IN THOUSANDS EXCEPT
SHARE AND PER SHARE
AMOUNTS)
ASSETS
Current assets
Cash and equivalents...................................... $ 22,739 $ 23,458
Accounts receivable, net.................................. 67,164 105,025
Inventories............................................... 103,360 101,935
Refundable income taxes................................... 2,410 10,769
Prepaid expenses and other................................ 7,230 3,402
-------- --------
Total current assets........................................ 202,903 244,589
Property, plant and equipment, net.......................... 218,476 207,325
Deferred charges and intangible assets, net................. 102,995 111,723
Assets held for sale........................................ 9,072 13,547
Prepaid pensions............................................ 5,981 7,753
-------- --------
Total assets...................................... $539,427 $584,937
======== ========
LIABILITIES, MINORITY INTEREST, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 34,137 $ 51,904
Accrued liabilities....................................... 25,689 18,229
Short-term borrowings..................................... 1,684 10,057
-------- --------
Total current liabilities................................... 61,510 80,190
Deferred income taxes....................................... 9,225 21,190
Long-term debt.............................................. 247,698 231,163
Postretirement benefit obligation........................... 15,720 17,272
Accrued environmental remediation........................... 1,862 2,165
-------- --------
Total liabilities........................................... 336,015 351,980
Commitments and contingencies
Minority interest........................................... -- 2,508
Redeemable preferred stock, par value $1 per share; 500,000
shares authorized; 20,000 shares issued and outstanding... 2,000 2,000
Stockholders' equity
Common stock, par value $0.01 per share; 40,000,000 shares
authorized, 14,276,831 and 14,214,318 shares issued as
of December 31, 2001 and 2000, respectively............ 143 142
Additional paid-in capital................................ 103,759 103,589
Retained earnings......................................... 159,045 179,123
Unearned compensation..................................... (165) (613)
Accumulated other comprehensive loss...................... (21,898) (14,320)
Treasury stock, at cost (2,179,900 shares as of December
31, 2001 and 2000)..................................... (39,472) (39,472)
-------- --------
Total stockholders' equity........................ 201,412 228,449
-------- --------
Total liabilities, minority interest, redeemable
preferred stock and stockholders' equity........ $539,427 $584,937
======== ========
</Table>
See accompanying notes.
F-19
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
REDEEMABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL UNEARNED
--------------- ------------------- PAID-IN RETAINED COMPEN-
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SATION
------ ------ ---------- ------ ---------- -------- --------
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
Balance at December 31, 1998, as
previously reported............... 20,000 $2,000 14,147,060 $141 $101,514 $164,118 $ --
Adjustment to reflect the change in
method of accounting for
inventories (Note 3).............. -- -- -- -- -- (7,139) --
------ ------ ---------- ---- -------- -------- -----
Balance at December 31, 1998, as
adjusted.......................... 20,000 2,000 14,147,060 141 101,514 156,979 --
Comprehensive income:
Net loss.......................... -- -- -- -- -- (3,985) --
Translation adjustments........... -- -- -- -- -- -- --
Comprehensive income..............
Common stock issued................ -- -- 49,229 1 283 -- --
Tax benefit from stock options
exercised......................... -- -- -- -- 308 -- --
Preferred stock dividends.......... -- -- -- -- -- (280) --
Issuance of restricted stock
award and amortization of
unearned compensation............. -- -- -- -- 549 -- (309)
Purchase of treasury stock......... -- -- -- -- -- -- --
------ ------ ---------- ---- -------- -------- -----
Balance at December 31, 1999....... 20,000 2,000 14,196,289 142 102,654 152,714 (309)
Comprehensive income:
Net income........................ -- -- -- -- -- 26,689 --
Translation adjustments........... -- -- -- -- -- -- --
Comprehensive income.............. -- -- -- -- -- -- --
Common stock issued................ -- -- 18,029 -- 58 -- --
Tax benefit from stock options
exercised......................... -- -- -- -- 3 -- --
Preferred stock dividends.......... -- -- -- -- -- (280) --
Issuance of restricted stock award
and amortization of unearned
compensation...................... -- -- -- -- 874 -- (304)
Purchase of treasury stock......... -- -- -- -- -- -- --
------ ------ ---------- ---- -------- -------- -----
Balance at December 31, 2000....... 20,000 2,000 14,214,318 142 103,589 179,123 (613)
Comprehensive loss:
Net loss.......................... -- -- -- -- -- (19,798) --
Translation adjustments........... -- -- -- -- -- -- --
Change in fair value of
derivatives, net of tax benefit
of $1,021....................... -- -- -- -- -- -- --
Comprehensive loss................ -- -- -- -- -- -- --
Common stock issued................ -- -- 62,513 1 70 -- --
Tax benefit from stock options
exercised......................... -- -- -- -- 78 -- --
Preferred stock dividends.......... -- -- -- -- -- (280) --
Issuance of restricted stock award
and amortization of unearned
compensation...................... -- -- -- -- 22 -- 448
------ ------ ---------- ---- -------- -------- -----
Balance at December 31, 2001....... 20,000 $2,000 14,276,831 $143 $103,759 $159,045 $(165)
====== ====== ========== ==== ======== ======== =====
<Caption>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL STOCK-
INCOME TREASURY HOLDERS'
(LOSS) STOCK EQUITY
------------- -------- ------------
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
Balance at December 31, 1998, as
previously reported............... $(15,494) $(16,628) $233,651
Adjustment to reflect the change in
method of accounting for
inventories (Note 3).............. -- -- (7,139)
-------- -------- --------
Balance at December 31, 1998, as
adjusted.......................... (15,494) (16,628) 226,512
Comprehensive income:
Net loss.......................... -- -- (3,985)
Translation adjustments........... 4,806 -- 4,806
--------
Comprehensive income.............. --
Common stock issued................ 821
--------
Tax benefit from stock options
exercised......................... -- -- 284
Preferred stock dividends..........
Issuance of restricted stock -- -- 308
award and amortization of -- -- (280)
unearned compensation............. -- -- 240
Purchase of treasury stock......... -- (15,386) (15,386)
-------- -------- --------
Balance at December 31, 1999....... (10,688) (32,014) 212,499
Comprehensive income:
Net income........................ -- -- 26,689
Translation adjustments........... (3,632) -- (3,632)
--------
Comprehensive income.............. -- -- 23,057
--------
Common stock issued................ -- -- 58
Tax benefit from stock options
exercised......................... -- -- 3
Preferred stock dividends.......... -- -- (280)
Issuance of restricted stock award
and amortization of unearned
compensation...................... -- -- 570
Purchase of treasury stock......... -- (7,458) (7,458)
-------- -------- --------
Balance at December 31, 2000....... (14,320) (39,472) 228,449
Comprehensive loss:
Net loss.......................... -- -- (19,798)
Translation adjustments........... (5,681) -- (5,681)
Change in fair value of
derivatives, net of tax benefit
of $1,021....................... (1,897) -- (1,897)
--------
Comprehensive loss................ -- -- (27,376)
--------
Common stock issued................ -- -- 71
Tax benefit from stock options
exercised......................... -- -- 78
Preferred stock dividends.......... -- -- (280)
Issuance of restricted stock award
and amortization of unearned
compensation...................... -- -- 470
-------- -------- --------
Balance at December 31, 2001....... $(21,898) $(39,472) $201,412
======== ======== ========
</Table>
See accompanying notes.
F-20
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
------- ---------- ----------
(RESTATED) (RESTATED)
(IN THOUSANDS)
OPERATING ACTIVITIES
Income from continuing operations........................... $11,442 $25,907 $ 407
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation.............................................. 15,022 14,109 12,998
Amortization.............................................. 3,657 2,931 2,775
Deferred income taxes..................................... (1,635) 5,353 (8,536)
Non-cash portion of restructuring and other charges....... 1,531 -- 14,920
Other non-cash items...................................... 140 570 1,264
Changes in operating assets and liabilities:
Accounts receivable, net................................ 15,873 (6,072) (3,540)
Inventories............................................. (9,956) (11,453) 13,459
Refundable income taxes................................. 8,530 (1,415) (6,797)
Prepaid expenses and other.............................. (368) 1,155 1,343
Accounts payable........................................ (16,291) 15,750 (12,540)
Accrued liabilities, including pension, postretirement
benefit and environmental............................. (1,298) (193) 227
------- ------- --------
Net cash provided by operating activities................... 26,647 46,642 15,980
INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (27,612) (31,676) (23,092)
Acquisition of business assets.............................. -- (43,948) --
Other....................................................... (1,601) 16 (452)
------- ------- --------
Net cash used for investing activities...................... (29,213) (75,608) (23,544)
FINANCING ACTIVITIES
Net decrease in note payable................................ (320) -- --
Net borrowing (repayment) from revolving credit
facilities................................................ 16,724 48,671 (33,507)
Principal payments on long-term debt........................ -- (338) (335)
Issuance of common stock.................................... 130 58 284
Purchase of treasury stock.................................. -- (7,458) (15,386)
Dividends paid on preferred stock........................... (280) (280) (280)
------- ------- --------
Net cash provided by (used for) financing activities........ 16,254 40,653 (49,224)
Effect of exchange rate on cash and equivalents............. (1,139) (709) 1,061
------- ------- --------
Net cash provided by (used for) continuing operations....... 12,549 10,978 (55,727)
Net cash provided by (used for) discontinued operations..... (13,268) (14,414) 3,722
------- ------- --------
Net decrease in cash and equivalents........................ (719) (3,436) (52,005)
Cash and equivalents at beginning of year................... 23,458 26,894 78,899
------- ------- --------
Cash and equivalents at end of year......................... $22,739 $23,458 $ 26,894
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Interest paid............................................... $15,500 $15,163 $ 16,119
Income taxes paid (refund).................................. $(2,331) $10,767 $ 14,484
</Table>
See accompanying notes.
F-21
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. References to
the "Company", "we" or "us" refer to Wolverine Tube, Inc. and its consolidated
subsidiaries, unless the context otherwise requires.
We are engaged in the manufacturing and distribution of copper and copper
alloy tubular products, fabricated and metal joining products, as well as rod
and bar products. Our focus is developing and manufacturing high value added
products used in engineered applications that require tubular products having
superior heat transfer capability. Our 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.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires our 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.
REVENUE RECOGNITION POLICY
We record sales when products are shipped to customers. Title passes to the
customer upon shipment. Sales are made under normal terms and generally do not
require collateral.
START-UP COSTS
Prior to adoption on January 1, 1999 of Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-Up Activities, as issued by the American
Institute of Certified Public Accountants, we capitalized pre-operating costs
associated with the start-up of new operations to the extent that such costs (i)
could be separately identified and segregated from ordinary period costs; (ii)
provided a quantifiable benefit to a future period; and, (iii) were directly
attributable to the quantifiable benefit within a relatively short period of
time after the costs were incurred. Pre-operating costs were comprised of
certain expenditures such as payroll, travel and other costs incurred during the
pre-operating period. The pre-operating period was defined as the period prior
to the commencement of production of products manufactured for sale to
customers. These capitalized costs were generally amortized on a straight-line
basis over a five-year period. Upon adoption of SOP 98-5, we recognize start-up
costs as expense when incurred.
In accordance with the Statement, we recognized a charge for the cumulative
effect of a change in accounting principle of $8.0 million pre-tax ($5.8 million
after-tax) in 1999.
CASH AND EQUIVALENTS
We consider all highly liquid financial instruments with a maturity of
three months or less at the time of purchase to be cash equivalents.
INVENTORIES
During the year ended December 31, 2001, we changed our method of
accounting for a portion of our raw materials, work-in-process and finished
products inventories from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method (see Note 3). These inventories are carried at the lower
of FIFO cost or market. We determine market value based upon assumptions about
future demand and market
F-22
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
conditions. The remaining inventories, which primarily include supplies, are
valued using the average cost method. We write down our inventories for
estimated obsolescence and unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value.
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>
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>
IMPAIRMENT OF LONG-LIVED ASSETS
We recognize impairment losses on long-lived assets under the provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-lived Assets to Be Disposed Of. When facts and circumstances indicate
that long-lived assets used in operations may be impaired and the undiscounted
cash flows estimated to be generated from those assets are less than their
carrying values, we record an impairment loss equal to the excess of the
carrying value over fair value. Long-lived assets held for disposal are valued
at the lower of the carrying amount or fair value less cost to sell. Beginning
in 2002, we will adopt new rules for recognizing impairment (see "Recent
Accounting Pronouncements").
INCOME TAXES
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of our 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 income tax also includes
operating loss and tax credit carryforwards.
DEFERRED CHARGES AND INTANGIBLE ASSETS
Debt issuance costs are deferred and amortized over the terms 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 has been amortized on a straight-line
basis over 40 years. Beginning in 2002, goodwill will no longer be amortized
(see "Recent Accounting Pronouncements"). 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. We assess the recoverability of enterprise level goodwill by
determining whether the unamortized goodwill balance can be recovered through
undiscounted future cash flows from operations. The amount of enterprise level
goodwill impairment, if any, is measured based on projected discounted future
cash flows using a discount rate reflecting our average cost of funds. To date,
we have made no adjustments to the carrying value of our enterprise level
goodwill, except for $7.4 million of goodwill attributable to discontinued
operations (see Note 2).
F-23
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
Basic income from continuing operations and basic net income per share is
based on the weighted average number of common shares outstanding and income
reduced by preferred dividends. Diluted income from continuing operations and
diluted net income per share is based on the weighted average number of common
shares outstanding plus the effect of dilutive stock options and income reduced
by preferred dividends.
DERIVATIVES AND HEDGING ACTIVITIES
We utilize derivative financial instruments to manage risk exposure to
movements in commodity and foreign exchange rates. We do not hold or issue
derivative financial instruments for trading or speculative purposes. In June
1998, the FASB issued SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities, which was amended in June 2000 by SFAS Nos. 137 and 138.
SFAS No. 133, as amended, establishes accounting and reporting standards for
derivative instruments and hedging activities. Initially, upon adoption of the
new derivative accounting requirements, and prospectively, on the date we enter
into a derivative contract, we designate derivatives as either a hedge of a
recognized asset or liability or an unrecognized firm commitment (fair value
hedge) or a hedge of a forecasted transaction (cash flow hedge). For fair value
hedges, both the effective and ineffective portion of the changes in the fair
value of the derivative, along with the gain or loss on the hedged item that is
attributable to the hedged risk, are recorded in earnings. The effective portion
of changes in fair value of a derivative that is designated as a cash flow hedge
is recorded in accumulated other comprehensive income or loss. When the hedged
item is realized, the gain or loss included in accumulated other comprehensive
income or loss is relieved. Any ineffective portion of the changes in the fair
values of derivatives used as cash flow hedges are reported in the consolidated
statements of operations. We document hedge relationships, including
identification of the hedging instruments and the hedged item, as well as our
risk management objectives and strategies for undertaking the hedge transactions
at the inception of each hedge transaction. Derivatives are recorded in the
consolidated balance sheet at fair value. We formally assess, at inception and
at least quarterly thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting change in either the fair values
or cash flows of the hedged item.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods are used by us in estimating fair value disclosures
for financial instruments:
Cash and equivalents, accounts receivable and accounts payable: The
carrying amount reported in the consolidated balance sheets for these
assets approximates their fair value.
Revolving credit facility, long-term debt and redeemable cumulative
preferred stock: The carrying amount of our borrowings under our revolving
credit facilities approximates fair value. The fair value of our 7 3/8%
Senior Notes and any derivative financial instruments are based upon quoted
market prices. The fair value of our redeemable cumulative preferred stock
is based upon its dividend rate and call provisions.
Derivatives: The fair value of our foreign currency and commodity
derivative instruments are determined by reference to quoted market prices.
F-24
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes fair value information for our financial
instruments:
<Table>
<Caption>
2001 2001 2000 2000
CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) VALUE VALUE VALUE VALUE
- -------------------- --------- --------- --------- ---------
(IN THOUSANDS)
Revolving credit facilities............ $ (97,906) $ (97,906) $ (81,403) $ (81,403)
Senior notes........................... (149,792) (127,500) (149,760) (130,398)
Other debt............................. (1,684) (1,684) (10,057) (10,057)
Redeemable cumulative preferred
stock................................ (2,000) (2,019) (2,000) (2,091)
Foreign currency exchange contracts.... (9) (9) -- (17)
Commodity futures contracts............ (2,918) (2,918) -- (689)
</Table>
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that pertain to our current operations and
relate to future revenues are expensed or capitalized consistent with our
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations, which do not contribute to future
revenues, are expensed. Liabilities, which are undiscounted, are recognized for
remedial activities when the cleanup is probable and the cost can be reasonably
estimated.
STOCK OPTIONS
SFAS 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. We have chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. We grant stock options for a fixed
number of shares to employees and directors with an exercise price equal to the
fair value of the shares at the date of grant. Accordingly, we recognize no
compensation expense for stock option grants.
TRANSLATION TO U.S. DOLLARS
Our assets and liabilities 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 or loss 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 ($0.5) million in 2001, ($0.1) million in 2000 and $1.0 million
in 1999.
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 $3.7 million in 2001,
$3.7 million in 2000 and $3.0 million in 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement addresses financial accounting and reporting for acquired
goodwill and intangible assets. SFAS No. 142 eliminates amortization of goodwill
and requires an impairment-only model for recording the value of
F-25
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
goodwill. SFAS No. 142 requires that impairment be tested at least annually at
the reporting unit level, using a two-step impairment test. The first step
determines if goodwill is impaired by comparing the fair value of the reporting
unit as a whole to the book value. If a deficiency exists, the second step
measures the amount of the impairment loss as the difference between the implied
fair value of goodwill and its carrying amount. Purchased intangibles with
indefinite economic lives will be tested for impairment annually using a lower
of cost or market approach. Other intangible assets will still be amortized over
their useful lives and reviewed for impairment when the facts and circumstances
suggest that they may be impaired.
We have not completed our transitional impairment test under SFAS No. 142;
thus, we do not know the amount, if any, of impairment that will be recorded
upon adoption. However, any impairment charge resulting from the transitional
impairment test would be recognized as a cumulative effect of a change in
accounting principle. We have $103.0 million of net deferred charges and
intangible assets at December 31, 2001, of which $99.8 million is goodwill.
Adoption of SFAS No. 142 is expected to increase income from continuing
operations by approximately $2.7 million net of tax in 2002 due to the
elimination of amortization of goodwill.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets that supersedes SFAS No. 121 and provides a
single accounting model for long-lived assets to be disposed of. Although
retaining many of the fundamental recognition and measurement provisions of SFAS
No. 121, the new rules significantly change the criteria that would have to be
met to classify an asset as held-for-sale. The new rules also supersede the
provision of Accounting Principle Board (APB) Opinion No. 30 with regard to
reporting the effects of a disposal of a segment of a business and require
expected future operating losses from discontinued operations to be displayed in
discontinued operations in the period(s) in which the losses are incurred
(rather than as of the measurement date as presently required by APB No. 30). In
addition, more dispositions will qualify for discontinued operation treatment in
the income statement. We plan to adopt SFAS No. 144 in the first quarter 2002.
We do not anticipate the provisions of this statement to have a significant
impact on our financial condition and results of operations.
2. DISCONTINUED OPERATIONS
On December 6, 2001, the Executive Committee of the Board of Directors
authorized management to discontinue the operations of Wolverine Ratcliffs, Inc.
("WRI"), which as of December 31, 2001 was a 74.5% owned strip business that was
jointly formed in 1999 with Ratcliffs-Severn, Ltd. WRI, which was previously
included in the rod, bar, strip and other reportable segment, produces both
heavy-gauge and light-gauge copper and copper alloy strip used primarily by
automotive, hardware and electrical equipment manufacturers. WRI has been
negatively impacted by fundamental changes in the marketplace including
aggressive foreign competition for heavy-gauge strip and increasing preference
by customers for extremely light-gauge strip which WRI is unable to produce
efficiently without further capital investment. Our decision to discontinue the
WRI operations was attributable to these changes in market conditions that made
it unlikely for us to produce an acceptable return on investment that would
enhance shareholder value. Immediately after the Executive Committee's
authorization, we formalized our plan of disposal. We have engaged a financial
advisor to pursue opportunities to dispose of the strip business and would
expect to be completely out of the strip business by the second quarter of 2002.
Accordingly, as required by Accounting Principles Board Opinion, ("APB")
30, Reporting the Results of Operations Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, the operating results of WRI for 2001 and all prior
periods presented herein have been restated and reported in discontinued
operations in the consolidated financial statements. In addition, we recorded a
$31.5 million ($23.9 million after tax) estimated loss on
F-26
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the disposal of the WRI operations, which included a $2.5 million ($1.6 million
after tax) provision for estimated losses during the expected phase-out period.
The expected loss on disposal of the WRI operations and the expected operating
losses during the phase-out period are based on our best estimates of the most
likely outcome, considering, among other things, our knowledge of valuations of
strip production assets. However, the actual amounts ultimately realized on
disposal and losses incurred during the expected phase-out period could differ
materially from the amounts assumed in arriving at the loss on disposal. To the
extent actual results differ from our estimate, the difference will be reported
in discontinued operations in future periods.
Operating results of the discontinued WRI operations were as follows:
<Table>
<Caption>
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Net sales............................................... $48,886 $79,875 $60,202
Net income (loss)....................................... (7,375) 782 1,362
</Table>
Assets and liabilities of the discontinued WRI operations have been
reflected in the consolidated balance sheets as current or non-current based on
the original classification of these accounts, net of any necessary valuation
allowances, except that property, plant and equipment of the WRI operations to
be disposed has been included in "assets held for sale" net of a necessary
valuation allowance. An accrual for the estimated losses to be incurred during
the expected phase-out period of $2.5 million (pre-tax) is presented in "accrued
liabilities" in the consolidated balance sheets.
There are no material contingent liabilities related to discontinued
operations, such as product or environmental liabilities or litigation, that are
expected to remain with us after the disposal of the WRI operations.
3. INVENTORIES
Inventories are as follows at December 31:
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)
Finished products........................................... $ 22,565 $ 22,708
Work-in-process............................................. 20,850 24,328
Raw materials and supplies.................................. 59,945 54,899
-------- --------
Totals...................................................... $103,360 $101,935
======== ========
</Table>
During the year ended December 31, 2001, we changed our method of
accounting for inventories from the last-in, first-out (LIFO) method to the
first-in, first-out (FIFO) method for portions of our finished products,
work-in-process and raw materials inventories. We believe the change is
preferable because copper prices have steadily declined since the mid 1990s and
the FIFO method will result in a better matching of the costs of inventories
with revenues. We believe that the FIFO method also provides a more meaningful
presentation of financial position because it reflects more recent costs in our
balance sheet. Moreover, the change also conforms all of our raw materials,
work-in-process and finished goods inventories to a single costing method.
We applied this change in method of inventory costing retroactively by
restating the prior years' financial statements. The effect of the change in
method on previously reported operating results for the quarters ended April 1,
July 1 and September 30, 2001 was to increase (decrease) net income by ($0.2)
million ($0.02 loss per diluted share); ($4.0) million ($0.33 loss per diluted
share); and $1.3 million ($0.11 per diluted share), respectively. The effect on
the balance sheet as of December 31,
F-27
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 was to decrease inventory and retained earnings by $11.3 million and $7.1
million, respectively. The impact on the consolidated statements of operations
for the years ended December 31, 2000 and 2001 was to increase (decrease) net
income by $3.2 million ($0.26 per diluted share); and ($0.7) million ($0.05 loss
per diluted share), respectively. The impact on the consolidated statements of
operations for the year ended December 31, 1999 was not material.
4. DERIVATIVES
We adopted Statement of Financial Accounting Standard (SFAS) No. 133
(subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative
Instruments and Hedging Activities, on January 1, 2001. The adoption of SFAS No.
133 resulted in an insignificant impact on reported earnings and accumulated
other comprehensive loss. At December 31, 2001, we reported an unrealized loss
of $2.9 million ($1.9 million, net of tax), in accumulated other comprehensive
loss for our outstanding commodity hedge contracts.
We have entered into commodity forward contracts through December 31, 2003
to hedge against the risk of copper price increases with respect to firm price
sales commitments. The notional amount of these forward contracts, which were
designated as fair value hedging instruments, was $17.3 million at December 31,
2001. For the twelve months ended December 31, 2001, an insignificant impact to
cost of goods sold was recorded for the ineffective portion of these derivative
instruments.
Also, we have entered into commodity forward contracts through December 31,
2003 to reduce our risk of future copper price increases on anticipated sales.
The notional amount of these forward contracts, which were designated as cash
flow hedging instruments, was $28.8 million at December 31, 2001. At December
31, 2001, we recorded the fair value of these forward contracts of $2.7 million
($1.7 million, net of tax) in accrued liabilities and in accumulated other
comprehensive loss. We expect that $2.5 million ($1.6 million, net of tax) of
the unrealized loss on our outstanding forward contracts will be reclassified to
earnings during the next twelve months when the anticipated transactions occur.
At December 31, 2001, we had commodity futures to purchase natural gas for
the period of February 2002 through October 2002 with a notional value of $1.4
million. These futures contracts were designated as cash flow hedging
instruments and there was no ineffective portion of the change in fair value of
these futures contracts for the period ended December 31, 2001. At December 31,
2001, we recorded the fair value of these instruments of $0.2 million ($0.2
million, net of tax) in accrued liabilities and accumulated other comprehensive
loss.
At December 31, 2001, we had forward exchange contracts outstanding to
purchase foreign currency with a notional value of $1.4 million and to sell
foreign currency with a notional value of $1.0 million. These forward contracts
and the underlying hedged receivables and payables are carried at their fair
values with any associated gains and losses recognized in current period
earnings. The impact on reported earnings of recording the fair value of these
hedging instruments and the underlying hedged receivables and payables for the
period ended December 31, 2001 was not significant.
5. ASSETS HELD FOR SALE
Assets held for sale at December 31, 2001 and 2000, include the net assets
of the unoccupied Greenville, Mississippi and Roxboro, North Carolina
facilities, which have been written down to fair value less cost to sell ($5.4
million) based on their appraised value. Assets held for sale also include $3.7
million and $8.1 million in 2001 and 2000, respectively, for net property, plant
and equipment of WRI, which we discontinued in 2001.
F-28
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are as follows at December 31:
<Table>
<Caption>
2001 2000
--------- ---------
(IN THOUSANDS)
Land and improvements....................................... $ 11,537 $ 11,558
Building and improvements................................... 48,820 48,105
Machinery and equipment..................................... 268,587 224,614
Construction-in-progress.................................... 6,430 26,995
--------- ---------
335,374 311,272
Less accumulated depreciation............................... (116,898) (103,947)
--------- ---------
Totals...................................................... $ 218,476 $ 207,325
========= =========
</Table>
7. DEFERRED CHARGES AND INTANGIBLE ASSETS
Deferred charges and intangible assets are as follows at December 31:
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)
Deferred debt issuance costs................................ $ 2,130 $ 2,650
Goodwill.................................................... 118,455 123,557
Patents and other........................................... 3,685 4,213
-------- --------
124,270 130,420
Less accumulated amortization............................... (21,275) (18,697)
-------- --------
Totals...................................................... $102,995 $111,723
======== ========
</Table>
In September 2000, we acquired the metal joining products business of
Engelhard Corporation. The metal joining products business is located in
Warwick, Rhode Island, and is a leading manufacturer of brazing alloys and
fluxes, as well as a supplier of lead-free solder. The transaction was
structured as an all-cash acquisition for approximately $41.8 million, which we
financed through our credit facility. The transaction was accounted for using
the purchase method of accounting, resulting in $24.0 million of goodwill, that
is being amortized on a straight-line basis over its estimated useful life of 40
years. The accounts and results of operations of the metal joining products
business have been combined with ours since the date of the acquisition. If this
acquisition had been consummated at the beginning of 2000, the effect on our
consolidated results of operations would not have been significant.
F-29
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. FINANCING ARRANGEMENTS AND DEBT
Long-term debt consists of the following at December 31:
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)
Revolving Credit Facility, interest tied to banks' base rate
or alternative rates, averaged 5.5% in 2001, due April
2002 (refinanced on March 27, 2002 from the proceeds of
$120 million 10.5% Senior Notes described below).......... $ 97,906 $ 81,403
Senior Notes, 7 3/8%, due August 2008....................... 150,000 150,000
Discount on Senior Notes, original issue discount amortized
over 10 years............................................. (208) (240)
Netherlands facility, 5.11%, due on demand.................. 1,671 --
Other foreign facilities.................................... 13 10,057
-------- --------
249,382 241,220
Less short-term borrowings.................................. (1,684) (10,057)
-------- --------
Totals...................................................... $247,698 $231,163
======== ========
</Table>
Aggregate maturities of long-term debt are as follows:
<Table>
<Caption>
(IN THOUSANDS)
2002........................................................ $ 1,684
2008 through 2009........................................... 247,698
--------
Totals...................................................... $249,382
========
</Table>
As of December 31, 2001, we had a Revolving Credit Facility ("the
Facility"), set to mature on April 30, 2002. The Facility originally provided
for a $200.0 million line of credit and a floating base interest rate that at
our election was LIBOR plus a specified margin of 0.25% to 1.00%. On August 8,
2001, we and our lenders executed the Fifth Amendment and Limited Waiver to
Credit Amendment regarding certain debt covenants and certain financial
covenants of the Facility. The terms of this agreement included a provision for
the last six months of 2001 that increased the floating base interest rate to
LIBOR plus 0.75% to 2.00%. On February 4, 2002, we and our lenders executed a
Limited Waiver, the Sixth Amendment to Credit Agreement and a Security
Agreement. Under the terms of the Limited Waiver, the lenders waived compliance
with the financial covenants contained in the Facility from December 31, 2001
through April 16, 2002 and we agreed to limit borrowings under the Facility to
an aggregate amount of $130.0 million, grant a security interest in all our U.S.
accounts receivable and inventory to secure all new borrowings under the
Facility after the date of the execution of the Limited Waiver, adjust the
floating base interest rate on the Facility to LIBOR plus 3.00% and limit
certain of our non-operating activities. The Sixth Amendment to Credit Agreement
and the Security Agreement document the agreed upon terms in the Limited Waiver.
As of December 31, 2001, we had approximately $103.0 million in outstanding
borrowings and off-balance sheet obligations (consisting of standby letters of
credit) under the Facility and approximately $27.0 million in additional
borrowing availability under the terms of the Limited Waiver executed on
February 4, 2002. The weighted average interest rate under the Facility was 5.5%
for 2001 versus 7.0% for 2000.
On March 27, 2002, we obtained new financing agreements to replace our
existing revolving credit facility. We issued $120 million in principal amount
of 10.5% Senior Notes that will mature in 2009. The 10.5% Senior Notes were
issued pursuant to an Indenture, dated as of March 27, 2002, between us and
First Union National Bank, as Trustee. The 10.5% Senior Notes (i) have interest
payment dates of April 1
F-30
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and October 1 of each year; (ii) are redeemable after the dates and at the
prices (expressed in percentages of principal amount on the redemption date), as
set forth below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
April 1, 2006............................................... 105.250%
April 1, 2007............................................... 102.625%
April 1, 2008 and thereafter................................ 100.000%
</Table>
and (iii) are senior unsecured obligations and are senior in right of payment to
any of our future subordinated obligations.
We also entered into a new secured revolving credit facility concurrently
with the closing of the 10.5% Senior Notes offering. The new revolving credit
facility provides for up to a $37.5 million line of credit dependent on the
levels of and secured by our eligible accounts receivable and inventory. The new
revolving credit facility provides for interest at the Eurodollar rate plus 2.5%
or the U.S. base rate plus 1%. Commitment fees on the unused available portion
of the facility are 0.5%. The revolving credit facility matures March 27, 2005.
Because we used proceeds from our new long-term financing agreements to
refinance the current maturities on our existing revolving credit facility, we
have reclassified all outstanding borrowings under the existing facility as
non-current in our consolidated balance sheet as of December 31, 2001.
In August 1998, we issued $150.0 million in principal amount of 7 3/8%
Senior Notes due August 1, 2008. The 7 3/8% Senior Notes were issued pursuant to
an Indenture, dated as of August 4, 1998, between us and First Union National
Bank, as Trustee. The 7 3/8% Senior Notes (i) have interest payment dates of
February 1 and August 1 of each year (ii) are redeemable at our option 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 and are pari
passu in right of payment with any of our existing and future senior unsecured
indebtedness, including borrowings under the Facility; (iv) are guaranteed by
certain of our subsidiaries; and (v) are subject to the terms of the Indenture,
which contain certain covenants that limit our ability to incur indebtedness
secured by certain liens and to engage in sale/leaseback transactions.
We have a credit facility with a Netherlands bank, payable on demand and
providing for available credit up to 1.8 million euros (approximately U.S. $1.7
million). At December 31, 2001, we had outstanding borrowings of $1.7 million
under this facility.
During 2001, we repaid substantially all of our obligations under other
foreign credit facilities.
Our financing agreements contain covenants that include requirements to
maintain certain financial ratios and other restrictions and limitations,
including the restrictions on our payment of dividends, 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 $0.6
million and $1.1 million in 2001, $1.2 million and $1.3 million in 2000 and $2.9
million and $0.3 million in 1999. Interest expense is also net of interest
allocated to the discontinued operations of WRI of $1.3 million in 2001, $0.5
million in 2000 and $0.2 million in 1999.
F-31
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RETIREMENT AND PENSION PLANS
U.S. PLANS
We have established trusteed, noncontributory defined benefit pension plans
covering the majority of all our U.S. employees fulfilling minimum age and
service requirements. Benefits are based upon years of service and a prescribed
formula based upon the employee's compensation. We contribute 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>
2001 2000 1999
---- ---- ----------
Discount rate............................................... 7.25% 7.75% 7.75%
Rate of increase in compensation............................ 4.0 4.0 4.0 - 4.25
Expected return on plan assets.............................. 9.5 9.5 9.5
</Table>
A summary of the components of net periodic pension cost for the U.S.
defined benefit plans for the years ended December 31 is as follows:
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
Service cost......................................... $ 3,859 $ 3,324 $ 4,143
Interest cost........................................ 9,045 8,494 7,953
Expected return on plan assets....................... (12,613) (12,817) (11,708)
Amortization of prior service cost................... 134 134 134
Amortization of net actuarial gain................... -- (602) --
Effect of special termination benefits............... -- -- 68
-------- -------- --------
Net periodic pension cost (benefit).................. $ 425 $ (1,467) $ 590
======== ======== ========
</Table>
The following table sets forth a reconciliation of the benefit obligation
for the years ended December 31:
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)
Benefit obligation at the beginning of the year............. $118,177 $111,562
Service costs............................................... 3,859 3,324
Interest costs.............................................. 9,045 8,494
Actuarial loss.............................................. 9,628 869
Benefits paid............................................... (6,322) (6,072)
-------- --------
Benefit obligation at the end of the year................... $134,387 $118,177
======== ========
</Table>
The effect of the change in our assumed discount rate for the year ended
December 31, 2001 contributed $8.2 million of the $9.6 million actuarial loss.
F-32
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth a reconciliation of the plan assets for the
years ended December 31:
<Table>
<Caption>
2001 2000
-------- --------
(IN THOUSANDS)
Fair value of plan assets at the beginning of the year...... $135,700 $137,746
Actual return on plan assets................................ (1,652) 4,026
Benefits paid............................................... (6,322) (6,072)
-------- --------
Fair value of plan assets at the end of the year............ $127,726 $135,700
======== ========
</Table>
The following table sets forth the funded status of the plan and the
amounts recognized in our consolidated balance sheets at December 31:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
(Unfunded) funded status.................................... $(6,661) $17,523
Unrecognized net actuarial loss (gain)...................... 11,675 (12,218)
Unrecognized pension service costs.......................... 1,228 1,361
------- -------
Prepaid pensions............................................ $ 6,242 $ 6,666
======= =======
</Table>
We have 401(k) plans covering substantially all of our U.S. employees. We
provide at our discretion a match of employee salaries contributed to the plans.
We recorded expense with respect to these plans of $1.3 million in 2001, $2.0
million in 2000 and $1.9 million in 1999.
The Wolverine Tube, Inc. Supplemental Executive Retirement Plan (the
"Retirement Plan") is a non-funded defined benefit pension plan that provides
benefits to certain of our eligible executives. The benefits provided under the
Retirement Plan are identical to the benefits provided by the defined benefit
pension plan. In addition, we provide a Supplemental Retirement Plan ("SERP")
for the current CEO, which also 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. We incurred
expense with respect to all supplemental plans of $0.3 million in 2001, $0.3
million in 2000 and $0.2 million in 1999. At December 31, 2001, the balance of
accrued pension costs related to these plans was $1.4 million.
CANADIAN PLANS
We sponsor a defined contribution profit-sharing retirement plan for our
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 were $0.5 million in 2001, $0.6 million in
2000 and $0.7 million in 1999.
We have established noncontributory defined benefit pension plans covering
substantially all our employees at the Montreal, Quebec and Fergus, Ontario
facilities. We contribute 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.
F-33
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
2001 2000 1999
---- ---- ----
Discount rate............................................... 7.0% 7.5% 7.5%
Expected long-term rate of return on plan assets............ 8.5 8.5 8.5
</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, 2001,
2000 and 1999, and is not applicable in accounting for the Canadian Operational
Employees and Quebec Operational Employees pension plans for the same periods.
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>
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Service cost............................................ $ 498 $ 522 $ 525
Interest cost........................................... 1,240 1,317 1,212
Expected return on plan assets.......................... (1,793) (1,748) (1,638)
Amortization of prior service cost...................... 73 77 41
Amortization of net actuarial gain...................... (118) (62) (32)
------- ------- -------
Net periodic pension cost (benefit)..................... $ (100) $ 106 $ 108
======= ======= =======
</Table>
The following table sets forth a reconciliation of the benefit obligation
for the years ended December 31:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Benefit obligation at the beginning of the year............. $17,007 $18,001
Service costs............................................... 497 522
Interest costs.............................................. 1,240 1,317
Actuarial (gain) loss....................................... 1,736 (1,175)
Benefits paid............................................... (921) (978)
Foreign currency exchange rate changes...................... (1,094) (680)
------- -------
Benefit obligation at the end of the year................... $18,465 $17,007
======= =======
</Table>
The following table sets forth a reconciliation of the plans assets for the
years ended December 31:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Fair value of plan assets at the beginning of the year...... $22,123 $21,673
Actual return on plan assets................................ (850) 2,015
Company contribution........................................ 179 249
Benefits paid............................................... (921) (978)
Foreign currency exchange rate changes...................... (1,272) (836)
------- -------
Fair value of plan assets at the end of the year............ $19,259 $22,123
======= =======
</Table>
F-34
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the plans and the
amounts recognized in our consolidated balance sheets at December 31:
<Table>
<Caption>
2001 2000
------ -------
(IN THOUSANDS)
Funded status............................................... $ 794 $ 5,116
Unrecognized net actuarial loss (gain)...................... 548 (4,053)
Unrecognized pension service costs.......................... 1,035 1,177
------ -------
Prepaid pension obligation.................................. $2,377 $ 2,240
====== =======
</Table>
10. POSTRETIREMENT BENEFIT OBLIGATION
We sponsor a defined benefit health care plan and life insurance plan that
provides postretirement medical benefits and life insurance to substantially all
our full-time 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. 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>
2001 2000 1999
------ ----- -----
(IN THOUSANDS)
Service cost................................................ $ 431 $ 384 $ 331
Interest cost............................................... 685 687 443
Amortization of prior service cost.......................... 126 85 --
Amortization of deferred gain............................... (411) (284) (640)
Effect of special termination benefits...................... 199 55 717
------ ----- -----
Net periodic postretirement benefit cost.................... $1,030 $ 927 $ 851
====== ===== =====
</Table>
The change in benefit obligation for the years ended December 31 includes
the following components:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Benefit obligation at the beginning of the year............. $14,486 $13,191
Service cost................................................ 431 384
Interest cost............................................... 685 687
Participants' contributions................................. 227 49
Amendments.................................................. 37 --
Actuarial loss.............................................. 1,670 441
Acquisition................................................. -- 336
Benefits paid............................................... (2,703) (657)
Special termination benefits................................ 199 55
------- -------
Benefit obligation at the end of the year................... $15,032 $14,486
======= =======
</Table>
F-35
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the status of the plan and the amounts
recognized in our consolidated balance sheets at December 31:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Benefit obligation at end of year........................... $15,032 $14,486
Unrecognized net actuarial gain............................. 1,371 3,559
Unrecognized prior service cost............................. (683) (773)
------- -------
Net postretirement benefit obligation....................... $15,720 $17,272
======= =======
</Table>
The weighted average discount rate used in determining the postretirement
benefit obligation was 7.25% at December 31, 2001 and 7.75% at December 31,
2000.
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, and is expected 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
----------- -----------
(IN THOUSANDS)
Effect on total of service and interest cost components..... $ 11 $ (10)
Effect on postretirement benefit obligation................. $162 $(144)
==== =====
</Table>
11. ENVIRONMENTAL REMEDIATION
We are 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. We have
received various communications from regulatory authorities concerning certain
environmental matters and are a potentially responsible party at one waste
disposal site.
We have accrued estimated environmental remediation costs of $1.9 million
at December 31, 2001, consisting of $0.8 million for the Decatur facility, $0.1
million for the Greenville facility, $0.6 million for the Ardmore facility and
$0.4 million for the Shawnee facility (with respect to the Double Eagle Refinery
site). Based on information currently available, we believe that the costs of
these matters are not reasonably likely to have a material effect on our
business, financial condition or results of operations. However, actual costs
related to environmental matters could differ materially from the amounts we
estimated and accrued at December 31, 2001 and could amount to an aggregate
exposure of $3.2 million if these environmental matters are not resolved as
anticipated.
12. INCOME TAXES
The components of income from continuing operations before income taxes for
the years ended December 31 are as follows:
<Table>
<Caption>
2001 2000 1999
------- ------- --------
(IN THOUSANDS)
U.S. .................................................. $ (170) $17,103 $(15,689)
Foreign................................................ 15,957 23,464 15,108
------- ------- --------
Total........................................ $15,787 $40,567 $ (581)
======= ======= ========
</Table>
F-36
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes on income before the cumulative effect of
accounting change for the years ended December 31 consists of the following:
<Table>
<Caption>
2001 2000 1999
-------- ------- -------
(IN THOUSANDS)
Continuing operations
Current (benefit) expense:
U.S. Federal...................................... $ 2,675 $ 1,696 $ 191
Foreign........................................... 4,387 7,354 5,262
State............................................. (732) 95 (493)
-------- ------- -------
Total current................................ 6,330 9,145 4,960
-------- ------- -------
Deferred (benefit) expense:
U.S. ................................................ (1,741) 5,745 (5,246)
Foreign.............................................. (244) (230) (702)
-------- ------- -------
Total deferred....................................... (1,985) 5,515 (5,948)
-------- ------- -------
Income tax expense (benefit) -- continuing
operations........................................... 4,345 14,660 (988)
Income tax expense (benefit) -- discontinued
operations........................................... (12,100) 506 699
-------- ------- -------
Total income tax expense (benefit)........... $ (7,755) $15,166 $ (289)
======== ======= =======
</Table>
Deferred income taxes included in our balance sheets 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 our deferred tax assets and
liabilities are as follows:
<Table>
<Caption>
2001 2000
------- -------
(IN THOUSANDS)
Deferred tax liabilities:
Basis of property, plant and equipment.................... $30,012 $27,368
Inventory valuation....................................... -- 353
Prepaid pension........................................... 2,746 2,930
Other..................................................... 833 257
------- -------
Total deferred tax liabilities.............................. 33,591 30,908
------- -------
Deferred tax assets:
Environmental remediation................................. 704 826
Net operating loss carryforward........................... 15,127 --
Restructuring reserves.................................... 1,935 --
Inventory valuations...................................... 270 --
Pension obligation........................................ 6,269 421
Postretirement benefits obligation........................ -- 6,363
Other..................................................... 2,992 2,919
------- -------
Total deferred tax assets......................... 27,297 10,529
------- -------
Net deferred tax liability........................ $ 6,294 $20,379
======= =======
</Table>
F-37
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of differences between the statutory U.S. federal income tax
rate and our effective tax rate follows:
<Table>
<Caption>
2001 2000 1999
------- ------- -----
(IN THOUSANDS)
Income tax expense at federal statutory rate.............. $ 5,525 $14,198 $(203)
Increase (decrease) in taxes resulting from:
State and local taxes, net of federal benefit........... 185 369 (731)
Effect of difference in U.S. and foreign rates.......... (1,363) (894) (525)
Permanent differences................................... 12 523 643
Other................................................... (14) 464 (172)
------- ------- -----
Income tax expense (benefit) -- continuing operations..... $ 4,345 $14,660 $(988)
======= ======= =====
</Table>
At December 31, 2001, we have federal, state and foreign net operating loss
carryforwards of $1.5 million, $1.3 million and $12.3 million, respectively.
These net operating loss carryforwards expire at various times beginning in 2016
through 2022.
13. REDEEMABLE PREFERRED STOCK
We have 500,000 shares authorized for issuance of $1 par value cumulative
preferred stock. Of these shares, there are 20,000 shares of cumulative
preferred stock issued and outstanding as of December 31, 2001 that we were
required to redeem by March 1, 2002. According to the redemption arrangement
with our preferred shareholders, on March 1, 2002 we paid $1.0 million in cash
and issued 116,100 shares of our common stock at a share price of $8.61 in
exchange for their 20,000 shares of preferred stock. 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, 2001 and December 31, 2000, 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.
14. COMMON STOCK
All holders of Common Stock are entitled to receive dividends when and if
declared by our Board of Directors (the "Board"), provided that all dividend
requirements of the cumulative preferred stock have been paid. Additionally, the
payment of dividends on our Common Stock is restricted under the terms of our
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 Stockholder 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 share of newly created
Series A Junior Participating Preferred Stock at an exercise price of $175, and,
in certain circumstances, to purchase shares of Common Stock at a substantially
reduced price. The Board is generally entitled to redeem the Rights at $0.01 per
Right at any time prior to the date they become exercisable. The Rights will
expire on February 23, 2006.
F-38
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Beginning in September 1998, the Board of Directors authorized management
to purchase shares of our outstanding common stock in the open market under
common stock repurchase programs. These common stock repurchase programs
conclude March 31, 2002. Under the common stock repurchase programs, we
purchased 537,600 shares, 858,100 shares and 784,200 shares of our common stock
for $7.5 million, $15.4 million and $16.6 million for the years ended December
31, 2000, 1999 and 1998, respectively. We did not purchase any shares of our
common stock in the year ended December 31, 2001.
15. STOCK-BASED COMPENSATION PLANS
We have elected to follow APB 25, Accounting for Stock Options Issued to
Employees and related interpretations in accounting for our employee stock
options because, as discussed below, the alternative fair value accounting
provided for under SFAS 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 our employee stock options equals
the market price of the underlying stock on the date of the grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if we had accounted for
our employee stock options under the fair value method of that statement. The
weighted average fair value of options granted during 2001 estimated on the date
of grant using the Black-Scholes pricing model was $6.97. The fair value for
these options was estimated at the date of grant using the following weighted
average assumptions for 2001, 2000 and 1999, respectively: risk free interest
rates of 4.41%, 6.12% and 5.78%, volatility factors of the expected market price
of our common stock of 0.352, 0.339 and 0.337; 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 our 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
our opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of our employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying Statement 123 for pro forma disclosure may not be representative of the
effects on reported pro forma net income in future years. Our pro forma
information for the years ended December 31 follows:
<Table>
<Caption>
2001 2000 1999
--------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net income (loss) applicable to common shares:
As reported.......................................... $(20,078) $26,409 $(4,265)
Pro forma............................................ (21,604) 24,472 (6,386)
Diluted earnings (loss) per share:
As reported.......................................... $ (1.63) $ 2.14 $ (0.32)
Pro forma............................................ (1.72) 1.97 (0.48)
</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 our Compensation Committee. All options granted to date
have
F-39
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1/3% 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. The 1993
Directors' Plan terminates in 2003.
On March 22, 2001, the Board of Directors adopted the 2001 Stock Option
Plan for Outside Directors (the "2001 Directors' Plan") providing for the
issuance of options for the purchase of up to 250,000 shares of our common
stock. The 2001 Directors' Plan will allow us to continue to compensate and
reward our directors upon the completion or termination of the 1993 Directors'
Plan. The terms of the 2001 Directors' Plan are substantially the same as the
terms of the 1993 Directors' Plan. No options have been granted under the 2001
Directors' Plan.
In the third quarter of 2001, we made available to our U.S. and Canadian
stock option holders under the 1993 Equity Plan and the 1993 Directors' Plan,
the right to exchange options whose exercise price was $20.00 per share or
greater, for new options to purchase one share for every two shares exchanged.
The new options will be granted on or about April 11, 2002, which is six months
and six business days after the date the options were exchanged. New options
granted under the 1993 Equity Plan will have an exercise price determined by the
market price of our stock on the date the new options are granted. New options
granted under the 1993 Directors' Plan will have an exercise price determined by
the average market price of our stock on the date we grant the new options and
the four preceding trading days. A stock option holder must continue to be
employed by us or provide service to us through April 11, 2002 in order to be
eligible to receive the new options to be granted. As a result of this exchange
of options shares, 836,860 shares with an average option price of $30.48 were
canceled, 38,000 of which were under the 1993 Directors' Plan.
Our stock option plans are summarized as follows:
<Table>
<Caption>
WEIGHTED-
1993 1993 EQUITY AVERAGE EXERCISE
DIRECTORS' PLAN INCENTIVE PLAN OPTION PRICE PRICE
--------------- -------------- --------------- ----------------
(NUMBER OF SHARES)
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
Granted............................ 50,200 343,950 $11.95 - $17.01 $13.90
Exercised.......................... -- (4,680) $ 4.44 - $ 7.39 $ 6.24
Forfeited.......................... -- (108,386) $12.31 - $38.44 $26.79
------- --------- --------------- ------
</Table>
F-40
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
WEIGHTED-
1993 1993 EQUITY AVERAGE EXERCISE
DIRECTORS' PLAN INCENTIVE PLAN OPTION PRICE PRICE
--------------- -------------- --------------- ----------------
(NUMBER OF SHARES)
Outstanding at December 31, 2000... 103,200 1,307,242 $ 4.44 - $40.25 $24.25
Granted............................ 51,465 394,650 $11.84 - $16.57 $11.93
Exercised.......................... -- (24,261) $ 4.44 - $13.69 $ 5.42
Forfeited or canceled.............. (38,000) (841,957) $ 7.39 - $40.25 $30.20
------- --------- --------------- ------
Outstanding at December 31, 2001... 116,665 835,674 $ 5.28 - $37.68 $13.46
======= ========= =============== ======
Exercisable at:
December 31, 1999................ 43,000 388,273 $ 4.44 - $40.25 $26.42
December 31, 2000................ 99,866 574,600 $ 4.44 - $40.25 $26.12
December 31, 2001................ 116,665 223,961 $ 5.28 - $37.68 $14.78
</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, 2001, which
were issued prior to August 1993, were 59,508, $6.74, 0.9 years, 59,508 and
$6.74, 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, 2001, which were issued after August 1993, were 892,831, $13.91, 8.1 years,
281,118 and $16.49, respectively. The weighted average remaining life for all
options outstanding at December 31, 2001 is 7.7 years.
The range of exercise prices of the outstanding options and exercisable
options at December 31, 2001 are as follows:
<Table>
<Caption>
WEIGHTED AVERAGE NUMBER OF NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICE EXERCISABLE SHARES OUTSTANDING SHARES REMAINING LIFE
- ---------------- ------------------ ------------------ ----------------
$ 4.44 - $14.99...................... 260,715 843,789 8.0
$15.00 - $24.99...................... 51,261 79,900 6.6
$25.00 - $40.25...................... 28,650 28,650 1.2
------- -------
Totals............................... 340,626 952,339 7.7
======= =======
</Table>
In 2001, we awarded 3,297 shares of restricted stock under the 1993 Equity
Plan, with a fair value at the date of grant of $13.13 per share. These
restricted shares vest 50% annually at the anniversary date of the grant. We
recorded compensation expense with respect to restricted stock awards of
approximately $0.5 million in 2001 which is recognized on a straight-line basis
over the two year vesting period of the restricted stock grants. 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 our 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 2001 with respect to these awards.
16. COMMITMENTS
Minimum future rental commitments under operating leases having
non-cancelable lease terms in excess of one year totaled approximately $10.3
million as of December 31, 2001 and are payable as follows: $2.4 million in
2002, $2.1 million in 2003, $1.6 million in 2004, $1.5 million in 2005, $0.7
million in 2006 and $2.0 million thereafter. Rental expense for operating leases
was $2.9 million in 2001, $3.3 million in 2000 and $2.9 million in 1999.
F-41
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2001, we had commitments of $2.3 million for capital
expenditures.
17. INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
Our reportable segments are based on our three product lines: commercial
products, wholesale products and rod, bar and other products. Commercial
products consist primarily of high value-added products sold directly to
original equipment manufacturers. Wholesale products are commodity-type plumbing
tube products, which are sold to a variety of customers. Rod, bar and other
products also are sold to a variety of customers.
The accounting policies for each of the reportable segments are the same as
those described in Note 1. We evaluate the performance of our operating segments
based on sales and gross profit; however, we do not allocate asset amounts and
items of income and expense below gross profit or depreciation and amortization.
Summarized financial information concerning our reportable segments is
shown in the following table:
<Table>
<Caption>
ROD, BAR &
COMMERCIAL WHOLESALE OTHER CONSOLIDATED
---------- --------- ---------- ------------
(IN THOUSANDS)
Year ended December 31, 2001
Sales................................. $444,209 $ 97,570 $41,335 $583,114
Gross profit.......................... 50,140 9,326 2,774 62,240
Year ended December 31, 2000:
Sales................................. $487,416 $ 96,993 $37,055 $621,464
Gross profit.......................... 69,987 12,639 2,487 85,113
Year ended December 31, 1999:
Sales................................. $436,737 $118,810 $30,655 $586,202
Gross profit.......................... 50,443 12,247 923 63,613
</Table>
Our manufacturing operations are primarily conducted in the U.S. and
Canada. In 2001, 2000 and 1999, no customer accounted for as much as 10% of our
net sales.
Sales by customer location and long-lived assets by geographic location of
our facilities is as follows:
<Table>
<Caption>
OTHER FOREIGN
U.S. CANADA OPERATIONS CONSOLIDATED
-------- ------- ------------- ------------
(IN THOUSANDS)
Year ended December 31, 2001:
Sales................................. $434,000 $81,000 $68,000 $583,000
Long-lived assets..................... 294,413 31,820 10,291 336,524
Year ended December 31, 2000:
Sales................................. $478,000 $92,000 $51,000 $621,000
Long-lived assets..................... 294,267 43,649 2,432 340,348
Year ended December 31, 1999:
Sales................................. $455,000 $91,000 $40,000 $586,000
Long-lived assets..................... 247,677 39,506 2,028 289,211
</Table>
F-42
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. RESTRUCTURING AND OTHER CHARGES
1999 CHARGES
During the third quarter of 1999, we recognized restructuring and other
charges of $19.9 million ($12.5 million net of tax). The restructuring and other
charges include the following components:
<Table>
Impairment of assets due to closing the Roxboro, North
Carolina facility......................................... $ 8.6
Other expenses related to closing the Roxboro, North
Carolina facility......................................... 1.4
Impairment of assets due to relocating equipment from
Roxboro, North Carolina and changes in production......... 3.6
Impairment of assets related to a previously-closed
facility.................................................. 1.8
Other expenses related to a previously-closed facility...... 0.1
Non-manufacturing workforce reduction
program -- approximately 100 employees.................... 2.8
Expenses related to the termination of an interest rate
swap...................................................... 0.8
Expenses related to professional fees and other costs
primarily associated with acquisitions that were not
completed................................................. 0.8
-----
$19.9
=====
</Table>
The primary contributing factors leading to our decision to close our
Roxboro, North Carolina facility were the less-than-anticipated growth in
technical tube, the facility's inability to meet its return on capital
objectives and our plans to potentially expand production in Asian, European and
Latin American markets. The $8.6 million impairment of assets at Roxboro
included the net book value of $4.7 million of machinery and equipment, $1.3
million of cost for parts related to the machinery and equipment and $2.6
million related to the decline in market value of the land and buildings and the
estimated closing costs required to sell the land and buildings. We have
relocated all other Roxboro machinery and equipment and inventory to our other
facilities. As a result of relocating the Roxboro machinery and equipment to our
other facilities and thereby displacing existing equipment and necessitating
changes in production, we recorded a $3.6 million impairment of assets, $2.3
million of which was the net book value of machinery and equipment no longer
employed and $1.3 million of cost for parts related to this machinery and
equipment.
Additionally, we recorded a $1.8 million impairment of assets primarily
related to the closing of our Greenville, Mississippi facility in 1998, $0.8
million of which was the net book value of land and buildings and $1.0 million
of which was the net book value of machinery and equipment.
Our Roxboro, North Carolina and Greenville, Mississippi facilities are not
being utilized for production and are currently held for sale.
To date, we have paid approximately $4.9 million in cash relating to the
restructuring. We believe accrued restructuring costs of $0.1 million at
December 31, 2001 represent our remaining obligations.
Additionally, we recorded in the third quarter of 1999 $5.4 million (as
restated) of unusual charges in cost of goods sold in the consolidated statement
of operations. These charges included $3.7 million related to obsolete
inventory, $0.8 million net book value of idled and obsolete machinery and
equipment and $0.9 million of other charges related to the realignment of our
manufacturing operations
2001 CHARGES
During the third quarter of 2001, we recognized restructuring and other
charges of $1.5 million ($1.0 million net of tax). We accrued and charged to
expense $1.1 million for severance benefits for approximately 40 salaried and
hourly employees. We offered a voluntary separation program to employees
F-43
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at several of our facilities due to lack of demand for these facilities
products, the criteria for which was dependent on the employee's age, job duties
and years of service. We separated these employees in order to reduce costs for
anticipated continued weakness in sales volumes and mix and anticipated
reductions of capacity utilization. We also accrued and charged to expense a
$0.2 million write-off of impaired assets and $0.2 million related to a
previously closed facility. As of December 31, 2001, we had separated 40
employees and believe accrued restructuring costs of $0.3 million at December
31, 2001 represent our remaining cash obligations.
19. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share for
the years ended December 31:
<Table>
<Caption>
2001 2000 1999
-------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Income from continuing operations...................... $ 11,442 $25,907 $ 407
Income (loss) from discontinued operations, net of
tax.................................................. (31,240) 782 1,362
Cumulative effect of accounting change, net of tax..... -- -- (5,754)
-------- ------- -------
Net income (loss)...................................... (19,798) 26,689 (3,985)
Dividends on preferred stock........................... (280) (280) (280)
-------- ------- -------
Net income (loss) available to common shares........... $(20,078) $26,409 $(4,265)
======== ======= =======
Basic weighted average common shares................... 12,077 12,153 13,106
Stock options.......................................... 230 191 137
-------- ------- -------
Diluted weighted average common and common equivalent
shares(1)............................................ 12,307 12,344 13,243
======== ======= =======
Earnings per common share -- basic:
Income from continuing operations.................... $ 0.92 $ 2.11 $ 0.01
Income (loss) from discontinued operations........... (2.58) 0.06 0.10
Cumulative effect of accounting change............... -- -- (0.44)
-------- ------- -------
Net income (loss) per common share -- basic............ $ (1.66) $ 2.17 $ (0.33)
======== ======= =======
Earnings per common share -- diluted:
Income from continuing operations.................... $ 0.91 $ 2.08 $ 0.01
Income (loss) from discontinued operations........... (2.54) 0.06 0.10
Cumulative effect of accounting change............... -- -- (0.43)
-------- ------- -------
Net income (loss) per common share -- diluted.......... $ (1.63) $ 2.14 $ (0.32)
======== ======= =======
</Table>
- ---------------
(1) For the year ended December 31, 2001, 2000 and 1999, there were 0.4 million,
1.0 million and 1.1 million anti-dilutive stock options that were excluded
from the calculation of diluted weighted average common and common
equivalent shares.
F-44
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31, 2001 and 2000. All data shown has been restated
to reflect Wolverine Ratcliffs, Inc. as discontinued operations (as described in
Note 2).
<Table>
<Caption>
2001 APRIL 1(1) JULY 1(1) SEPTEMBER 30(1) DECEMBER 31
- ---- ---------- --------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............................ $172,437 $161,517 $136,103 $113,057
Gross profit......................... 21,766 15,792 14,912 9,770
Restructuring and other charges...... -- -- 1,546 --
Income (loss) from continuing
operations......................... 6,975 3,082 2,137 (752)
Loss from discontinued operations,
net of tax......................... (848) (3,643) (938) (1,946)
Loss on disposal of discontinued
operations, net of tax............. -- -- -- (23,865)
Net income (loss).................... 6,127 (561) 1,199 (26,563)
Basic earnings per common share:
Income (loss) from continuing
operations...................... $ 0.57 $ 0.25 $ 0.17 $ (0.07)
Loss from discontinued
operations...................... (0.07) (0.30) (0.08) (2.13)
-------- -------- -------- --------
Net income (loss).................. $ 0.50 $ (0.05) $ 0.09 $ (2.20)
======== ======== ======== ========
Diluted earnings per common share:
Income (loss) from continuing
operations...................... $ 0.56 $ 0.24 $ 0.17 $ (0.07)
Loss from discontinued
operations...................... (0.07) (0.29) (0.08) (2.13)
-------- -------- -------- --------
Net income (loss).................. $ 0.49 $ (0.05) $ 0.09 $ (2.20)
======== ======== ======== ========
</Table>
<Table>
<Caption>
2000 APRIL 2(1) JULY 2(1) OCTOBER 1(1) DECEMBER 31(1)
- ---- ---------- --------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............................ $158,843 $160,361 $151,076 $151,184
Gross profit......................... 23,544 22,320 22,978 16,271
Income from continuing operations.... 7,535 6,952 7,846 3,574
Income (loss) from discontinued
operations......................... 401 817 (417) (19)
Net income........................... 7,936 7,769 7,429 3,555
Basic earnings per common share:
Income from continuing
operations...................... $ 0.60 $ 0.57 $ 0.65 $ 0.29
Income (loss) from discontinued
operations...................... 0.03 0.07 (0.04) --
-------- -------- -------- --------
Net income......................... $ 0.63 $ 0.64 $ 0.61 $ 0.29
======== ======== ======== ========
</Table>
F-45
WOLVERINE TUBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2000 APRIL 2(1) JULY 2(1) OCTOBER 1(1) DECEMBER 31(1)
- ---- ---------- --------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Diluted earnings per common share:
Income from continuing
operations...................... $ 0.60 $ 0.56 $ 0.63 $ 0.29
Income (loss) from discontinued
operations...................... 0.03 0.06 (0.03) --
-------- -------- -------- --------
Net income......................... $ 0.63 $ 0.62 $ 0.60 $ 0.29
======== ======== ======== ========
</Table>
- ---------------
(1) Net income for the quarters ended April 1, July 1, and September 30, and for
each of the interim periods in fiscal 2000 has been restated from the
amounts previously reported in our Form 10-Q. The restated amounts reflect
the change in method of accounting for inventories in the fourth quarter of
fiscal 2001, as described in Note 3. The effect of the restatement was to
increase (decrease) gross profit, net income and diluted earnings per common
share as follows:
<Table>
<Caption>
QUARTER ENDED: GROSS PROFIT NET INCOME EPS
- -------------- ------------ ---------- ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
April 1, 2001......................................... $ (292) $ (184) $(0.02)
July 1, 2001.......................................... (6,402) (4,034) (0.33)
September 30, 2001.................................... 2,092 1,318 0.11
April 2, 2000......................................... 1,729 1,089 0.09
July 2, 2000.......................................... (379) (239) (0.02)
October 1, 2000....................................... 3,863 2,434 0.20
December 31, 2000..................................... (111) (70) (0.01)
</Table>
NOTE 21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial information
for: (a) Wolverine Tube, Inc. (the "Parent") on a stand-alone basis; (b) on a
combined basis, the guarantors of the 10.5% Senior Notes ("Subsidiary
Guarantors"), which include TF Investor, Inc.; Tube Forming, L.P.; Wolverine
Finance Company; Wolverine China Investments, LLC; STPC Holding, Inc.; Small
Tube Manufacturing Corporation; Wolverine Joining Technologies, Inc.; and Tube
Forming Holdings, Inc.; and (c) on a combined basis, the Non-Guarantor
Subsidiaries, which include Wolverine Tube (Canada) Inc.; 1263143 Ontario, Inc.;
1158909 Ontario, Inc.; 1105836 Ontario, Inc.; Wolverine Tube (Shanghai) Co.,
Limited; Wolverine European Holdings BV; Wolverine Scholte-Metalen BV; Wolverine
Tube, BV; Wolverine Tubagem (Portugal), Lda; Wolverine Joining Technologies
Canada, Inc.; Wolverine Ratcliffs, Inc.; Ratcliffs Copper and Brass Sales, Ltd.;
Wolverine Europe; Wolverine Asia, Limited; Wolverine Tube International, Ltd.;
Small Tube Europe NV; and Small Tube Poland, Inc. Each of the Subsidiary
Guarantors is wholly-owned. The guarantees issued by each of the Subsidiary
Guarantors are full, unconditional, joint and several. Accordingly, separate
financial statements of the wholly-owned Subsidiary Guarantors are not presented
because the Subsidiary Guarantors are jointly, severally and unconditionally
liable under the guarantees, and we believe separate financial statements and
other disclosures regarding the Subsidiary Guarantors are not material to
investors. Furthermore, there are no significant legal restrictions on the
Parent's ability to obtain funds from its subsidiaries by dividend or loan.
The parent is comprised of Alabama, Oklahoma, Tennessee, and Mississippi
manufacturing operations and certain corporate management, sales and marketing,
information services and finance functions.
F-46
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
Net sales....................... $307,498 $126,716 $178,544 $(29,644) $583,114
Cost of goods sold.............. 276,764 114,237 159,517 (29,644) 520,874
-------- -------- -------- -------- --------
Gross profit.................... 30,734 12,479 19,027 -- 62,240
Selling, general and
administrative expenses....... 23,755 4,853 3,646 -- 32,254
Restructuring and other
charges....................... 1,089 397 60 -- 1,546
-------- -------- -------- -------- --------
Operating income from continuing
operations.................... 5,890 7,229 15,321 -- 28,440
Other (income) expenses:
Interest expense, net......... 14,895 (153) (1,642) -- 13,100
Amortization and other, net... 2,515 (4,483) 1,521 -- (447)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes......................... (11,520) 11,865 15,442 -- 15,787
Income tax provision
(benefit)..................... (4,674) 4,893 4,126 -- 4,345
-------- -------- -------- -------- --------
Income (loss) from continuing
operations.................... (6,846) 6,972 11,316 -- 11,442
Loss from discontinued
operations, net of tax........ -- -- (31,240) -- (31,240)
Equity in earnings (losses) of
subsidiaries.................. (12,952) -- -- 12,952 --
-------- -------- -------- -------- --------
Net income (loss)............... $(19,798) $ 6,972 $(19,924) $ 12,952 $(19,798)
======== ======== ======== ======== ========
</Table>
F-47
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
Net sales....................... $356,101 $112,865 $182,130 $(29,632) $621,464
Cost of goods sold.............. 303,888 98,811 163,284 (29,632) 536,351
-------- -------- -------- -------- --------
Gross profit.................... 52,213 14,054 18,846 -- 85,113
Selling, general and
administrative expenses....... 25,397 3,924 2,640 -- 31,961
-------- -------- -------- -------- --------
Operating income from continuing
operations.................... 26,816 10,130 16,206 -- 53,152
Other (income) expenses:
Interest expense, net......... 14,596 (399) (2,029) -- 12,168
Amortization and other, net... 11,691 (6,651) (4,623) -- 417
-------- -------- -------- -------- --------
Income from continuing
operations before income
taxes......................... 529 17,180 22,858 -- 40,567
Income tax provision............ 263 7,274 7,123 -- 14,660
-------- -------- -------- -------- --------
Income from continuing
operations.................... 266 9,906 15,735 -- 25,907
Income from discontinued
operations, net of tax........ -- -- 782 -- 782
Equity in earnings (losses) of
subsidiaries.................. 26,423 -- -- (26,423) --
-------- -------- -------- -------- --------
Net income (loss)............... $ 26,689 $ 9,906 $ 16,517 $(26,423) $ 26,689
======== ======== ======== ======== ========
</Table>
F-48
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
Net sales....................... $355,523 $93,974 $161,414 $(24,709) $586,202
Cost of goods sold.............. 320,327 83,496 143,475 (24,709) 522,589
-------- ------- -------- -------- --------
Gross profit.................... 35,196 10,478 17,939 -- 63,613
Selling, general and
administrative expenses....... 23,576 3,877 2,861 -- 30,314
Restructuring and other
charges....................... 17,621 1,973 344 -- 19,938
-------- ------- -------- -------- --------
Operating income (loss) from
continuing operations......... (6,001) 4,628 14,734 -- 13,361
Other (income) expenses:
Interest expense, net......... 13,709 (75) (1,397) -- 12,237
Amortization and other, net... 11,145 (10,428) 988 -- 1,705
-------- ------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes......................... (30,855) 15,131 15,143 -- (581)
Income tax provision
(benefit)..................... (11,363) 5,815 4,560 -- (988)
-------- ------- -------- -------- --------
Income (loss) from continuing
operations.................... (19,492) 9,316 10,583 -- 407
Income from discontinued
operations, net of tax........ -- -- 1,362 -- 1,362
-------- ------- -------- -------- --------
Income (loss) before effect of a
change in accounting
principle..................... (19,492) 9,316 11,945 -- 1,769
-------- ------- -------- -------- --------
Cumulative effect of accounting
change, net of tax............ (3,638) (48) (2,068) -- (5,754)
Equity in earnings (losses) of
subsidiaries.................. 19,145 -- -- (19,145) --
-------- ------- -------- -------- --------
Net income (loss)............... $ (3,985) $ 9,268 $ 9,877 $(19,145) $ (3,985)
======== ======= ======== ======== ========
</Table>
F-49
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and equivalents......... $ -- $ -- $ 22,739 $ -- $ 22,739
Accounts receivable, net..... (6) 43,786 23,384 -- 67,164
Inventories.................. 57,849 17,266 28,245 -- 103,360
Refundable income taxes...... 2,823 (808) 395 -- 2,410
Prepaid expenses and other... 3,327 3,291 612 -- 7,230
-------- --------- -------- --------- --------
Total current assets........... 63,993 63,535 75,375 -- 202,903
Property, plant and equipment,
net.......................... 148,041 36,018 34,417 -- 218,476
Deferred charges and intangible
assets, net.................. 25,767 75,582 1,646 -- 102,995
Assets held for sale........... 5,381 -- 3,691 -- 9,072
Prepaid pensions............... 4,866 -- 1,115 -- 5,981
Investments in Subsidiaries.... 344,412 302 -- (344,714) --
-------- --------- -------- --------- --------
Total assets................... $592,460 $ 175,437 $116,244 $(344,714) $539,427
-------- --------- -------- --------- --------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable............. $ 17,274 $ 3,523 $ 14,236 $ (896) $ 34,137
Accrued liabilities.......... 10,960 884 13,845 -- 25,689
Short-term borrowings........ -- -- 1,684 -- 1,684
Intercompany balances........ 89,383 (100,200) 9,922 895 --
-------- --------- -------- --------- --------
Total current liabilities...... 117,617 (95,793) 39,687 (1) 61,510
Deferred income taxes.......... 11,070 6,144 (7,989) -- 9,225
Long-term debt................. 247,698 -- -- -- 247,698
Postretirement benefit
obligation................... 10,809 -- 4,911 -- 15,720
Accrued environmental
remediation.................. 1,854 -- 8 -- 1,862
-------- --------- -------- --------- --------
Total liabilities.............. 389,048 (89,649) 36,617 (1) 336,015
-------- --------- -------- --------- --------
Redeemable preferred stock..... 2,000 -- -- -- 2,000
-------- --------- -------- --------- --------
Stockholders' equity........... 201,412 265,086 79,627 (344,713) 201,412
-------- --------- -------- --------- --------
Total liabilities, redeemable
preferred stock and
stockholders' equity......... $592,460 $ 175,437 $116,244 $(344,714) $539,427
======== ========= ======== ========= ========
</Table>
F-50
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2000
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and equivalents.......... $ -- $ -- $ 23,458 $ -- $ 23,458
Accounts receivable, net...... 3,853 54,314 46,858 -- 105,025
Inventories................... 51,951 19,581 30,403 -- 101,935
Refundable income taxes....... 14,182 (3,121) (295) 3 10,769
Prepaid expenses and other.... 3,039 (465) 827 1 3,402
-------- -------- -------- --------- --------
Total current assets............ 73,025 70,309 101,251 4 244,589
Property, plant and equipment,
net........................... 140,449 38,040 28,836 -- 207,325
Deferred charges and intangible
assets, net................... 27,264 77,574 6,885 -- 111,723
Assets held for sale............ 5,381 -- 8,166 -- 13,547
Prepaid pensions................ 5,559 -- 2,194 -- 7,753
Investments in Subsidiaries..... 361,566 302 -- (361,868) --
-------- -------- -------- --------- --------
Total assets.................... $613,244 $186,225 $147,332 $(361,864) $584,937
-------- -------- -------- --------- --------
LIABILITIES, MINORITY INTEREST, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable.............. $ 22,256 $ 8,320 $ 21,370 $ (42) $ 51,904
Accrued liabilities........... 9,257 919 8,053 -- 18,229
Short-term borrowings......... -- -- 10,057 -- 10,057
Intercompany balances......... 93,782 (85,382) (8,452) 52 --
-------- -------- -------- --------- --------
Total current liabilities....... 125,295 (76,143) 31,028 10 80,190
Deferred income taxes........... 12,459 5,186 3,529 16 21,190
Long-term debt.................. 231,163 -- -- -- 231,163
Postretirement benefit
obligation.................... 12,254 -- 5,069 (51) 17,272
Accrued environmental
remediation................... 1,624 533 8 -- 2,165
-------- -------- -------- --------- --------
Total liabilities............... 382,795 (70,424) 39,634 (25) 351,980
-------- -------- -------- --------- --------
Minority interest............... -- -- 2,483 25 2,508
-------- -------- -------- --------- --------
Redeemable preferred stock...... 2,000 -- -- -- 2,000
-------- -------- -------- --------- --------
Stockholders' equity............ 228,449 256,649 105,215 (361,864) 228,449
-------- -------- -------- --------- --------
Total liabilities, minority
interest, redeemable preferred
stock and stockholders'
equity........................ $613,244 $186,225 $147,332 $(361,864) $584,937
======== ======== ======== ========= ========
</Table>
F-51
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Income (loss) from continuing
operations.................... $(19,798) $ 6,972 $ 11,316 $ 12,952 $ 11,442
Depreciation.................... 9,690 3,230 2,102 -- 15,022
Amortization.................... 1,339 2,163 155 -- 3,657
Non-cash portion of
restructuring and other
charges....................... 889 642 -- -- 1,531
Other non-cash items............ (735) (2,583) 1,823 -- (1,495)
Changes in operating assets and
liabilities................... 5,937 (7,849) (1,598) -- (3,510)
-------- ------- -------- -------- --------
Net cash provided by (used for)
operating activities.......... (2,678) 2,575 13,798 12,952 26,647
INVESTING ACTIVITIES
Additions to property, plant and
equipment..................... (19,441) (1,447) (6,724) -- (27,612)
Equity in earnings (losses) of
subsidiaries.................. 12,952 -- -- (12,952) --
Other........................... (1,530) 3 (74) -- (1,601)
-------- ------- -------- -------- --------
Net cash used for investing
activities.................... (8,019) (1,444) (6,798) (12,952) (29,213)
FINANCING ACTIVITIES
Net borrowings on revolving
credit facilities............. 16,505 -- 219 -- 16,724
Intercompany borrowings......... (5,658) (1,131) 6,789 -- --
Net decrease in note payable.... -- -- (320) -- (320)
Issuance of common stock........ 130 -- -- -- 130
Dividends paid on preferred
stock......................... (280) -- -- -- (280)
-------- ------- -------- -------- --------
Net cash provided by (used for)
financing activities.......... 10,697 (1,131) 6,688 -- 16,254
Effect of exchange rate on cash
and equivalents............... -- -- (1,139) -- (1,139)
-------- ------- -------- -------- --------
Net cash provided by continuing
operations.................... -- -- 12,549 -- 12,549
Net cash used for discontinued
operations.................... -- -- (13,268) -- (13,268)
-------- ------- -------- -------- --------
Net decrease in cash and
equivalents................... -- -- (719) -- (719)
Cash and equivalents at
beginning of period........... -- -- 23,458 -- 23,458
-------- ------- -------- -------- --------
Cash and equivalents at end of
period........................ $ -- $ -- $ 22,739 $ -- $ 22,739
======== ======= ======== ======== ========
</Table>
F-52
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Income (loss) from continuing
operations.................... $ 26,689 $ 9,906 $ 15,735 $(26,423) $ 25,907
Depreciation.................... 9,692 2,209 2,208 -- 14,109
Amortization.................... 1,224 1,707 -- -- 2,931
Other non-cash items............ 5,937 380 (394) -- 5,923
Changes in operating assets and
liabilities................... (1,385) (3,509) 2,666 -- (2,228)
-------- ------- -------- -------- --------
Net cash provided by (used for)
operating activities.......... 42,157 10,693 20,215 (26,423) 46,642
INVESTING ACTIVITIES
Additions to property, plant and
equipment..................... (24,336) (2,635) (4,705) -- (31,676)
Acquisition of business
assets........................ (42,346) (252) (1,350) -- (43,948)
Equity in earnings of
subsidiaries.................. (26,423) -- -- 26,423 --
Other........................... -- -- 2 14 16
-------- ------- -------- -------- --------
Net cash provided by (used for)
investing activities.......... (93,105) (2,887) (6,053) 26,437 (75,608)
FINANCING ACTIVITIES
Net borrowing (repayment) on
revolving credit facilities... 51,508 (761) (2,076) -- 48,671
Intercompany borrowings......... 7,120 (7,045) (75) -- --
Net decrease in note payable.... -- -- (338) -- (338)
Issuance of common stock........ 58 -- 14 (14) 58
Purchase of treasury stock...... (7,458) -- -- -- (7,458)
Dividends paid on preferred
stock......................... (280) -- -- -- (280)
-------- ------- -------- -------- --------
Net cash provided by (used for)
financing activities.......... 50,948 (7,806) (2,475) (14) 40,653
Effect of exchange rate on cash
and equivalents............... -- -- (709) -- (709)
-------- ------- -------- -------- --------
Net cash provided by continuing
operations.................... -- -- 10,978 -- 10,978
Net cash used for discontinued
operations.................... -- -- (14,414) -- (14,414)
-------- ------- -------- -------- --------
Net decrease in cash and
equivalents................... -- -- (3,436) -- (3,436)
Cash and equivalents at
beginning of period........... -- -- 26,894 -- 26,894
-------- ------- -------- -------- --------
Cash and equivalents at end of
period........................ $ -- $ -- $ 23,458 $ -- $ 23,458
======== ======= ======== ======== ========
</Table>
F-53
WOLVERINE TUBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
RECLASSIFICATIONS
SUBSIDIARY NON-GUARANTOR AND
PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ----------------- ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Income (loss) from continuing
operations.................... $ (347) $ 9,316 $ 10,583 $(19,145) $ 407
Depreciation.................... 9,290 1,859 1,849 -- 12,998
Amortization.................... 1,224 1,549 2 -- 2,775
Non-cash portion of
restructuring and other
charges....................... 13,143 1,777 -- -- 14,920
Other non-cash items............ (6,248) (480) (544) -- (7,272)
Changes in operating assets and
liabilities................... (5,441) (5,327) 2,920 -- (7,848)
-------- ------- -------- -------- --------
Net cash provided by (used for)
operating activities.......... 11,621 8,694 14,810 (19,145) 15,980
INVESTING ACTIVITIES
Additions to property, plant and
equipment..................... (17,155) (2,557) (3,380) -- (23,092)
Equity in earnings of
subsidiaries.................. (19,145) -- -- 19,145 --
Other........................... (646) -- 194 -- (452)
-------- ------- -------- -------- --------
Net cash provided by (used for)
investing activities.......... (36,946) (2,557) (3,186) 19,145 (23,544)
FINANCING ACTIVITIES
Net borrowing (repayment) on
revolving credit facilities... (35,105) (212) 1,810 -- (33,507)
Intercompany borrowings......... 7,392 108 (7,500) -- --
Net decrease in note payable.... -- -- (335) -- (335)
Issuance of common stock........ 284 -- -- -- 284
Purchase of treasury stock...... (15,386) -- -- -- (15,386)
Dividends paid on preferred
stock......................... 63 (343) -- -- (280)
-------- ------- -------- -------- --------
Net cash used for financing
activities.................... (42,752) (447) (6,025) -- (49,224)
Effect of exchange rate on cash
and equivalents............... -- -- 1,061 -- 1,061
-------- ------- -------- -------- --------
Net cash provided by (used for)
continuing operations......... (68,077) 5,690 6,660 -- (55,727)
Net cash provided by
discontinued operations....... -- -- 3,722 -- 3,722
-------- ------- -------- -------- --------
Net increase (decrease) in cash
and equivalents............... (68,077) 5,690 10,382 -- (52,005)
Cash and equivalents at
beginning of period........... 68,077 (5,690) 16,512 -- 78,899
-------- ------- -------- -------- --------
Cash and equivalents at end of
period........................ $ -- $ -- $ 26,894 $ -- $ 26,894
======== ======= ======== ======== ========
</Table>
F-54
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$120,000,000
(WOLVERINE TUBE, INC. LOGO)
OFFER TO EXCHANGE
ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2009
($120,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 1/2% SERIES B SENIOR NOTES DUE 2009
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
-------------------------
PROSPECTUS
-------------------------
, 2002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is a Delaware corporation. Section 145 of the Delaware
General Corporation Law empowers a Delaware corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. A corporation may indemnify such person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer or director in defending
such action, provided that the director or officer undertakes to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify such
officer or director against the expenses (including attorneys' fees) which he or
she actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's bylaws,
agreement, vote or otherwise.
Article Ninth of the Registrant's Restated Certificate of Incorporation and
Bylaws 33 and 34 of the Registrant's Bylaws provide for mandatory
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
the Registrant has entered into indemnification agreements with its existing
directors and intends to enter into similar agreements with certain of its
officers and any director elected to the board in the future. These agreements
establish contractual rights for the officers and directors to be indemnified by
the Registrant to the fullest extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Indenture, dated as of August 4, 1998, between Wolverine
Tube, Inc. and Wachovia Bank, National Association
(successor to First Union National Bank) as Trustee
(incorporated by reference to Exhibit 4.1 to Wolverine Tube,
Inc.'s Quarterly Report on Form 10-Q for the period ended
July 4, 1998).
4.2 Indenture, dated as of March 27, 2002, between Wolverine
Tube, Inc., certain of its subsidiaries and Wachovia Bank,
National Association (successor to First Union National
Bank), as Trustee (incorporated by reference to Exhibit 4.3
to Wolverine Tube Inc.'s Annual Report on Form 10-K for the
period ended December 31, 2001).
4.3* Purchase Agreement dated as of March 22, 2002 among
Wolverine Tube, Inc., certain of its subsidiaries, and
Credit Suisse First Boston Corporation (as representative of
the Purchasers named therein).
</Table>
II-1
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.4* Registration Rights Agreement dated as of March 22, 2002
among Wolverine Tube, Inc., certain of its subsidiaries, and
the Initial Purchasers named therein.
5.1* Opinion of counsel.
12.1* Calculation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries (incorporated by reference to Exhibit
21 to Wolverine Tube Inc.'s Annual Report on Form 10-K for
the period ended December 31, 2001).
23.1 Consent of Ernst & Young LLP, Independent Auditor.
23.2* Consent of Balch & Bingham LLP (included in Exhibit 5.1).
23.3* Consent of Dewey Ballantine LLP (included in Annex I of
Exhibit 5.1).
24.1 Powers of Attorney (included on signature pages).
25.1* Statement of Eligibility of Wachovia Bank, National
Association (successor to First Union National Bank) as
Trustee on Form T-1.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Clients.
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* Schedule II -- Valuation and Qualifying Accounts
</Table>
- ---------------
* Previously filed.
(b) Financial Statement Schedule
SCHEDULE II -- Valuation and Qualifying Accounts (included in Exhibit
99.5 and incorporated herein by reference).
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
these paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities and Exchange Act
of 1934 that are incorporated by reference in the registration statement.
II-2
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby further undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
WOLVERINE TUBE, INC.
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
Chairman, President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Wolverine Tube, Inc., a Delaware corporation, by his execution hereof or upon an
identical counterpart hereof, does hereby constitute and appoint Dennis J.
Horowitz, James E. Deason and Johann R. Manning, Jr., or any one of them, as his
true and lawful attorney-in-fact and agent, for him and in his name, place and
stead, to execute and sign any and all pre-effective and post-effective
amendments to this Registration Statement, and to file same, with all exhibits
and schedules thereto and all other documents in connection therewith, with the
Securities and Exchange Commission and with such state securities authorities as
may be appropriate, granting said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes of the
undersigned might or could do in person, hereby ratifying and confirming all the
acts of said attorneys-in-fact and agent or any of them which they may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ Chairman of the Board of August 9, 2002
- ------------------------------------------------------ Directors, President, Chief
Dennis J. Horowitz Executive Officer and
Director (Principal Executive
Officer)
/s/ JAMES E. DEASON Executive Vice President, August 9, 2002
- ------------------------------------------------------ Chief Financial Officer,
James E. Deason Secretary and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Director August 9, 2002
- ------------------------------------------------------
Chris A. Davis
* Director August 9, 2002
- ------------------------------------------------------
John L. Duncan
Director
- ------------------------------------------------------
Thomas P. Evans
</Table>
II-4
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Director August 9, 2002
- ------------------------------------------------------
W. Barnes Hauptfuhrer
* Director August 9, 2002
- ------------------------------------------------------
Gail O. Neuman
* Director August 9, 2002
- ------------------------------------------------------
Jan K. Ver Hagen
*By: /s/ JOHANN R. MANNING, JR.
-----------------------------------------
Johann R. Manning, Jr.
As Attorney-in-Fact
</Table>
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
TF INVESTOR, INC.
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
TF Investor, Inc., a Delaware corporation, by his execution hereof or upon an
identical counterpart hereof, does hereby constitute and appoint Dennis J.
Horowitz, James E. Deason and Johann R. Manning, Jr., or any one of them, as his
true and lawful attorney-in-fact and agent, for him and in his name, place and
stead, to execute and sign any and all pre-effective and post-effective
amendments to this Registration Statement, and to file same, with all exhibits
and schedules thereto and all other documents in connection therewith, with the
Securities and Exchange Commission and with such state securities authorities as
may be appropriate, granting said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes of the
undersigned might or could do in person, hereby ratifying and confirming all the
acts of said attorneys-in-fact and agent or any of them which they may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ President and Director August 9, 2002
------------------------------------------------ (Principal Executive Officer)
Dennis J. Horowitz
/s/ JAMES E. DEASON Vice President, Treasurer and August 9, 2002
------------------------------------------------ Director
James E. Deason (Principal Financial Officer and
Principal Accounting Officer)
</Table>
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
TUBE FORMING L.P.
By: Tube Forming Holdings, Inc., as
general partner
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Tube Forming Holdings, Inc., the general partner of Tube Forming L.P., a
Delaware limited partnership, by his execution hereof or upon an identical
counterpart hereof, does hereby constitute and appoint Dennis J. Horowitz, James
E. Deason and Johann R. Manning, Jr., or any one of them, as his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign any and all pre-effective and post-effective amendments to this
Registration Statement, and to file same, with all exhibits and schedules
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission and with such state securities authorities as may be
appropriate, granting said attorney-in-fact and agent, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes of the undersigned
might or could do in person, hereby ratifying and confirming all the acts of
said attorneys-in-fact and agent or any of them which they may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ President (Principal Executive August 9, 2002
------------------------------------------------ Officer)
Dennis J. Horowitz
/s/ JAMES E. DEASON Vice President, Chief Financial August 9, 2002
------------------------------------------------ Officer, Treasurer and Director
James E. Deason (Principal Financial Officer and
Principal Accounting Officer)
/s/ JOHANN R. MANNING, JR. Vice President, Secretary and August 9, 2002
------------------------------------------------ Director
Johann R. Manning, Jr.
</Table>
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
SMALL TUBE MANUFACTURING CORPORATION
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Small Tube Manufacturing Corporation, a Delaware corporation, by his execution
hereof or upon an identical counterpart hereof, does hereby constitute and
appoint Dennis J. Horowitz, James E. Deason and Johann R. Manning, Jr., or any
one of them, as his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, to execute and sign any and all pre-effective and
post-effective amendments to this Registration Statement, and to file same, with
all exhibits and schedules thereto and all other documents in connection
therewith, with the Securities and Exchange Commission and with such state
securities authorities as may be appropriate, granting said attorney-in-fact and
agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes of the undersigned might or could do in person, hereby ratifying
and confirming all the acts of said attorneys-in-fact and agent or any of them
which they may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ President and Director August 9, 2002
- --------------------------------------------- (Principal Executive Officer)
Dennis J. Horowitz
/s/ JAMES E. DEASON Vice President, Treasurer and August 9, 2002
- --------------------------------------------- Director (Principal Financial
James E. Deason Officer and Principal Accounting
Officer)
</Table>
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
WOLVERINE FINANCE COMPANY
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Wolverine Finance Company, a Tennessee corporation, by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Dennis
J. Horowitz, James E. Deason and Johann R. Manning, Jr., or any one of them, as
his true and lawful attorney-in-fact and agent, for him and in his name, place
and stead, to execute and sign any and all pre-effective and post-effective
amendments to this Registration Statement, and to file same, with all exhibits
and schedules thereto and all other documents in connection therewith, with the
Securities and Exchange Commission and with such state securities authorities as
may be appropriate, granting said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes of the
undersigned might or could do in person, hereby ratifying and confirming all the
acts of said attorneys-in-fact and agent or any of them which they may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ President and Director August 9, 2002
- --------------------------------------------- (Principal Executive Officer)
Dennis J. Horowitz
/s/ JAMES E. DEASON Vice President, Treasurer and August 9, 2002
- --------------------------------------------- Director (Principal Financial
James E. Deason Officer and Principal Accounting
Officer)
</Table>
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
WOLVERINE JOINING TECHNOLOGIES, INC.
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Wolverine Joining Technologies, Inc., a Delaware corporation, by his execution
hereof or upon an identical counterpart hereof, does hereby constitute and
appoint Dennis J. Horowitz, James E. Deason and Johann R. Manning, Jr., or any
one of them, as his true and lawful attorney-in-fact and agent, for him and in
his name, place and stead, to execute and sign any and all pre-effective and
post-effective amendments to this Registration Statement, and to file same, with
all exhibits and schedules thereto and all other documents in connection
therewith, with the Securities and Exchange Commission and with such state
securities authorities as may be appropriate, granting said attorney-in-fact and
agent, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes of the undersigned might or could do in person, hereby ratifying
and confirming all the acts of said attorneys-in-fact and agent or any of them
which they may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ President and Director August 9, 2002
------------------------------------------------ (Principal Executive Officer)
Dennis J. Horowitz
/s/ JAMES E. DEASON Vice President, Treasurer and August 9, 2002
------------------------------------------------ Director (Principal Financial
James E. Deason Officer and Principal Accounting
Officer)
</Table>
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
WOLVERINE CHINA INVESTMENTS, LLC
By: Wolverine Tube, Inc., as Managing
Member
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
Chairman, President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Wolverine Tube, Inc., the Managing Member of Wolverine China Investments, LLC, a
Delaware limited liability company, by his execution hereof or upon an identical
counterpart hereof, does hereby constitute and appoint Dennis J. Horowitz, James
E. Deason and Johann R. Manning, Jr., or any one of them, as his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead, to execute
and sign any and all pre-effective and post-effective amendments to this
Registration Statement, and to file same, with all exhibits and schedules
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission and with such state securities authorities as may be
appropriate, granting said attorney-in-fact and agent, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes of the undersigned
might or could do in person, hereby ratifying and confirming all the acts of
said attorneys-in-fact and agent or any of them which they may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ Chairman of the Board of August 9, 2002
------------------------------------------------ Directors, President, Chief
Dennis J. Horowitz Executive Officer and Director
(Principal Executive Officer)
/s/ JAMES E. DEASON Executive Vice President, Chief August 9, 2002
------------------------------------------------ Financial Officer, Secretary and
James E. Deason Director (Principal Financial
Officer and Principal Accounting
Officer)
* Director August 9, 2002
------------------------------------------------
Chris A. Davis
* Director August 9, 2002
------------------------------------------------
John L. Duncan
Director
------------------------------------------------
Thomas P. Evans
</Table>
II-11
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Director August 9, 2002
------------------------------------------------
W. Barnes Hauptfuhrer
* Director August 9, 2002
------------------------------------------------
Gail O. Neuman
* Director August 9, 2002
------------------------------------------------
Jan K. Ver Hagen
*By: /s/ JOHANN R. MANNING, JR.
------------------------------------------
Johann R. Manning, Jr.
As Attorney-in-Fact
</Table>
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
STPC HOLDING, INC.
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
STPC Holding, Inc., a Delaware corporation, by his execution hereof or upon an
identical counterpart hereof, does hereby constitute and appoint Dennis J.
Horowitz, James E. Deason and Johann R. Manning, Jr., or any one of them, as his
true and lawful attorney-in-fact and agent, for him and in his name, place and
stead, to execute and sign any and all pre-effective and post-effective
amendments to this Registration Statement, and to file same, with all exhibits
and schedules thereto and all other documents in connection therewith, with the
Securities and Exchange Commission and with such state securities authorities as
may be appropriate, granting said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes of the
undersigned might or could do in person, hereby ratifying and confirming all the
acts of said attorneys-in-fact and agent or any of them which they may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ President and Director August 9, 2002
------------------------------------------------ (Principal Executive Officer)
Dennis J. Horowitz
/s/ JAMES E. DEASON Vice President, Treasurer and August 9, 2002
------------------------------------------------ Director (Principal Financial
James E. Deason Officer
and Principal Accounting Officer)
</Table>
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Huntsville, State of Alabama, on August 9, 2002.
TUBE FORMING HOLDINGS, INC.
By: /s/ DENNIS J. HOROWITZ
------------------------------------
Dennis J. Horowitz
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Tube Forming Holdings, Inc., a Delaware corporation, by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Dennis
J. Horowitz, James E. Deason and Johann R. Manning, Jr., or any one of them, as
his true and lawful attorney-in-fact and agent, for him and in his name, place
and stead, to execute and sign any and all pre-effective and post-effective
amendments to this Registration Statement, and to file same, with all exhibits
and schedules thereto and all other documents in connection therewith, with the
Securities and Exchange Commission and with such state securities authorities as
may be appropriate, granting said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes of the
undersigned might or could do in person, hereby ratifying and confirming all the
acts of said attorneys-in-fact and agent or any of them which they may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DENNIS J. HOROWITZ President and Director August 9, 2002
------------------------------------------------ (Principal Executive Officer)
Dennis J. Horowitz
/s/ JAMES E. DEASON Vice President, Chief Financial August 9, 2002
------------------------------------------------ Officer, Treasurer and Director
James E. Deason (Principal Financial Officer and
Principal Accounting Officer)
/s/ JOHANN R. MANNING, JR. Vice President, Secretary and August 9, 2002
------------------------------------------------ Director
Johann R. Manning, Jr.
</Table>
II-14
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Indenture, dated as of August 4, 1998, between Wolverine
Tube, Inc. and Wachovia Bank, National Association
(successor to First Union National Bank) as Trustee
(incorporated by reference to Exhibit 4.1 to Wolverine Tube,
Inc.'s Quarterly Report on Form 10-Q for the period ended
July 4, 1998).
4.2 Indenture, dated as of March 27, 2002, between Wolverine
Tube, Inc., certain of its subsidiaries and Wachovia Bank,
National Association (successor to First Union National
Bank), as Trustee (incorporated by reference to Exhibit 4.3
to Wolverine Tube Inc.'s Annual Report on Form 10-K for the
period ended December 31, 2001).
4.3* Purchase Agreement dated as of March 22, 2002 among
Wolverine Tube, Inc., certain of its subsidiaries, and
Credit Suisse First Boston Corporation (as representative of
the Purchasers named therein).
4.4* Registration Rights Agreement dated as of March 22, 2002
among Wolverine Tube, Inc., certain of its subsidiaries, and
the Initial Purchasers named therein.
5.1* Opinion of counsel.
12.1* Calculation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries (incorporated by reference to Exhibit
21 to Wolverine Tube Inc.'s Annual Report on Form 10-K for
the period ended December 31, 2001).
23.1 Consent of Ernst & Young LLP, Independent Auditor.
23.2* Consent of Balch & Bingham LLP (included in Exhibit 5.1).
23.3* Consent of Dewey Ballantine LLP (included in Annex I of
Exhibit 5.1).
24.1 Powers of Attorney (included on signature pages).
25.1* Statement of Eligibility of Wachovia Bank, National
Association (successor to First Union National Bank) as
Trustee on Form T-1.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Clients.
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* Schedule II -- Valuation and Qualifying Accounts.
</Table>
- ---------------
* Previously filed.
II-15