WOLVERINE TUBE INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

box Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2002

box Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to .

Commission file number 1-12164

WOLVERINE TUBE, INC.
(Exact name of registrant as specified in its charter)


Delaware (State of Incorporation)		63-0970812 (IRS Employer Identification No.)

200 Clinton Avenue West, Suite 1000 Huntsville, Alabama (Address of Principal Executive Offices)		35801 (Zip Code)

(256) 353-1310
(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES box NO box

Indicate the number of shares outstanding of each class of Common Stock, as of the latest practicable date:


Class		Outstanding as of August 1, 2002

Common Stock, $0.01 Par Value		12,251,519 Shares

TABLE OF CONTENTS


	ITEM 1. FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Supplemental Benefit Restoration Plan
Supplemental Executive Retirement Plan
2002 Change in Control
2002 Change in Control
2002 Change in Control
2002 Change in Control
Section 906 Certification of the CEO
Section 906 Certification of the CFO

FORM 10-Q

QUARTERLY REPORT

TABLE OF CONTENTS


		Page No.
	PART I




Item 1.	Financial Statements




	Condensed Consolidated Statements of Income (Unaudited)— Three-Month and Six-Month Periods Ended June 30, 2002 and July 1, 2001	1




	Condensed Consolidated Balance Sheets June 30, 2002 and December 31, 2001	2




	Condensed Consolidated Statements of Cash Flows (Unaudited)— Six-Month Periods Ended June 30, 2002 and July 1, 2001	3




	Notes to Condensed Consolidated Financial Statements (Unaudited)	4




Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18




Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28




	PART II




Item 1.	Legal Proceedings	30




Item 4.	Submission of Matters to a Vote of Security Holders	30




Item 6.	Exhibits and Reports on Form 8-K	30

ITEM 1. FINANCIAL STATEMENTS

Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)


		Three-month period ended:					Six-month period ended:

				July 1, 2001						July 1, 2001
		June 30, 2002		(Restated)			June 30, 2002			(Restated)

(In thousands except per share amounts)




Net sales		$	152,547	$	161,517		$	290,090		$	333,954




Cost of goods sold			133,335		145,725			256,555			296,396

Gross profit			19,212		15,792			33,535			37,558




Selling, general and administrative expenses			8,250		8,261			16,154			16,320

Operating income from continuing operations			10,962		7,531			17,381			21,238




Other expenses:




	Interest expense, net		5,571		3,114			9,301			6,888




	Amortization and other, net		524		186			602			107

Income from continuing operations before tax			4,867		4,231			7,478			14,243




Income tax provision			1,381		1,149			2,304			4,186

Income from continuing operations			3,486		3,082			5,174			10,057




Loss from discontinued operations, net of tax of $0 and $2.3 for the three-month period and $0 and 2.6 million for the six-month period of 2002 and 2001, respectively			—		(3,643	)		—			(4,491	)

Net income (loss)			3,486		(561	)		5,174			5,566




Less preferred stock dividends			—		(70	)		(58	)		(140	)

Net income (loss) applicable to common shares		$	3,486	$	(631	)	$	5,116		$	5,426

Earnings per common share –basic:

Income from continuing operations		$	0.28	$	0.25		$	0.42		$	0.82




Loss from discontinued operations			—		(0.30	)		—			(0.37	)

Net income (loss) per common share—basic		$	0.28	$	(0.05	)	$	0.42		$	0.45

Basic weighted average number of common shares			12,251		12,073			12,200			12,063

Earnings per common share –diluted:

Income from continuing operations		$	0.28	$	0.24		$	0.41		$	0.80




Loss from discontinued operations			—		(0.29	)		—			(0.36	)

Net income (loss) per common share—diluted		$	0.28	$	(0.05	)	$	0.41		$	0.44

Diluted weighted average number of common and common equivalent shares			12,369		12,405			12,328			12,311

See Notes to Condensed Consolidated Financial Statements.

Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets


		June 30,			December 31,
		2002			2001

(In thousands except share and per share amounts)		*(Unaudited)*			(Note)




Assets




Current assets




	Cash and equivalents	$	45,437		$	22,739




	Accounts receivable, net		90,952			67,164




	Inventories		82,276			103,360




	Refundable income taxes		2,093			2,410




	Prepaid expenses and other		10,258			7,230

Total current assets			231,016			202,903




Property, plant and equipment, net			214,813			218,476




Deferred charges, net			11,114			3,125




Goodwill, net			100,027			99,870




Assets held for sale			9,503			9,072




Prepaid pensions			4,242			5,981

Total assets		$	570,715		$	539,427

Liabilities, Redeemable Preferred Stock and Stockholders’ Equity




Current liabilities




	Accounts payable	$	39,000		$	34,137




	Accrued liabilities		20,261			25,689




	Short-term borrowings		895			1,684

Total current liabilities			60,156			61,510




Deferred income taxes			8,837			9,225




Long-term debt			270,227			247,698




Postretirement benefit obligation			15,776			15,720




Accrued environmental remediation			1,415			1,862

Total liabilities			356,411			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; 14,315,319 and 14,276,831 shares issued as of June 30, 2002 and December 31, 2001, respectively		143			143




	Additional paid-in capital		102,813			103,759




	Retained earnings		164,161			159,045




	Unearned compensation		(53	)		(165	)




	Accumulated other comprehensive loss		(15,385	)		(21,898	)




	Treasury stock, at cost; 2,063,800 and 2,179,900 shares as of June 30, 2002 and December 31, 2001, respectively		(37,375	)		(39,472	)

Total stockholders’ equity			214,304			201,412

Total liabilities, redeemable preferred stock and stockholders’ equity		$	570,715		$	539,427


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

Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)


			Six-month period ended:

			June 30, 2002			July 1, 2001

*(In thousands)*						(Restated)




Operating Activities




Income from continuing operations			$	5,174		$	10,057




Adjustments to reconcile income from continuing operations to net cash provided by operating activities:




	Depreciation and amortization			8,725			8,946




	Deferred income taxes			89			(2,492	)




	Other non-cash items			115			372




	Changes in operating assets and liabilities:




		Accounts receivable, net		(22,655	)		(7,877	)




		Inventories		11,938			2,379




		Refundable income taxes		802			9,392




		Prepaid expenses and other		310			(524	)




		Accounts payable		7,641			(1,520	)




		Accrued liabilities including pension, postretirement benefit and environmental		(610	)		(921	)

Net cash provided by operating activities				11,529			17,812




Investing Activities




Additions to property, plant and equipment				(3,280	)		(17,531	)




Acquisition of business assets				—			(1,588	)

Net cash used for investing activities				(3,280	)		(19,119	)




Financing Activities




Financing fees and expenses paid				(8,398	)		—




Net borrowings (payments) on revolving credit facilities				(98,696	)		11,527




Net increase (decrease) in note payable				1,822			(333	)




Proceeds from issuance of senior notes				118,546			—




Issuance of common stock				69			113




Redemption of preferred stock				(1,000	)		—




Dividends paid on preferred stock				(58	)		(140	)

Net cash provided by financing activities				12,285			11,167




Effect of exchange rate on cash and equivalents				740			(426	)

Net cash provided by continuing operations				21,274			9,434




Net cash provided by (used for) discontinued operations				1,424			(6,778	)

Net increase in cash and equivalents				22,698			2,656




Cash and equivalents at beginning of period				22,739			23,458

Cash and equivalents at end of period			$	45,437		$	26,114

See Notes to Condensed Consolidated Financial Statements.

Wolverine Tube, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 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 and six-month periods ended June 30, 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, and we have received various communications from regulatory authorities concerning environmental matters. We have accrued estimated environmental remediation costs of $1.4 million at June 30, 2002, consisting primarily of $0.9 million for the Decatur, Alabama facility; $0.1 million for the Greenville, Mississippi facility and $0.4 million for the Ardmore, Tennessee facility.

NOTE 3. INVENTORIES

Inventories are as follows:


	June 30, 2002		December 31, 2001

(In thousands)




Finished products	$	16,967	$	22,565




Work-in-process		16,122		20,850




Raw materials and supplies		49,187		59,945

Totals	$	82,276	$	103,360

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 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 three-months and six-months ended July 1, 2001 was to decrease net income by ($4.0) million ($0.33 loss per diluted share) and ($4.2) million ($0.35 loss per diluted share), respectively.

NOTE 4. GOODWILL

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 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.

On January 1, 2002, we adopted SFAS No. 142. Accordingly, we ceased amortization of all previously recorded goodwill as of that date. A transitional impairment test of all goodwill was required within six months of adopting SFAS No. 142. 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 those business units and thus no transitional impairment charge was recorded. At June 30, 2002, we had $100.0 million of goodwill, net of $18.6 million of accumulated amortization. The increase in goodwill during 2002 results from the translation of the goodwill of our distribution center in The Netherlands whose functional currency is the euro.

Income from continuing operations for the three and six-month periods of 2001, adjusted to exclude amortization expense recognized related to goodwill would have been $3.7 million, or $0.30 per diluted share and $11.4 million, or $0.91 per diluted share, respectively. Including the loss from discontinued operations, net income for the three and six-month periods of 2001 adjusted to exclude amortization expense related to goodwill would have been $0.1 million, or $0.01 per diluted share and $7.0 million, or $0.56 per diluted share, respectively. 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 $0.3 million and $0.1 million for the three-month period ended June 30, 2002, and $0.2 million and $0.4 million for the three-month period ended July 1, 2001. Interest expense is net of interest income and capitalized interest of $0.3 million and $0.1 million for the six-month period ended June 30, 2002, and $0.5 million and $0.7 million for the six-month period ended July 1, 2001.

NOTE 6. DEBT

Long-term debt consists of the following:


	June 30, 2002			December 31, 2001

(In thousands)




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		(1,402	)		—

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