Attached files
file | filename |
---|---|
EX-31.2 - WOLVERINE TUBE INC | v169742_ex31-2.htm |
EX-31.1 - WOLVERINE TUBE INC | v169742_ex31-1.htm |
EX-32.1 - WOLVERINE TUBE INC | v169742_ex32-1.htm |
EX-32.2 - WOLVERINE TUBE INC | v169742_ex32-2.htm |
EX-23.1 - WOLVERINE TUBE INC | v169742_ex23-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K/A
(Amendment
No. 3)
x
|
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
for the fiscal year ended December 31,
2008,
|
OR
¨
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
for the transition period from
to
.
|
Commission
file number 1-12164
WOLVERINE
TUBE, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
63-0970812
|
|
(State
of Incorporation)
|
(IRS
Employer Identification No.)
|
|
200
Clinton Avenue West, 10 th
Floor
Huntsville,
Alabama
|
35801
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(256)
353-1310
(Registrant’s
Telephone Number, including Area Code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. YES ¨
NO x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES
x
NO ¨
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 ¨
NO x
Note: The
registrant, as a voluntary filer, is not subject to the filing requirements
under Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”) but has been filing all reports required to be filed by those
sections for the preceding 12 months.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
|
(Do
not check if smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨
NO x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of June 29, 2008 was
approximately $28,691,721 based upon the closing price of $0.72 for the Common
Stock reported for such date on the Over the Counter Bulletin Board. For
purposes of this disclosure, shares of Common Stock held by executive officers,
directors, and other affiliates of the registrant have been excluded because
such persons may be deemed to be affiliates.
Indicate
the number of shares outstanding of each class of Common Stock, as of the latest
practicable date:
Class
|
Outstanding
as of June 10, 2009
|
|
Common
Stock, $0.01 par value
|
40,623,736
Shares
|
EXPLANATORY
NOTE
This Amendment No. 3 to the Wolverine
Tube, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008 is being filed for the sole purpose of setting forth the complete text of
Item 8 as amended by Amendments No. 1 and 2 pursuant to Rule 12b-15 of
Regulation 12B.
This
Amendment does not amend, update or change any other items or disclosures in the
Original Filing and does not reflect events occurring after the Original Filing.
No other changes are being made by means of this filing.
Financial
Statements
|
|
Page
|
|
|
||
|
||
|
||
|
||
|
||
|
Year ended December 31, | ||||||||
(In thousands except per share amounts) | 2008 | 2007 | ||||||
Net sales
|
$ | 815,801 | $ | 1,011,019 | ||||
Cost of goods
sold
|
788,930 | 960,817 | ||||||
Gross profit
|
26,871 | 50,202 | ||||||
Selling, general and
administrative expenses
|
26,716 | 30,428 | ||||||
Net (gain) on
divestitures
|
(26,348 | ) | — | |||||
Advisory fees and
expenses
|
984 | 6,014 | ||||||
Goodwill
impairment
|
46,560 | — | ||||||
Restructuring and impairment
charges
|
5,820 | 75,097 | ||||||
Operating loss
|
(26,861 | ) | (61,337 | ) | ||||
Other (income)
expense:
|
||||||||
Interest expense,
net
|
17,356 | 21,325 | ||||||
Amortization
expense
|
3,054 | 2,491 | ||||||
Loss on sale of
receivables
|
484 | 2,531 | ||||||
Embedded derivatives mark to
fair value
|
(3 | ) | (15,755 | ) | ||||
Other, net
|
604 | 1,239 | ||||||
Loss from continuing
operations before minority interest and income taxes
|
(48,356 | ) | (73,168 | ) | ||||
Minority interest
|
541 | — | ||||||
Equity in earnings of
unconsolidated subsidiary
|
(332 | ) | — | |||||
Income tax
expense
|
677 | 3,476 | ||||||
Net loss from continuing
operations
|
(49,242 | ) | (76,644 | ) | ||||
Income (loss) from
discontinued operations, net of taxes
|
769 | (21,583 | ) | |||||
Net loss
|
(48,473 | ) | (98,227 | ) | ||||
Less: Accretion of convertible
preferred stock and beneficial conversion feature conversion
feature
|
5,021 | 4,618 | ||||||
Preferred stock
dividends
|
6,810 | 13,284 | ||||||
Net loss applicable to common
shares
|
$ | (60,304 | ) | $ | (116,129 | ) | ||
Income(Loss) per common
share—Basic
|
||||||||
Continuing
operations
|
$ | (1.50 | ) | $ | (4.97 | ) | ||
Discontinued
operations
|
0.01 | (1.13 | ) | |||||
Net loss per common
share
|
$ | (1.49 | ) | $ | (6.10 | ) | ||
Income(Loss) per common
share—Diluted
|
||||||||
Continuing
operations
|
$ | (1.50 | ) | $ | (4.97 | ) | ||
Discontinued
operations
|
0.01 | (1.13 | ) | |||||
Net loss per common
share
|
$ | (1.49 | ) | $ | (6.10 | ) | ||
Shares used in computing
income (loss) per share:
|
||||||||
Basic
|
40,624 | 19,038 | ||||||
Diluted
|
40,624 | 19,038 |
See accompanying notes to the
consolidated financial statements.
48
December 31, | ||||||||
(In thousands except share and per share amounts) | 2008 | 2007 | ||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash
equivalents
|
$ | 33,537 | $ | 63,303 | ||||
Restricted cash
|
37,738 | 2,126 | ||||||
Accounts receivable, net of
allowance for doubtful accounts of $392 thousand in 2008 and $613 thousand
in 2007
|
38,626 | 108,398 | ||||||
Inventories
|
53,284 | 104,742 | ||||||
Assets held for
sale
|
3,680 | 43,001 | ||||||
Derivative assets
|
291 | 975 | ||||||
Prepaid expenses and other
assets
|
5,380 | 11,561 | ||||||
Total current
assets
|
172,536 | 334,106 | ||||||
Property, plant and equipment,
net
|
52,004 | 69,078 | ||||||
Goodwill
|
— | 46,703 | ||||||
Intangible assets and deferred
charges, net
|
2,634 | 4,284 | ||||||
Notes receivable
|
585 | 815 | ||||||
Investment in unconsolidated
subsidiary
|
9,373 | — | ||||||
Total assets
|
$ | 237,132 | $ | 454,986 | ||||
Liabilities and Stockholders’
Equity (Deficit)
|
||||||||
Current
liabilities
|
||||||||
Accounts payable
|
$ | 34,713 | $ | 55,861 | ||||
Accrued
liabilities
|
19,035 | 26,072 | ||||||
Derivative
liabilities
|
5,415 | 925 | ||||||
Deferred income
taxes
|
1,601 | 677 | ||||||
Short-term
borrowings
|
19,759 | 90,939 | ||||||
Liabilities of discontinued
operations
|
— | 1,853 | ||||||
Total current
liabilities
|
80,523 | 176,327 | ||||||
Long-term debt
|
117,911 | 146,021 | ||||||
Pension
liabilities
|
45,552 | 17,616 | ||||||
Postretirement benefits
obligation
|
4,662 | 18,776 | ||||||
Accrued environmental
remediation
|
9,628 | 21,458 | ||||||
Deferred income taxes,
non-current
|
— | 3,064 | ||||||
Other liabilities
|
2,981 | 112 | ||||||
Total liabilities
|
261,257 | 383,374 | ||||||
Series A Convertible Preferred
Stock, par value $1,000 per share, 90,000 shares authorized; 54,494 and
50,000 shares issued and outstanding as of December 31, 2008 and
2007, respectively
|
13,908 | 4,393 | ||||||
Series B Convertible Preferred
Stock, par value $1,000 per share, 25,000 shares authorized; 10,000 and no
shares issued and outstanding as of December 31, 2008 and 2007,
respectively
|
9,700 | — | ||||||
Stockholders’ equity
(deficit)
|
||||||||
Common stock, par value $0.01
per share; 180,000,000 shares authorized;
40,623,736 shares issued and
outstanding as of December 31, 2008 and
2007
|
406 | 406 | ||||||
Additional paid-in
capital
|
142,588 | 146,815 | ||||||
Accumulated
deficit
|
(151,281 | ) | (95,998 | ) | ||||
Accumulated other
comprehensive income (loss), net
|
(39,446 | ) | 15,996 | |||||
Total stockholders’ equity
(deficit)
|
(47,733 | ) | 67,219 | |||||
Total liabilities, convertible
preferred stock and stockholders’ equity (deficit)
|
$ | 237,132 | $ | 454,986 | ||||
See accompanying notes to the
consolidated financial statements.
49
and Comprehensive Income (Loss)
Common
Stock
|
Additional Paid-In Capital |
Retained Earnings (Accumulated deficit) |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders’ Equity |
|||||||||||||||||
(In thousands except number of shares) | Shares | Amount | |||||||||||||||||||
Balance at December 31,
2006
|
15,090,843 | $ | 151 | $ | 91,904 | $ | 5,896 | $ | (9,389 | ) | $ | 88,562 | |||||||||
Net loss from
operations
|
— | — | — | (98,227 | ) | — | (98,227 | ) | |||||||||||||
Translation
adjustments
|
— | — | — | (1 | ) | 11,432 | 11,431 | ||||||||||||||
Change in fair value of
derivatives
|
— | — | — | — | 2,906 | 2,906 | |||||||||||||||
Net pension actuarial
gain
|
— | — | — | — | 8,276 | 8,276 | |||||||||||||||
Amortization of net pension
actuarial income
|
— | — | — | — | 727 | 727 | |||||||||||||||
Pension curtailment
gain
|
— | — | — | — | 378 | 378 | |||||||||||||||
Termination of Montreal
pension and post retirement benefits
|
— | — | — | — | 1,542 | 1,542 | |||||||||||||||
Total comprehensive
loss
|
— | — | — | — | — | (72,967 | ) | ||||||||||||||
Accrued dividends on preferred
stock
|
— | — | — | (3,666 | ) | — | (3,666 | ) | |||||||||||||
Stock
compensation
|
— | — | 2,347 | — | — | 2,347 | |||||||||||||||
Amortization and vesting of
restricted stock
|
88,301 | — | 282 | — | — | 282 | |||||||||||||||
Rights offering,
net
|
25,444,592 | 255 | 27,255 | — | — | 27,510 | |||||||||||||||
Preferred stock offering,
net
|
— | — | 26,426 | — | — | 26,426 | |||||||||||||||
Accretion of preferred stock
and beneficial conversion feature
|
— | — | (4,618 | ) | — | — | (4,618 | ) | |||||||||||||
Beneficial conversion feature,
net
|
— | — | 12,837 | — | — | 12,837 | |||||||||||||||
Foreign currency
adjustment
|
— | — | — | — | 124 | 124 | |||||||||||||||
Deemed dividend
|
— | — | (9,618 | ) | — | — | (9,618 | ) | |||||||||||||
Balance at December 31,
2007
|
40,623,736 | $ | 406 | $ | 146,815 | $ | (95,998 | ) | $ | 15,996 | $ | 67,219 | |||||||||
Net loss from
operations
|
— | — | — | (48,473 | ) | — | (48,473 | ) | |||||||||||||
Translation
adjustments
|
— | — | — | — | (15,523 | ) | (15,523 | ) | |||||||||||||
Change in fair value of
derivatives
|
— | — | — | — | (4,627 | ) | (4,627 | ) | |||||||||||||
Net pension actuarial
loss
|
— | — | — | — | (35,292 | ) | (35,292 | ) | |||||||||||||
Total comprehensive
loss
|
— | — | — | — | — | (103,915 | ) | ||||||||||||||
Accrued dividends on preferred
stock
|
— | — | — | (6,810 | ) | — | (6,810 | ) | |||||||||||||
Stock
compensation
|
— | — | 792 | — | — | 792 | |||||||||||||||
Amortization and vesting of
restricted stock
|
— | — | 2 | — | — | 2 | |||||||||||||||
Accretion of preferred
stock
|
— | — | (5,021 | ) | — | — | (5,021 | ) | |||||||||||||
Balance at December 31,
2008
|
40,623,736 | $ | 406 | $ | 142,588 | $ | (151,281 | ) | $ | (39,446 | ) | $ | (47,733 | ) | |||||||
See accompanying notes to the
consolidated financial statements.
50
Year ended December 31, | ||||||||
(In thousands) | 2008 | 2007 | ||||||
Operating
Activities
|
||||||||
Loss from continuing
operations
|
$ | (49,242 | ) | $ | (76,644 | ) | ||
Income (loss) from
discontinued operations
|
769 | (21,583 | ) | |||||
Net loss
|
(48,473 | ) | (98,227 | ) | ||||
Adjustments to reconcile net
income to net cash used in operating activities:
|
||||||||
Depreciation
|
7,055 | 9,528 | ||||||
Amortization
|
3,179 | 2,586 | ||||||
Deferred income
taxes
|
(1,949 | ) | 2,767 | |||||
Gain on early extinguishment
of debt
|
(858 | ) | — | |||||
Minority interest in Chinese
subsidiary
|
541 | — | ||||||
Equity in earnings of
unconsolidated subsidiary
|
(332 | ) | — | |||||
Impairment of assets held for
sale and goodwill
|
46,950 | 48,983 | ||||||
Loss on disposal of fixed
assets
|
— | 46 | ||||||
Non-cash environmental,
restructuring and other charges
|
(559 | ) | 10,577 | |||||
Change in fair value of
embedded derivative
|
— | (15,755 | ) | |||||
Stock compensation
expense
|
847 | 2,629 | ||||||
Net gain on
divestitures
|
(26,348 | ) | — | |||||
Changes in operating assets
and liabilities:
|
||||||||
Accounts receivable,
net
|
25,769 | (1,575 | ) | |||||
Purchase of accounts
receivable
|
— | (43,882 | ) | |||||
Inventories
|
33,712 | 1,399 | ||||||
Income taxes
|
(286 | ) | (1,303 | ) | ||||
Prepaid expenses and
other
|
7,899 | (2,579 | ) | |||||
Accounts payable
|
(7,761 | ) | 17,094 | |||||
Accrued liabilities, including
pension, postretirement benefit, and environmental
|
(20,873 | ) | 11,327 | |||||
Net cash provided by (used in)
continuing operating activities
|
17,744 | (34,802 | ) | |||||
Net cash provided by (used in)
discontinued operating activities
|
(9,754 | ) | 11,588 | |||||
Net cash provided by (used in)
operating activities
|
7,990 | (23,214 | ) | |||||
Investing
Activities
|
||||||||
Additions to property, plant,
and equipment
|
(3,821 | ) | (2,708 | ) | ||||
Proceeds from sale of
assets
|
6,440 | 375 | ||||||
Purchase of
patents
|
(368 | ) | (176 | ) | ||||
Investment
purchases
|
— | (1,618 | ) | |||||
Proceeds from sale of interest
in Chinese subsidiary
|
19,419 | — | ||||||
Change in restricted
cash
|
(35,612 | ) | 3,503 | |||||
Net cash used in continuing
investing activities
|
(13,942 | ) | (624 | ) | ||||
Net cash provided by (used in)
discontinued investing activities
|
64,796 | (1,309 | ) | |||||
Net cash provided by (used in)
investing activities
|
50,854 | (1,933 | ) | |||||
Financing
Activities
|
||||||||
Financing fees and expenses
paid
|
(1,895 | ) | (110 | ) | ||||
Payments under revolving
credit facilities and other debt
|
(968 | ) | (3,663 | ) | ||||
Borrowings from revolving
credit facilities and other debt
|
— | 230 | ||||||
Issuance of preferred
stock
|
14,194 | 45,179 | ||||||
Proceeds from common stock
rights offering, net of costs
|
— | 27,510 | ||||||
Purchase or repayment of
senior notes
|
(97,661 | ) | — | |||||
Other financing
activities
|
— | 77 | ||||||
Payment of
dividends
|
(2,042 | ) | (2,958 | ) | ||||
Net cash provided by (used in)
continuing financing activities
|
(88,372 | ) | 66,265 | |||||
Net cash provided by (used in)
discontinued financing activities
|
1 | (24 | ) | |||||
Net cash provided by (used in)
financing activities
|
(88,371 | ) | 66,241 | |||||
Effect of exchange rate on
cash and equivalents
|
(239 | ) | 4,855 | |||||
Net increase (decrease) in
cash and equivalents
|
(29,766 | ) | 45,949 | |||||
Cash and equivalents at
beginning of year
|
63,303 | 17,354 | ||||||
Cash and equivalents at end of
year
|
$ | 33,537 | $ | 63,303 | ||||
Supplemental disclosure of
cash flow:
|
||||||||
Interest paid
|
$ | 20,836 | $ | 21,874 | ||||
Income taxes paid,
net
|
$ | 2,230 | $ | 2,736 |
See accompanying notes to the
consolidated financial statements.
51
1. Overview of Operations
Wolverine Tube, Inc. (the Company,
Wolverine, we, our, or us) is a global manufacturer of copper and copper alloy
tube, fabricated products, and metal joining products. Our focus is on
custom-engineered, higher value-added tubular products, including fabricated
copper components 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,
industrial equipment, power generation, and petrochemicals and chemical
processing.
During 2008, our common stock was
traded on the OTC Bulletin Board and Pink Sheets under the symbol “WLVT.”
Effective December 1, 2008, our common stock was removed from the OTC
Bulletin Board and continues to be listed on the Pink Sheets.
On February 1, 2007, we
announced a recapitalization plan that would provide significant equity proceeds
to Wolverine. We completed the first phase of this recapitalization plan, a
private placement of 50,000 shares of Series A Convertible Preferred Stock with
an initial dividend rate of 8%, for $50.0 million, to The Alpine Group, Inc.
(“Alpine”) and Plainfield Asset Management LLC (“Plainfield”) on
February 16, 2007. As part of this plan, we agreed to conduct a common
stock rights offering to our common stockholders, which we completed on
October 29, 2007, raising approximately $28.0 million in equity proceeds.
In addition, in connection with their initial investment, Alpine and Plainfield
received an option to purchase additional shares of Series A Convertible
Preferred Stock, at a price of $1,000 per share, up to an amount that would be
sufficient to increase their aggregate ownership to 55.0% of our outstanding
common stock on an as-converted, fully diluted basis following the completion of
the rights offering. Alpine exercised this option on January 25, 2008 to
purchase an additional 4,494 shares of Series A Convertible Preferred Stock for
$4.5 million. Additionally, Alpine purchased $10.0 million of our Series B
Convertible Preferred Stock, which has substantially the same terms and
conditions as and ranks equal in rights and seniority with our outstanding
Series A Convertible Preferred Stock, except for an initial annual dividend rate
of 8.5%. We raised approximately $92.5 million in gross equity proceeds in 2007
and 2008 from these transactions.
Since 2007, we have pursued a
financial restructuring plan with respect to our 7.375% and 10.5% Senior Notes,
our secured revolving credit facility and our receivables sale facility in
anticipation of their maturities in 2008 and 2009. In light of market
conditions, which have negatively affected our ability to execute such a global
refinancing strategy, we took certain actions to address the repayment of the
7.375% Senior Notes at their maturity on August 1, 2008. We extended the
maturity of our receivables sale facility and our secured revolving credit
facility to February 19, 2009. Further, on March 20, 2008, we
refinanced $38.3 million of our 7.375% Senior Notes held by Plainfield by
exchanging them for 10.5% Senior Exchange Notes due March 28, 2009. The
proceeds from the equity transactions, along with net proceeds of $24.9 million
from the sale of our STP business in February 2008, $9.5 million from the sale
of 30.0% of our Wolverine Tube Shanghai Co., Ltd. (“WTS”) operation in March
2008, $1.4 million from the sale of our Booneville, Mississippi facility, and
approximately $41.2 million from the sale of our London, Ontario plumbing tube
business in July 2008, coupled with available cash from operations and from our
extended liquidity facilities, were sufficient to repurchase or repay the
balance of the 7.375% Senior Notes on or before their maturity on August 1,
2008. On February 29, 2008, we repurchased $12.0 million in face amount of
our 7.375% Senior Notes at a discount below the face value of the notes and on
April 8, 2008, we repurchased an additional $25.0 million in face amount of
our 7.375% Senior Notes, also at a discount below the face value of the notes,
leaving $61.4 million in face amount of our 7.375% Senior Notes, which we repaid
at maturity on August 1, 2008. On September 15, 2008, we sold an
additional 20% of our WTS subsidiary, raising $10.1 million.
See Note 4, Recapitalization Plan, of the
Notes to the Consolidated Financial Statements for further details.
The Series A and Series B
Convertible Preferred Stock are convertible into shares of Wolverine common
stock at the option of the holders, in whole or in part, at any time. We may
defer payment of the dividend in certain circumstances. We are entitled to defer
dividends on the preferred stock to the extent that we do not have cash or
financing available to us to cover the full quarterly dividend amount in
compliance with our contractual obligations. With respect to the Series A
Convertible Preferred Stock, any deferred dividend will accrue at an annual rate
of 10.0% if the dividend payment date is before January 31, 2012 and at an
annual rate of 12.0% per annum if the dividend payment date is on or after
January 31, 2012. Any deferred dividend with respect to the Series B
Convertible Preferred Stock will accrue at an annual rate of 10.5% if the
dividend payment date is before January 31, 2012 and at an annual rate of
12.5% per annum if the dividend payment date is on or after
January 31, 2012. Furthermore, the dividend rate on both the Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock is subject
to additional adjustment, as provided below, as long as certain conditions are
not satisfied. Due to restrictions on cash available to pay preferred stock
dividends imposed by the indenture governing our 10.5% Senior Notes due 2009, we
have deferred $5.8 million in preferred stock dividends that accrued through the
period ended December 31, 2008, as reflected in the Consolidated Balance
Sheets in accrued liabilities. We intend to continue to defer future dividends
until we meet certain conditions under our new financing arrangement.
52
In addition, if at any time after
June 16, 2007 with respect to the Series A Convertible Preferred Stock, or
June 30, 2008 with respect to the Series B Convertible Preferred Stock, the
shares of common stock into which the applicable series of preferred stock are
convertible are not registered for resale under the Securities Act of 1933, then
the dividend rate on the applicable series of preferred stock will increase by
0.5% for each quarter in which this condition remains unsatisfied, up to a
maximum increase of 2.0%. With respect to the Series A Convertible Preferred
Stock as of June 16, 2007, we did not satisfy this condition. As a result,
the dividend rate on the Series A Convertible Preferred Stock was subject to the
0.5% increase for the quarter ended July 31, 2007, bringing the applicable
dividend rate to 8.5%. The Series A Convertible Preferred Stock stockholders
agreed to retain the dividend rate at 8.5% through June 30, 2008. Since
June 30, 2008, no further waivers have been received for either the Series
A Convertible Preferred Stock or the Series B Convertible Preferred Stock. Due
to certain restrictions imposed under the federal securities laws upon the
amount of our securities that may be registered for resale by the preferred
stockholders, as affiliates of Wolverine, we continue to be unable to satisfy
the resale condition applicable to both the Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock. As a result, our dividend rate on each
series may ultimately increase by a maximum of 2.0%. With the deferral of
dividends and the dividend rate adjustment as discussed above, combined with the
adjustments for failure to meet the resale condition, the maximum dividend rate
on the Series A Convertible Preferred Stock could rise to 12.0% prior to
January 31, 2012 or 14.0% on or after January 31, 2012 and on the
Series B Convertible Preferred Stock could rise to 12.5% prior to
January 31, 2012 and 14.5% on or after January 31, 2012. As of
December 31, 2008, we are accruing dividends on both the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock at
12.0%.
The Company’s financial statements
have been presented on the basis that it is a going concern, which assumes that
the Company will realize its assets and discharge its liabilities in the
ordinary course of business. These financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that may
be necessary should the Company be unable to continue as a going concern.
On April 28, 2009 the Company
successfully completed an Exchange Offer which refinanced approximately $121.6
million 10.5% Senior Notes and 10.5% Senior Exchange Notes with 15% Senior
Exchange Notes as described in Note 33, Subsequent Events, in the
Notes to the Consolidated Financial Statements. The Senior Secured Notes mature
in a lump sum on March 31, 2012. After completing this refinancing, the
Company had domestic cash balances of approximately $15.0 million on
April 28, 2009.
The Company believes that its
available cash and cash anticipated to be generated through operations is
expected to be adequate to fund the Company’s liquidity requirements, although
there can be no assurances that the Company will be able to generate such cash.
Additionally, the Company does not currently have in effect a revolving credit
agreement or other capital commitments to supplement its existing cash and
anticipated cash resources, if necessary, to meet its liquidity requirements
materially in excess of the Company’s current expectations. The uncertainty
about the Company’s ability to achieve its projected results and the absence of
such credit or capital commitments raises substantial doubt about the Company’s
ability to continue as a going concern. The Company expects to continue to
actively manage and optimize its cash balances and liquidity, working capital,
operating expenses and product profitability, although there can be no
assurances the Company will be able to do so.
2. Summary of Significant Accounting
Policies
The significant accounting policies
followed by us are described below:
Principles of Consolidation
The accompanying consolidated
financial statements include the accounts of Wolverine and its subsidiaries. All
significant intercompany transactions and accounts have been eliminated in
consolidation. Certain reclassifications are made to conform previously reported
data to the current presentation. Such reclassifications had no impact on total
assets, total liabilities, net loss, or stockholders’ equity.
Uses of Estimates
The preparation of the accompanying
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions about future events. These estimates and the
underlying assumptions affect the amounts of assets and liabilities reported,
disclosures about contingent assets and liabilities, and reported amounts of
revenues and expenses. Such estimates include the valuation of accounts
receivable, inventories, goodwill, intangible assets, and other long-lived
assets, legal contingencies, guarantee obligations, assumptions used in the
calculation of income taxes, retirement and other post-employment benefits, and
customer incentives, among others. These estimates and assumptions are based on
management’s best estimates and judgment. Management evaluates its estimates and
assumptions on an ongoing basis using historical experience and other factors,
including the current economic environment, which management believes to be
reasonable under the circumstances. We adjust such estimates and assumptions
when facts and circumstances dictate. Illiquid credit markets, volatile equity,
foreign currency and energy markets, and declines in consumer spending have
combined to increase the uncertainty inherent in such estimates and assumptions.
As future events and their effects cannot be determined with precision, actual
results could differ significantly from these estimates. Changes in those
estimates resulting from continuing changes in the economic environment will be
reflected in the consolidated financial statements in future periods.
53
Revenue Recognition Policy
Revenues are generally recognized
when title to products transfer to an unaffiliated customer, and the product is
shipped. Sales are made under normal terms and usually do not require
collateral, as historically collection of our receivables is reasonably assured.
Revenues are recorded net of estimated returns and allowances and volume
discounts. The reserve for sales returns and allowances is calculated by
applying a historical percentage against certain receivables.
Sales taxes collected from customers
and remitted to governmental authorities are accounted for an a net basis and
therefore are excluded from revenues in the consolidated statement of
operations.
Cash Equivalents
We consider all highly liquid
short-term investments purchased with a maturity of three months or less to be
cash equivalents. Cash equivalents are carried at cost, which approximates fair
value.
Restricted Cash
We classify cash deposits securing
certain transactions that are restricted from use by the Company in the ordinary
course of business as Restricted Cash. See Note 5, Restricted Cash, for a
description of the Restricted Cash at December 31, 2008 and 2007.
Allowance for Doubtful Accounts
The allowance for doubtful accounts
ensures that trade receivables are not overstated due to issues of
collectibility and are established for certain customers based upon a variety of
factors: including past due receivables, macroeconomic conditions, significant
current events, and historical experience. Specific reserves for individual
accounts may be established due to a customer’s inability to meet their
financial obligations, such as in the case of bankruptcy filings or the
deterioration in a customer’s operating results or financial position. As
circumstances related to customers change, estimates of the recoverability of
receivables are adjusted.
Sales of Accounts Receivable
Our Company’s sales of our
receivables to a special-purpose entity are accounted for as a sale in
accordance with SFAS No. 140 (“SFAS 140”), Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities – a replacement
of FASB Statement No. 125.
Inventories
Inventories are stated at the lower
of cost or market. Cost is determined using the first-in, first-out (FIFO)
method. Inventory costs include material, labor, and factory overhead. Our
maintenance and operating supplies inventory is valued using an average cost
method to determine cost. Obsolete or unsaleable inventories are reflected at
their estimated net realizable values.
Total inventories in 2008 and 2007
included the following classifications:
(In thousands) | 2008 | 2007 | ||||
Finished products
|
$ | 27,990 | $ | 47,620 | ||
Work-in-process
|
10,646 | 28,726 | ||||
Raw materials
|
9,262 | 16,768 | ||||
Supplies
|
5,386 | 11,628 | ||||
Totals
|
$ | 53,284 | $ | 104,742 | ||
Included in finished goods are
consignment inventories of $12.3 million at December 31, 2008 and $16.3
million at December 31, 2007. These consignments are at various locations
throughout the United States.
Property, Plant, and Equipment
Land, buildings, and equipment are
carried at cost. Expenditures for maintenance and repairs are charged directly
against operations, while major renewals and betterments are capitalized. When
properties are retired or otherwise disposed of, the original cost and
accumulated depreciation are removed from the respective accounts, and the
profit or loss resulting from the disposal is reflected in operations.
Depreciation is provided over the estimated useful lives of the assets,
generally on the straight-line method. Depreciation for financial reporting
purposes for office and other equipment is 5 to 7 years, computers and other
service equipment 5 to 7 years, heavy machinery 20 to 30 years, land
improvements according to their useful life, building and building improvements
the lesser of their useful life or 39 years, and other machinery 10 years.
54
Impairment of Long-Lived Assets
Impairment of long-lived assets is
recognized under the provisions of SFAS No. 144 (“SFAS 144”), Accounting for the Impairment or
Disposal of Long-Lived Assets. 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, an impairment charge is recorded 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 estimated fair value less cost to sell.
Employment-Related Benefits
Employment-related benefits
associated with pensions and postretirement health care are expensed as
actuarially determined. The recognition of expense is impacted by estimates made
by management, such as discount rates used to value certain liabilities,
investment rates of return on plan assets, increases in future wage amounts and
future health care costs. Our Company uses third-party specialists to assist
management in appropriately measuring the expense and liabilities associated
with employment-related benefits.
We determine our actuarial
assumptions for the U.S. and Canadian pension and post retirement plans, after
consultation with our actuaries, on December 31 of each year to calculate
liability information as of that date and pension and postretirement expense for
the following year. We began using the Hewitt yield curve method to determine
the appropriate discount rate.
The expected long-term rate of
return on plan assets of the various plans reflects projected returns for the
investment mix of the various pension plans that have been determined to meet
each plans’ objectives. The expected long-term rate of return on plan assets is
selected by taking into account the expected mix of invested assets, the fact
that the plan assets are actively managed to mitigate downside risks, the
historical performance of the market in general and the historical performance
of the retirement plan assets over the past 10 years.
In September 2006, the FASB issued
SFAS No. 158 (“SFAS 158”), Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, which amends SFAS
No. 87 (“SFAS 87”), Employers’ Accounting for Pensions,
and SFAS No.106, (“SFAS 106”), Employers’ Accounting for
Postretirement Benefits Other Than Pensions, to require recognition of
the overfunded or underfunded status of pension and other postretirement benefit
plans on the balance sheet. Under SFAS 158, gains and losses, prior service
costs and credits, and any remaining transition amounts under SFAS 87 and SFAS
106 that have not yet been recognized through net periodic benefit cost are
recognized in accumulated other comprehensive income (loss), net of tax effects,
until they are amortized as a component of net periodic cost. As required by
SFAS 158, we adopted the balance sheet recognition provisions at
December 31, 2006.
Income Taxes
Under SFAS No. 109 (“SFAS
109”), Accounting for Income
Taxes, deferred tax liabilities and assets are recorded for the expected
future tax consequences of events that have been recognized in our financial
statements or tax returns. 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 taxes also include net operating losses and tax credit carryforwards. Our
Company establishes valuation allowances to reduce deferred tax assets to
amounts it believes are more likely than not to be realized. These valuation
allowances are adjusted based upon changing facts and circumstances.
We also apply the principles of FASB
Interpretation (FIN) No. 48 (“FIN 48”), Accounting for Uncertainty in Income
Taxes. FIN 48 dictates a more-likely-than-not threshold for financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This interpretation also provides guidance on
derecognizing of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, accounting for income taxes in interim
periods and income tax disclosures. Under the provisions of FIN 48, to the
extent we have uncertain tax positions we classify them as other non-current
liabilities on the Consolidated Balance Sheets unless they are expected to be
paid in one year. Penalties and tax-related interest expense are reported in
other expense, net and interest and amortization expense, net, respectively, on
the Consolidated Statements of Operations. The adoption of FIN 48 in 2007 had no
effect on our consolidated financial statements.
Goodwill
Goodwill is evaluated utilizing SFAS
No. 142 (“SFAS 142”), Goodwill and Other Intangible
Assets. Under this statement, goodwill is presumed to have an indefinite
useful life and, thus, is not amortized, but tested no less than annually for
impairment using a lower of cost or fair value approach.
During the third quarter of 2008 and
2007, we conducted a goodwill impairment review, and prepared updated valuations
using a discounted cash flow approach based on forward-looking information
regarding market share, revenues, and costs. Following our decision to sell our
Small Tube Products (“STP”) business, we retested the goodwill assigned to this
operation. Taking into account the projected proceeds from the sale, we impaired
goodwill by $30.8 million associated with this business. We then retested the
remainder of our goodwill and determined there was no further impairment
subsequent to the STP sale for 2007. During our annual goodwill impairment
review during the third quarter of 2008, we determined that an additional
goodwill impairment loss was probable and could be reasonably estimated. Based
on a preliminary impairment assessment, the Company recorded a goodwill
55
impairment loss of $44.0 million in
the third quarter of 2008. The Company determined the fair value of the
reporting unit using a discounted cash flow model with the assistance of a
third-party valuation specialist. The impairment of goodwill was principally
related to the deterioration in profitability of our business located in
Carrollton, Texas, and the low market price of our common stock, resulting in a
substantially depressed enterprise value. The Step 2 analysis under SFAS 142
revealed that the entire amount of goodwill was indeed impaired and the
remaining $2.6 million was written off in the fourth quarter of 2008.
Earnings (Loss) per Common Share
Using the Two-Class Method as
prescribed in SFAS No. 128, Earnings per Share, after
determining earnings (loss) applicable to common stockholders, per share amounts
are calculated by dividing net income (loss) by the weighted average number of
common shares outstanding. Where applicable, diluted earnings (loss) per share
were calculated by including the effect of all dilutive securities, including
stock options, and unvested restricted stock. To the extent that stock options
and unvested restricted stock are anti-dilutive, they are excluded from the
calculation of diluted earnings (loss) per share.
Derivatives and Hedging Activities
Our operations and cash flows are
subject to fluctuations due to changes in commodity prices and foreign currency
exchange rates. We use derivative financial instruments to manage the impact of
commodity prices and foreign currency exchange rate exposures, though not for
speculative purposes. Derivatives used are primarily commodity forward
contracts.
We apply the provisions of SFAS
No. 133 (“SFAS 133”), Accounting for Derivative
Instruments and Hedging Activities, for most of our Company’s
derivatives. Some of our derivatives are designated 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 any gain or loss on the hedged item that is
attributable to the hedged risk, are recorded directly to operations. The
effective portion of changes in fair value of derivatives that are designated as
cash flow hedges are recorded in other comprehensive income, until the hedged
item is realized, when the gain (loss) previously included in accumulated other
comprehensive income (loss) is recognized in operations. Our foreign currency
hedges are accounted for under SFAS No. 52 (“SFAS 52”), Foreign Currency Translation.
Fair Value Measurements
On January 1, 2008, the Company
adopted the provisions of SFAS No. 157 (“SFAS 157”), Fair Value Measurements, for
fair value measurements of financial assets and financial liabilities and for
fair value measurements of nonfinancial items that are recognized or disclosed
at fair value in the financial statements on a recurring basis. SFAS 157 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. SFAS 157 also establishes a framework for measuring fair
value and expands disclosures about fair value measurements. FASB Staff Position
FAS 157-2, Effective Date of
FASB Statement No. 157, delays the effective date of SFAS 157 until
fiscal years beginning after November 15, 2008 for all nonfinancial assets
and nonfinancial liabilities that are recognized or disclosed at fair value in
the financial statements on a nonrecurring basis.
Currently the Company is only
measuring its derivative assets and liabilities at fair value. As required by
SFAS 157, the Company has categorized its financial assets and liabilities
measured at fair value into a three-level fair value hierarchy. The fair-value
hierarchy established in SFAS 157 prioritizes the inputs used in valuation
techniques into three levels as follows:
• |
Level 1
– Observable inputs – quoted prices in active markets for identical assets
and liabilities. For the Company, level 1 financial assets and liabilities
consist of commodity derivative contracts;
|
• |
Level 2
– Observable inputs other than the quoted prices in active markets for
identical assets and liabilities – includes quoted prices for similar
instruments, quoted prices for identical or similar instruments in
inactive markets, and amounts derived from valuation models where all
significant inputs are observable in active markets; and
|
• |
Level 3
– Unobservable inputs – includes amounts derived from valuation models
where one or more significant inputs are unobservable and require us to
develop relevant assumptions.
|
The following table presents the
Company’s fair value hierarchy for those assets and liabilities measured at fair
value on a recurring basis as of December 31, 2008:
(In millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||
Assets:
|
||||||||||||
Derivatives (recorded in
derivative assets)
|
$ | 0.3 | — | — | $ | 0.3 | ||||||
Liabilities:
|
||||||||||||
Derivatives (recorded in
derivative liabilities)
|
$ | (5.4 | ) | — | — | $ | (5.4 | ) |
56
Additionally, the provisions of SFAS
157 were not applied to fair value measurements of the Company’s reporting units
(Step 1 of goodwill impairment tests performed under SFAS 142) and nonfinancial
assets and nonfinancial liabilities measured at fair value to determine the
amount of goodwill impairment (Step 2 of goodwill impairment tests performed
under SFAS 142).
On January 1, 2009, the Company
will be required to apply the provisions of SFAS 157 to fair value measurements
of nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. The
Company is in the process of evaluating the impact, if any, of applying these
provisions on its financial position and results of operations.
In October 2008, the FASB issued
FASB Staff Position FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active, which was
effective immediately. FSP FAS 157-3 clarifies the application of SFAS 157 in
cases where the market for a financial instrument is not active and provides an
example to illustrate key considerations in determining fair value in those
circumstances. The Company has considered the guidance provided by FSP FAS
157-3 in its determination of estimated fair values during 2008.
We use the following methods in
estimating fair value disclosures for financial instruments:
Cash and cash equivalents,
restricted cash, accounts receivable, and accounts payable: The carrying
amount reported in the Consolidated Balance Sheets for these assets approximates
their fair value because of the short maturity of these instruments.
Secured revolving credit
facility and long-term debt: The carrying amount of our borrowings under
our secured revolving credit facilities approximates fair value. The fair value
of our 10.5% Senior Notes and any derivative financial instruments are based
upon quoted market prices.
Derivatives: The fair
value of our foreign currency, and commodity derivative instruments are
determined by reference to quoted market prices.
The following table summarizes fair
value information for our financial instruments:
2008 | 2007 | |||||||||||
(In thousands) | Carrying value | Fair Value | Carrying value | Fair value | ||||||||
Cash and cash
equivalents
|
$ | 33,537 | $ | 33,537 | $ | 63,303 | $ | 63,303 | ||||
Restricted cash
|
$ | 37,738 | $ | 37,738 | $ | 2,126 | $ | 2,126 | ||||
Accounts
receivable
|
$ | 38,626 | $ | 38,626 | $ | 108,398 | $ | 108,398 | ||||
Accounts payable
|
$ | 34,713 | $ | 34,713 | $ | 55,861 | $ | 55,861 | ||||
Investments held in rabbi
trust (trading portfolio)
|
$ | — | $ | — | $ | 1,618 | $ | 1,618 | ||||
Senior Notes
|
$ | 137,656 | $ | 115,629 | $ | 235,919 | $ | 224,889 | ||||
Other debt
|
$ | 14 | $ | 14 | $ | 1,041 | $ | 1,041 | ||||
Foreign currency exchange
contracts
|
$ | — | $ | — | $ | 4 | $ | 4 | ||||
Derivative assets
|
$ | 291 | $ | 291 | $ | 975 | $ | 975 | ||||
Derivative
liabilities
|
$ | 5,415 | $ | 5,415 | $ | 925 | $ | 925 |
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, and
that do not contribute to future revenues, are expensed when a triggering event,
such as a facility closure, occurs or when a reportable condition is discovered
or made known that might impair an existing long-lived asset. Liabilities, which
are undiscounted, are recognized for remedial activities when the cleanup is
probable and the cost can be reasonably estimated.
Stock Options
We recognize compensation expense in
accordance with SFAS No. 123R (“SFAS 123R”), Share-Based Payment, for all
stock-based awards made to employees and directors equal to the grant-date fair
value for all awards that are expected to vest. This expense
57
is recorded over the expected life
of each separate vesting tranche. The majority of our compensation expense
related to our stock-based payment award is recorded in Selling
General & Administrative expenses. We determine the grant-date fair
value of our share-based payment awards using a Black-Scholes model.
Translation to U.S. Dollars
Assets and liabilities denominated
in foreign currency are translated to U.S. dollars at rates of exchange at the
balance sheet date. Revenues and expenses 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 (loss)
component of stockholders’ equity. Realized exchange gains and losses are
included in “amortization and other, net” in the Consolidated Statements of
Operations.
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. Research and
development costs were approximately $2.1 million and $2.3 million in 2008 and
2007, respectively.
Reclassifications
Certain prior year amounts have been
reclassified to conform to the current year presentation, See Note 3, Restatement and Correction of Prior
Period Errors, of the Notes to the Consolidated Financial Statements for
further details.
Recent Accounting Pronouncements
In February 2007, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standard No. 159 (“SFAS 159”), The Fair Value Option for Financial
Assets and Financial Liabilities –Including an amendment of FASB Statement No
115. SFAS 159 permits entities to choose to measure certain financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. We believe that the carrying value of our assets and liabilities
closely approximates fair value. Therefore, we have elected not to adopt the
fair value option included in SFAS 159.
In March 2008, the FASB issued SFAS
No. 161 (“SFAS 161”),
Disclosures about Derivative Instruments and Hedging Activities—an amendment of
FASB Statement No. 133. This statement requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improving the
transparency of financial reporting. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for
under SFAS 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. We will adopt this new accounting
standard effective January 1, 2009 and believe implementing this standard
will not have a material impact on our Company’s consolidated financial
statements.
In April 2008, the FASB issued FASB
Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets. FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS 142. FSP FAS 142-3
is effective for fiscal years beginning after December 15, 2008. The
Company is currently evaluating the impact, if any, of adopting FSP FAS 142-3 on
its financial position and results of operations.
In June 2008, the FASB’s Emerging
Issues Task Force (EITF) reached a consensus on EITF Issue No. 07-5 (EITF
07-5), Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.
This EITF Issue provides guidance on the determination of whether such
instruments are classified in equity or as a derivative instrument and is
effective for the fiscal year beginning on January 1, 2009. The Company is
currently evaluating the impact, if any, of adopting EITF 07-5 on its financial
position and results of operations.
In November 2008, the FASB’s
Emerging Issues Task Force reached a consensus on EITF Issue No. 08-6 (EITF
08-6), Equity Method
Investment Accounting Considerations. EITF 08-6 continues to follow the
accounting for the initial carrying value of equity method investments in APB
Opinion No. 18, The Equity Method of Accounting for Investments in Common
Stock, which is based on a cost accumulation model and generally excludes
contingent consideration. EITF 08-6 also specifies that other-than-temporary
impairment testing by the investor should be performed at the investment level
and that a separate impairment assessment of the underlying assets is not
required. An impairment charge by the investee should result in an adjustment of
the investor’s basis of the impaired asset for the investor’s pro-rata share of
such impairment. In addition, EITF 08-6 reached a consensus on how to account
for an issuance of shares by an investee that reduces the investor’s ownership
share of the investee. An investor should account for such transactions as if it
had sold a proportionate share of its investment with any gains or losses
recorded through earnings. EITF 08-6 also addresses the accounting for a change
in an investment from the equity method to the cost method after adoption of
SFAS No. 160. EITF 08-6 affirms the existing guidance in APB 18, which
requires cessation of the equity method of accounting and application of FASB
Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities, or the cost method under APB 18, as
appropriate. EITF 08-6 is effective for transactions occurring on or after
December 15, 2008.
58
In December 2008, the FASB issued
FASB Staff Position (FSP) FAS 132(R)-1 (FSP FAS 132(R)-1), Employers’ Disclosures about
Postretirement Benefit Plan Assets. FSP FAS 132(R)-1 provides guidance on
an employer’s disclosures about plan assets of a defined benefit pension or
other postretirement plan. FSP FAS 132(R)-1 also includes a technical amendment
to FASB Statement No. 132(R), effective immediately, which requires
nonpublic entities to disclose net periodic benefit cost for each annual period
for which a statement of income is presented. The Company has disclosed net
periodic benefit cost in Notes 16 and 17. The disclosures about plan assets
required by FSP FAS 132(R)-1 must be provided for fiscal years ending after
December 15, 2009. The Company is currently evaluating the impact of the
FSP on its disclosures about plan assets.
3. | Correction of Prior Period Errors |
This Form 10-K includes immaterial
corrections for the year ended December 31, 2007 consolidated financial
statements for errors in inventory and foreign currency.
The tables below reflect the
revisions to the impacted accounts for the immaterial corrections to the
Company’s previously filed financial statements included in its Form 10-K for
the year ended December 31, 2007. In order to reconcile to the consolidated
financial statements herein, amounts which reflect reclassifications for
discontinued operations occurring in 2008 have been displayed as discontinued
operations in the table below (see Note 7, Discontinued Operations, for
details).
Consolidated Statements of Operations
(In thousands) | As reported | Adjustment | Discontinued Operations |
As revised | ||||||
Cost of goods
sold
|
1,165,083 | 2,096 | (206,362 | ) | 960,817 | |||||
Other, net
|
2,605 | (899 | ) | (467 | ) | 1,239 | ||||
Net loss
|
97,030 | 1,197 | — | 98,227 |
Consolidated Balance Sheets
(In thousands) | As reported | As revised | ||||||
Accounts receivable,
net
|
$ | 107,375 | $ | 108,398 | ||||
Inventory*
|
110,768 | 104,742 | ||||||
Accumulated
deficit
|
$ | (94,187 | ) | $ | (95,998 | ) | ||
Accumulated other
comprehensive income, net of tax
|
15,872 | 15,996 | ||||||
* Includes
reclassification of $3.3 million of critical spares from inventory to
fixed assets
|
|
Consolidated Statements of Cash Flows
(In thousands) | For the twelve months ended December 31, 2007 (as reported) |
Adjustment | Discontinued operations |
For the twelve months ended December 31, 2007 (as revised) |
||||||||||||
Income (loss) from continuing
operations
|
$ | (71,673 | ) | $ | (1,197 | ) | $ | (3,774 | ) | $ | (76,644 | ) | ||||
Net loss
|
(97,030 | ) | (1,197 | ) | — | (98,227 | ) | |||||||||
Changes in operating assets
and liabilities:
|
||||||||||||||||
Accounts receivable,
net
|
(8,504 | ) | (1,023 | ) | 7,952 | (1,575 | ) | |||||||||
Inventories
|
(1,309 | ) | 1,168 | 1,540 | 1,399 |
Such adjustments have also been
corrected in our Note 30, Consolidating Financial
Information.
4. | Recapitalization Plan |
On February 1, 2007, we
announced a recapitalization plan that would provide significant equity proceeds
to Wolverine. We completed the first phase of this recapitalization plan, a
private placement of 50,000 shares of Series A Convertible Preferred Stock for
$50.0 million, purchased by Alpine and a fund managed by Plainfield on
February 16, 2007, pursuant to a Preferred Stock Purchase Agreement (the
Preferred Stock Purchase Agreement). Pursuant to our recapitalization plan, in
August 2007, we commenced a common stock rights offering that closed on
October 29, 2007. Our stockholders purchased 25,444,592 shares of common
stock in the rights offering, resulting in gross proceeds of $28.0 million.
Additionally, under the terms of the call option
59
described in the Preferred Stock
Purchase Agreement, Alpine purchased an additional 4,494 shares of Series A
Convertible Preferred Stock on January 25, 2008 for $4.5 million in order
to maintain the fully diluted ownership by Alpine and Plainfield in Wolverine at
55.0%.
We have pursued a financial
restructuring plan with respect to our 10.5% and 7.375% Senior Notes, our
secured revolving credit facility and our receivables sale facility. In light of
market conditions, which negatively affected our ability to execute such a
comprehensive refinancing strategy, during 2008, we took certain actions to be
in a position to retire the 7.375% Senior Notes on their maturity date of
August 1, 2008. We extended the maturity of our secured revolving credit
facility and our receivables sale facility to February 19, 2009. In
February 2008, we sold substantially all of the assets of our STP business for
net proceeds of $22.1 million plus a working capital payment to us of
approximately $2.8 million. In March 2008, we sold 30.0% of our WTS subsidiary
for $9.5 million. On March 20, 2008, Plainfield refinanced $38.3 million of
the 7.375% Senior Notes held by it by exchanging them for 10.5% Senior Exchange
Notes due March 28, 2009 and Alpine purchased 10,000 shares of our Series B
Convertible Preferred Stock for $10.0 million, under terms substantially similar
to the Series A Convertible Preferred Stock. On April 21, 2008 we sold our
Booneville, Mississippi facility, which was closed in January 2008, for $1.4
million. In July 2008, we sold our London, Ontario wholesale and commercial tube
business for net proceeds of approximately $41.2 million. These actions provided
the liquidity required to repurchase or repay the outstanding 7.375% Senior
Notes on or before their maturity in August 2008. On February 29, 2008, we
repurchased $12.0 million in face amount of our 7.375% Senior Notes at a
discount below the face value of the notes and on April 8, 2008, we
repurchased an additional $25.0 million in face amount of our 7.375% Senior
Notes, also at a discount below the face value of the notes, leaving $61.4
million in face amount of our 7.375% Senior Notes, which we paid at maturity on
August 1, 2008. On September 15, 2008, we sold an additional 20.0% of
our WTS subsidiary, raising $10.1 million.
On February 26, 2009, we
announced the commencement of an offer (the Exchange Offer) to each of the
holders of our 10.5% Senior Exchange Notes and our 10.5% Senior Notes due
March 28, 2009 and April 1, 2009, respectively, to exchange these
notes for new Senior Secured Notes in order to refinance those maturities. The
Exchange Offer was successfully consummated on April 28, 2009. $83.3
million of the 10.5% Senior Notes and $38.3 million of the 10.5% Senior Exchange
Notes were exchanged for 15.0% Senior Secured Notes. The remaining $16.1 million
of 10.5% Senior Notes were repaid on April 28, 2009. See Notes 14 and 33,
Financing Arrangements and
Debt and Subsequent
Events, respectively, for a description of the Exchange Offer and a
description of the new Senior Secured Notes.
5. | Restricted Cash |
Our liquidity is affected by
restricted cash balances, which are included in current assets and are not
available for general corporate use, of $37.7 million and $2.1 million as of
December 31, 2008, and December 31, 2007, respectively. Restricted
cash at December 31, 2008 included $16.9 million related to deposits for
margin calls on our metal hedge programs, $19.9 million on deposit with Wachovia
Bank to cover our letters of credit, and $0.9 million of other restricted cash
deposits. Restricted cash at December 31, 2007 of $2.1 million included
$1.0 million related to deposits for margin calls on our metal and natural gas
hedge programs, and $1.1 million of other restricted cash deposits.
6. | Investment in Unconsolidated Chinese Subsidiary |
On March 14, 2008, the Company
sold a 30.0% indirect equity interest in Wolverine Tube Shanghai Co., Ltd. (WTS)
to Wieland for $9.5 million. The agreement provided to Wieland an option to
purchase between April 2011 and April 2013 an additional 20.0% equity interest
in WTS. On September 15, 2008, the Company and Wieland entered into an
agreement, which granted to Wieland the right to immediately exercise the option
to purchase the additional 20.0% equity interest in WTS for a purchase price of
$10.1 million. Following the completion of the exercise of the 20.0% purchase
option, Wieland has a 50.0% indirect ownership in the equity of WTS. From
September 15, 2008, the results of WTS are accounted for using the equity
method because neither party controls WTS. The payment of the $10.1 million is
subject to a post-closing adjustment at the end of the first fiscal quarter of
WTS in 2011 based upon the financial performance of WTS during the period
beginning March 31, 2008 through the end of the first fiscal quarter of
2011. In no event will the Company be required to make a post-closing adjustment
payment in excess of $2.5 million to Wieland nor will Wieland be required to
make a post-closing adjustment payment in excess of $7.5 million to the Company.
The $2.5 million floor has been recorded in accrued liabilities in the
consolidated balance sheets. The total gain on the sale of the 50.0% interest
was $12.3 million.
At September 15, 2008, the
option to purchase the additional 20.0% equity interest in WTS had a non-cash
embedded derivative value of $1.3 million. With the exercise of the purchase
option, the embedded derivative has been eliminated. Pursuant to the agreements
to purchase the stock, Wolverine and Wieland will cause WTS to apply for
approval under Chinese law to add directors to the Board of WTS and change
certain voting and other corporate governance matters of WTS. The parties have
until July 31, 2009 to obtain these approvals. If the approvals are not
obtained by July 31, 2009, Wolverine and Wieland have agreed to unwind the
transactions contemplated by the Agreement by Wolverine returning to Wieland the
$19.6 million cash purchase price, plus interest, and certain commissions, if
any, received by Wieland, and Wieland returning to Wolverine any distributions
that it has received as a result of its indirect equity interest in WTS.
Management believes that the requisite approvals for the matters discussed above
will be obtained.
60
7. | Discontinued Operations |
On February 29, 2008, we sold
substantially all of the assets and liabilities of our STP business located in
Altoona, Pennsylvania. Accordingly, we have restated all years such that all
assets, liabilities, and operations associated with the STP business are
presented as a discontinued operation. On November 6, 2008, the Company
received a working capital settlement in the Company’s favor of approximately
$2.8 million. Further, based on the projected net proceeds from the sale, $30.8
million of goodwill associated with STP was impaired in 2007.
On July 8, 2008, we closed on
the sale of our Wolverine Tube Canada Inc. (WTCI), subsidiary located in London,
Ontario, Canada. The subsidiary produced wholesale and commercial products for
sale in the North American markets. In the transaction, we sold 100% of the
issued and outstanding share capital of our wholly owned subsidiary for $41.2
million. In addition, certain currency translation adjustments aggregating
approximately $3.6 million included in accumulated other comprehensive income
(loss) were reclassified to earnings. Additionally, we sold certain accounts
receivable of Wolverine in the amount of $2.4 million, and we received $1.8
million owed by the Canadian subsidiary to Wolverine for inventory purchased
prior to the sale. Exiting the WTCI business constitutes an exit of the
wholesale business for Wolverine, therefore, we classified WTCI results as
discontinued operations in all reported financial statements in this Form 10-K.
See the table below for the net
income results for the twelve months ended December 31, 2008 and 2007 of
the discontinued operations prior to the impairment of goodwill:
Twelve months
ended December 31, |
|||||||
(In thousands) | 2008 | 2007 | |||||
Net sales
|
$ | 138,691 | $ | 304,705 | |||
Income (loss) before income
taxes
|
859 | (16,543 | ) | ||||
Income taxes
|
90 | 5,040 | |||||
Net income (loss)
|
$ | 769 | $ | (21,583 | ) | ||
Net income (loss) per common
share – Basic
|
$ | 0.01 | $ | (1.13 | ) | ||
Net income (loss) per common
share – Diluted
|
$ | 0.01 | $ | (1.13 | ) |
8. | Prepaid Expenses and Other |
Prepaid expenses and other assets
are as follows at December 31:
(In thousands) | 2008 | 2007 | ||||
Prepaid expenses
|
$ | 5,380 | $ | 9,491 | ||
Prepaid raw
materials
|
— | 2,070 | ||||
Total
|
$ | 5,380 | $ | 11,561 | ||
9. | Derivatives |
We are exposed to various market
risks, including changes in commodity prices, foreign currency exchange rates,
and interest rates. Market risk is the potential loss arising from adverse
changes in market rates and prices. 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 commodity prices, foreign currency exchange
rates, and interest rates. These transactions are entered into in accordance
with our Wolverine Tube, Inc. Derivative Management Policy, which outlines our
policy regarding the types of derivatives permitted, the purpose of entering
such derivatives, operating and trading limitations, and approvals necessary for
entering into them. We do not enter into derivatives or other financial
instruments for trading or speculative purposes.
Commodity Price Risk
For the majority of our customers,
the price they pay for a product includes a metal charge that represents the
previous monthly average COMEX price for metal. For certain other customers, the
metal charge represents the market value of the copper used in that product as
of the date we ship the product to the customer. Our prior month average COMEX
pricing model is expected to serve as a natural hedge against changes in the
commodity price of copper and allows us to better match the cost of copper with
the selling price to our customers. However, as an accommodation to our
customers, we often enter into fixed price commitments to purchase copper on
their behalf in order to fix the price of copper in advance of shipment. We
account for these transactions as cash flow hedges under SFAS 133.
61
The fair values of these derivatives
are recognized in derivative assets and liabilities in the Consolidated Balance
Sheets. The net change in the derivative assets and liabilities and the
underlying amounts are recognized in the Consolidated Statements of Operations
under cost of goods sold. Amounts held in Other Comprehensive Income are
reclassified to earnings at the point customer commitments are realized.
Information regarding this type of derivative transaction is as follows:
For the Year Ended December 31, | ||||||||
(In millions) | 2008 | 2007 | ||||||
Gains (losses) arising from
ineffectiveness included in operations
|
$ | 0.3 | $ | (0.3 | ) | |||
Gains (losses) reclassed from
other comprehensive income (OCI) to operations
|
$ | (0.4 | ) | $ | 1.1 |
December 31, | ||||||||
(In millions) | 2008 | 2007 | ||||||
Aggregate notional value of
derivatives outstanding
|
$ | 11.9 | $ | 20.1 | ||||
Period through which
derivative positions currently exist
|
December 2009 | September 2008 | ||||||
Losses in fair value of
derivatives
|
$ | (4.9 | ) | $ | (0.5 | ) | ||
The change in fair value due
to the effect of a 10% adverse change in commodity prices to current fair
value
|
$ | (0.7 | ) | $ | (2.0 | ) | ||
Deferred losses included in
OCI
|
$ | (5.1 | ) | $ | (0.5 | ) | ||
Losses included in OCI to be
recognized in the next 12 months
|
$ | (5.1 | ) | $ | (0.5 | ) | ||
Number of months over which
gain in OCI is to be recognized
|
12 | 9 |
We have firm-price purchase
commitments with some of our copper suppliers under which we agree to buy copper
at a price set in advance of the actual delivery of that copper to us. Under
these arrangements, we assume the risk of a price decrease in the market price
of copper between the time this price is fixed and the time the copper is
delivered. In order to reduce our market exposure to price changes, at the time
we enter into a firm-price purchase commitment, we also often enter into
commodity forward contracts to sell a like amount of copper at the then-current
price for delivery to the counterparty at a later date. We account for these
transactions as cash flow hedges under SFAS 133. The net change in the
derivative assets and liabilities and the underlying amounts are recognized in
the Consolidated Statements of Operations under cost of goods sold. Amounts held
in OCI are reclassified to earnings at the point purchase commitments are
realized. Information on this type of derivative transaction is as follows:
For the Year Ended December 31, | ||||||||
(In millions) | 2008 | 2007 | ||||||
Losses arising from
ineffectiveness included in operations
|
$ | — | $ | (0.3 | ) | |||
Gains (losses) reclassed from
OCI to operations
|
$ | (0.9 | ) | $ | 0.8 |
December 31, | |||||||
(In millions) | 2008 | 2007 | |||||
Aggregate notional value of
derivatives outstanding
|
$ | — | $ | 3.5 | |||
Period through which
derivative positions currently exist
|
n/a | March 2008 | |||||
Losses, in fair value of
derivatives
|
$ | — | $ | (0.1 | ) | ||
The change in fair value due
to the effect of a 10% adverse change in commodity prices to current fair
value
|
$ | — | $ | (0.3 | ) | ||
Deferred gains included in
OCI
|
$ | — | $ | 0.1 | |||
Gains included in OCI to be
recognized in the next 12 months
|
$ | — | $ | 0.1 | |||
Number of months over which
gain in OCI is to be recognized
|
n/a | 3 |
We have entered into commodity
forward contracts to sell copper in order to hedge or protect the value of the
copper carried in our inventory from price decreases. We account for these
forward contracts as fair value hedges under SFAS 133. The fair value of these
derivatives are recognized in derivative assets and liabilities in the
Consolidated Balance Sheets. The net change in the derivative assets and
liabilities and the underlying amounts are recognized in the Consolidated
Statements of Operations under cost of goods sold. Information on this type of
derivative transaction is as follows:
For the Year Ended December 31, | ||||||
(In millions) | 2008 | 2007 | ||||
Gains arising from
ineffectiveness included in operations
|
$ | 0.4 | $ | 0.0 |
December 31, | ||||||||
(In millions) | 2008 | 2007 | ||||||
Aggregate notional value of
derivatives outstanding
|
$ | 0.4 | $ | 10.3 | ||||
Period through which
derivative positions currently exist
|
March 2009 | March 2008 | ||||||
Gains in fair value of
derivatives
|
$ | 0.1 | $ | 0.3 | ||||
The change in fair value due
to the effect of a 10% adverse change in commodity prices to current fair
value
|
$ | (0.6 | ) | $ | (1.0 | ) |
62
On February 16, 2007, we
entered into a silver consignment arrangement with a bank. The amount of silver
available to us under our new consignment facility is insufficient to satisfy
all of our silver requirements. Consequently, we must purchase and hold in
inventory a minimal amount of silver. We have entered into commodity forward
contracts to sell silver in order to hedge or protect the value of the silver
carried in our inventory from future price decreases. We account for these
forward contracts as fair value hedges under SFAS 133. The net change in the
derivative assets and liabilities and the underlying amounts are recognized in
the Consolidated Statements of Operations under cost of goods sold. Information
on this type of derivative transaction is as follows:
For the Year Ended December 31, | ||||||
(In millions) | 2008 | 2007 | ||||
Gains arising from
ineffectiveness included in operations
|
$ | 0.3 | $ | 0.5 |
December 31, | |||||||
(In millions) | 2008 | 2007 | |||||
Aggregate notional value of
derivatives outstanding
|
$ | — | $ | 2.0 | |||
Period through which
derivative positions currently exist
|
n/a | December 2008 | |||||
Loss in fair value of
derivatives
|
$ | — | $ | — | |||
The change in fair value due
to the effect of a 10% adverse change in commodity prices to current fair
value
|
$ | — | $ | (0.2 | ) |
Prior to 2008, we also entered into
commodity futures contracts to purchase natural gas to reduce our risk of future
price increases. The Decatur, Alabama facility was the largest user of natural
gas, and as a result of the significant reduction in operations at that facility
in December 2007, there is no longer a need for these commodity futures
contracts. As a result, all of our outstanding natural gas contracts were
settled at the end of December 2007. Until the contracts were settled, we
accounted for these transactions as cash flow hedges under SFAS 133. The net
change in the derivative assets and liabilities and the underlying amounts was
recognized in the Consolidated Statements of Operations under cost of goods
sold. Information on this type of derivative transaction is as follows:
For the Year Ended December 31, | |||||||
(In millions) | 2008 | 2007 | |||||
Losses arising from
ineffectiveness included in operations
|
$ | — | $ | (1.9 | ) | ||
Losses reclassed from OCI to
operations
|
$ | — | $ | — |
December 31, | ||||||
(In millions) | 2008 | 2007 | ||||
Aggregate notional value of
derivatives outstanding
|
$ | — | $ | — | ||
Period through which
derivative positions currently exist
|
n/a | n/a | ||||
Gains in fair value of
derivatives
|
$ | — | $ | — | ||
The change in fair value due
to the effect of a 10% adverse change in commodity prices to current fair
value
|
$ | — | $ | — | ||
Deferred losses included in
OCI
|
$ | — | $ | — | ||
Gains included in OCI to be
recognized in the next 12 months
|
$ | — | $ | — | ||
Number of months over which
gain in OCI is to be recognized
|
n/a | n/a |
Foreign Currency Exchange Risk
We are subject to market risk
exposure from fluctuations in foreign currencies. Foreign currency exchange
forward contracts may be used from time to time to hedge the variability in cash
flows from the forecasted payment or receipt of currencies other than the
functional currency. We do not enter into forward exchange contracts for
speculative purposes. These forward currency exchange 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.
These contracts cover periods commensurate with known or expected exposures,
generally within three months. As of December 31, 2008, we had no forward
exchange contracts outstanding to sell foreign currency.
Material Limitations
The disclosures with respect to the
above-noted risks do not take into account the underlying commitments or
anticipated transactions. If the underlying items were included in the analysis,
the gains or losses on the futures contracts may be offset. Actual results will
be determined by a number of factors that are not generally under our control
and could vary significantly from those factors disclosed.
We are exposed to credit losses in
the event of nonperformance by counterparties on the above instruments, as well
as credit or performance risk with respect to our hedged customers’ commitments.
Although nonperformance is possible, we do not anticipate nonperformance by any
of these parties.
63
10. | Property, Plant, and Equipment |
Property, plant, and equipment
(excluding assets held for sale) at December 31 are as follows:
(In thousands) | 2008 | 2007 | ||||||
Land and
improvements
|
$ | 4,018 | $ | 6,143 | ||||
Building and
improvements
|
22,542 | 26,216 | ||||||
Machinery and
equipment
|
104,547 | 131,000 | ||||||
Critical spare
parts
|
3,677 | 3,316 | ||||||
Construction-in-progress
|
2,402 | 2,071 | ||||||
137,186 | 168,746 | |||||||
Less accumulated
depreciation
|
(85,182 | ) | (99,668 | ) | ||||
Totals
|
$ | 52,004 | $ | 69,078 | ||||
11. | Assets Held for Sale |
The following indicates the
components of assets held for sale for the years ended December 31, 2008
and 2007:
Assets Held for Sale 2008
(In thousands) | Decatur, Alabama |
||
Land
|
$ | 3,680 | |
Total assets held for
sale
|
$ | 3,680 | |
Assets Held for Sale 2007
(In thousands) | Combined | Decatur, Alabama |
Booneville, Mississippi |
Altoona, Pennsylvania |
Montreal, Quebec |
||||||||||||
Receivables
|
$ | 6,569 | $ | — | $ | — | $ | 6,569 | $ | — | |||||||
Inventory
|
9,837 | — | — | 9,837 | — | ||||||||||||
Other assets
|
1,276 | — | — | 1,276 | — | ||||||||||||
Land
|
7,657 | 3,680 | 158 | — | 3,819 | ||||||||||||
Building
|
7,452 | — | 1,595 | 4,768 | 1,089 | ||||||||||||
Equipment
|
10,210 | 3,629 | 1,560 | 2,998 | 2,023 | ||||||||||||
Total assets held for
sale
|
$ | 43,001 | $ | 7,309 | $ | 3,313 | $ | 25,448 | $ | 6,931 | |||||||
Total liabilities held for
sale
|
$ | (1,853 | ) | $ | — | $ | — | $ | (1,853 | ) | $ | — | |||||
On September 13, 2006, we
announced the planned closure of our manufacturing facilities located in
Jackson, Tennessee and Montreal, Quebec. According to plan, the operations at
the Montreal, Quebec and Jackson, Tennessee facilities were phased out by the
end of the 2006 and the assets were classified as held-for-sale.
On November 6, 2007, we
announced the planned realignment and restructuring of the Company’s North
American operations to include the closure of our Booneville, Mississippi
facility and the significant downsizing of our Decatur, Alabama operations.
These actions were in line with our strategy of focusing resources on the
development and sale of high-performance tubular products, fabricated tube
assemblies, and metal joining products.
During the fourth quarter of 2007,
we determined that selling our Altoona, Pennsylvania facility would be in line
with the Company’s long-term strategic plan. As a result, we classified the
Altoona facility’s building and equipment as held-for-sale, under the guidelines
of SFAS 144, and based an estimated fair value on the subsequent sales value of
the property.
During the first quarter of 2008, we
recorded an impairment of $0.4 million before taxes for the land and building at
our Booneville, Mississippi location. The impairment charge was recorded to
adjust the carrying value to the sales value agreed by the purchaser. In April
2008, we consummated the sale of the Booneville property and buildings for $1.4
million. The majority of the
64
Booneville equipment was included in
the sale; however, a portion was not, and was subsequently moved to our Decatur,
Alabama facility, bringing the total value of our domestic equipment held for
sale at the end of the second quarter of 2008 to $0.6 million. During the third
quarter of 2008, in part as a result of the sluggish economy, the remaining
equipment held for sale was completely written off.
During the first quarter on
February 29, 2008, we completed the sale of our STP business in Altoona,
Pennsylvania, which resulted in a reduction of $25.4 million in assets held for
sale and a reduction of $1.9 million in liabilities of discontinued operations.
During the third quarter, on
September 25, 2008, we sold our Montreal plant.
The Decatur, Alabama property is in
a less economically depressed area in north central Alabama and currently is the
benefactor of growth associated with the military, military support, and space
industries. Issues with the Decatur facility include its size, age, and
potential environmental issues depending on the use of the property. Its
location on the Tennessee River in water deep enough for mooring or docking
commercial or large private vessels has appeal to both commercial and industrial
users. We have estimated a net fair value of approximately $3.7 million for a
sale of the property since the land could potentially be attractive for
commercial development; however, the demolition and removal of the buildings and
building materials on the site, net of recoveries, would be costly but necessary
unless a buyer would need the existing facilities on the property. We continue
to utilize a portion of the Decatur facility for product development and it
houses our sales and administrative functions. However, the entire property is
listed as held for sale.
The following is a summary of the
asset impairment charge by location and amount, which has been included in
“Restructuring and Other Charges” in the accompanying Consolidated Statements of
Operations for the years ended December 31, 2008 and 2007:
Fixed Asset Impairment Charge for
2008
(In thousands) | Combined | Decatur, Alabama |
Booneville, Mississippi |
|||||||
Equipment
|
$ | 350 | $ | (741 | ) | $ | 391 | |||
Total
|
$ | 350 | $ | (741 | ) | $ | 391 | |||
Fixed Asset Impairment Charge for
2007
(In thousands) | Combined | Decatur, Alabama |
Booneville, Mississippi |
Jackson, Tennessee |
||||||||
Building
|
$ | 4,603 | $ | 4,262 | $ | 341 | $ | — | ||||
Equipment
|
44,380 | 35,872 | 2,317 | 6,191 | ||||||||
Total
|
$ | 48,983 | $ | 40,134 | $ | 2,658 | $ | 6,191 | ||||
12. | Intangible Assets and Deferred Charges |
Intangible assets and deferred
charges include debt issuance and patent costs. Debt issuance costs are deferred
and amortized over the terms of the debt to which they relate using a method
which approximates the interest method. Patents are amortized over the remaining
term of the patent.
Intangible assets and deferred
charges subject to amortization, including the intangible assets from our
acquisitions detailed in Note 4, Recapitalization Plan, are as
follows:
December 31, 2008 | December 31, 2007 | |||||||||||||
Gross Carrying Amounts |
Accumulated Amortization |
Gross Carrying Amounts |
Accumulated Amortization |
|||||||||||
Patents and
trademarks
|
1,478 | (206 | ) | 1,110 | (196 | ) | ||||||||
Deferred financing
fees
|
16,194 | (15,453 | ) | 14,298 | (11,825 | ) | ||||||||
Other deferred
charges
|
621 | — | 1,151 | (254 | ) | |||||||||
$ | 18,293 | $ | (15,659 | ) | $ | 16,559 | $ | (12,275 | ) | |||||
65
For the years ended
December 31, 2008, and 2007, amortization expense for other intangible
assets was $3.7 million and $3.5 million, respectively. The approximate future
annual amortization for other intangible assets is as follows:
Years ending
December 31:
|
|||
2009
|
$ | 786 | |
2010
|
45 | ||
2011
|
46 | ||
2012
|
45 | ||
2013
|
46 | ||
Thereafter
|
1,666 | ||
Total
|
$ | 2,634 | |
13. | Accrued Liabilities |
Accrued liabilities are as follows
at December 31:
(In thousands) | 2008 | 2007 | ||||
Interest
|
$ | 3,673 | $ | 6,934 | ||
Income taxes
|
247 | 393 | ||||
Reserve for
restructuring
|
— | 4,468 | ||||
Fair value of derivatives and
unsettled derivative liabilities
|
5,415 | 925 | ||||
Worker’s
compensation
|
1,679 | 1,715 | ||||
State and local
taxes
|
375 | 3,809 | ||||
Dividends
|
5,785 | 708 | ||||
Other accrued operating
expenses
|
7,276 | 8,045 | ||||
Total
|
$ | 24,450 | $ | 26,997 | ||
14. | Financing Arrangements and Debt |
Long-term debt consists of the
following at December 31:
(In thousands) | 2008 | 2007 | ||||||
Senior Notes, 7.375%, due
August 2008
|
$ | — | $ | 136,750 | ||||
Discount on 7.375% Senior
Notes
|
— | (17 | ) | |||||
Senior Notes, 10.5%, due April
2009
|
94,400 | 99,400 | ||||||
Discount on 10.5% Senior
Notes
|
(44 | ) | (214 | ) | ||||
Senior Exchange Notes, 15.0%,
due March 2012
|
38,300 | — | ||||||
Other foreign
subsidiaries
|
— | 1,017 | ||||||
Capitalized
leases
|
14 | 24 | ||||||
Total debt
|
137,670 | 236,960 | ||||||
Less short-term
borrowings
|
(19,759 | ) | (90,939 | ) | ||||
Total long-term
debt
|
$ | 117,911 | $ | 146,021 | ||||
Aggregate maturities of long-term
debt are as follows:
(In thousands) | |||
2012
|
$ | 117,911 | |
Total
|
$ | 117,911 | |
On April 28, 2009, we
refinanced the 10.5% Senior Notes and the 10.5% Senior Exchange Notes by
exchanging $121.6 million of these notes for 15% Senior Secured Notes due 2012
for an exchange fee of 3% of the principal balance of the exchanged notes ($3.6
million). The remaining $16.1 million of Existing Notes were paid in full on
April 28, 2009. Accordingly, in our Consolidated Balance Sheet as of
December 31, 2008 and in the above, we classified $117.9 million of the
10.5% Senior Notes as long-term debt. See note 33, Subsequent Events, for
additional information
In March 2008, Plainfield refinanced
$38.3 million of the 7.375% Senior Notes held by it by extending the maturity
date to March 28, 2009 with an increase in the interest rate to 10.5%, and
Alpine purchased $10.0 million of our Series B Convertible Preferred Stock under
terms substantially similar to the Series A Convertible Preferred Stock, the
proceeds of which will be used to retire a portion of our 7.375% Senior Notes.
Accordingly, in our Consolidated Balance Sheet as of December 31, 2007, and
in the above, we classified $46.9 million ($48.3 million net of associated fees
of $1.4 million) of our 7.375% Senior Notes as long-term debt.
66
Liquidity Facilities
As of December 31, 2008, our
liquidity facilities consisted of a receivables sale facility of up to $35.0
million and a secured revolving credit facility of up to $19.9 million. In
addition, we maintained a silver consignment facility under which we may request
consignments of silver with an aggregate value up to the lesser of $16.0 million
or 85.0% of the aggregate undrawn face amount of letters of credit required to
be provided to the facility provider.
Receivables Sale Facility
On April 28, 2005, we
established a Receivables Sale Facility. The limit on the facility was adjusted
from time to time and at December 31, 2008 was $35.0 million.
In accordance with the provisions of
SFAS140, we include in accounts receivable in our consolidated balance sheets
the portion of receivables sold to DEJ98 Finance, LLC (DEJ), our receivables
finance subsidiary, which have not been resold by DEJ to the Purchasers. At
December 31, 2008 and 2007, there was no outstanding amount of investment
by the Purchasers under the agreements. As such, the accounts receivable in the
consolidated balance sheets was not impacted at December 31, 2008 and 2007.
Availability under our receivables sale facility as of December 31, 2008
was $12.4 million, with no outstanding advances. The receivables sale facility
was terminated on February 19, 2009.
Secured Revolving Credit Facility
On April 28, 2005, we entered
into an amended and restated secured revolving credit facility with Wachovia
Bank. On December 9, 2008, we reduced the maximum aggregate borrowing
availability to $19.9 million. The $19.9 million was fully utilized by various
letters of credit supporting our silver consignment facility and our insurance
programs. The $19.9 million of Letters of Credit were fully cash collateralized.
This amount is included in our restricted cash balance in our December 31,
2008 Consolidated Balance Sheet. This facility was terminated on
February 19, 2009.
Silver Consignment Facility
On February 16, 2007, we
entered into a silver consignment facility with HSBC Bank USA N.A. (HSBC). Under
the consignment facility as of December 31, 2008, we may from time to time
request from HSBC, and HSBC may in its sole discretion provide, consignments of
silver with an aggregate value of up to the lesser of (a) $16.0 million or
(b) 85% of the aggregate undrawn face amount of letters of credit required
to be provided to HSBC pursuant to the consignment facility.
The consignment facility included
customary representations, warranties, covenants, and conditions with which we
must comply in order to access the consignment facility. In addition, the
consignment of silver to us by HSBC under the consignment facility was
conditioned on HSBC’s prior receipt and the continued effectiveness of letters
of credit in an aggregate amount such that the value of all outstanding
consigned silver under the consignment facility is not more than 85% of the
aggregate undrawn face amount of the letters of credit.
The HSBC consignment facility is a
demand facility. Consequently, upon demand by HSBC, all outstanding consigned
silver (or the value thereof) and all other obligations under the consignment
facility will become due and payable, and HSBC may draw on the letters of credit
to cover such amounts. The facility terminated on February 19, 2009, and
HSBC drew on the letters of credit to cover the cost of the consigned silver
that we simultaneously purchased. The balance of the letters of credit was
refunded to us by Wachovia.
Under our silver consignment and
forward contracts facility in place at December 31, 2008, we had $10.3
million of silver in our inventory under the silver consignment facility, with a
corresponding amount included in accounts payable and $2.1 million committed to
under the forward contracts facility.
7.375% Senior Notes due 2008
There was $136.8 million in
principal amount of 7.375% Senior Notes outstanding at December 31, 2007.
On February 29, 2008, we repurchased $12.0 million in face amount of our
7.375% Senior Notes at a discount below the face value of the notes. On
March 20, 2008, we refinanced $38.3 million of our 7.375% Senior Notes held
by Plainfield by exchanging them for 10.5% Senior Exchange Notes. On
April 8, 2008, we repurchased an additional $25.0 million in face amount of
our 7.375% Senior Notes, also at a discount below the face value of the notes,
leaving $61.4 million in face amount of our 7.375% Senior Notes, which we repaid
at maturity on August 1, 2008.
67
10.5% Senior Notes and 10.5% Senior
Exchange Notes
The 10.5% Senior Notes were issued
on March 27, 2002, and the 10.5% Senior Exchange notes were issued on
March 20, 2008.
On February 26, 2009, we
announced the commencement of an offer (the “Exchange Offer”) to each of the
holders of our 10.5% Senior Exchange Notes and our 10.5% Senior Notes due
March 28, 2009 and April 1, 2009 respectively, to exchange these notes
for new notes in order to refinance those maturities. The Exchange Offer was
successfully consummated on April 28, 2009. $83.3 million of the 10.5%
Senior Notes and $38.3 million of the 10.5% Senior Exchange Notes were exchanged
for Senior Secured Notes due 2012. The remaining $16.1 million of 10.5% Senior
Notes were repaid on April 28, 2009. See Note 33, Subsequent Events, for a
description of the Exchange Offer and a description of the new Senior Secured
Notes.
Other Credit Facilities
Wolverine Tube Europe has a credit
facility with a Netherlands bank, payable on demand and providing for available
credit of up to 2.9 million euros or approximately $4.0 million. At
December 31, 2008, we had no outstanding borrowings under this facility.
There were approximately 0.4 million euros or approximately $0.6 million in
borrowings as of December 31, 2007. Collateral has been given to the
Netherlands bank in the form of a pledge of all future debts and a pledge for
all stocks. In addition, Wolverine Tube Europe B.V. has granted the bank a
guarantee regarding the property lease agreement in the amount of
29.8 thousand euros or approximately $41.5 thousand.
15. | Interest Expense |
The following table summarizes
interest expense, net:
Year Ended December 31, | ||||||||
(In thousands) | 2008 | 2007 | ||||||
Interest expense – bonds and
other
|
$ | 18,637 | $ | 21,811 | ||||
Interest expense –
revolver
|
— | 54 | ||||||
Interest income
|
(1,197 | ) | (482 | ) | ||||
Capitalized
interest
|
(84 | ) | (58 | ) | ||||
Interest expense,
net
|
$ | 17,356 | $ | 21,325 | ||||
16. | Retirement and Pension Plans |
In September 2006, the FASB issued
SFAS 158. We adopted the provisions of the statement as of December 31,
2006. This statement requires balance sheet recognition of the overfunded or
underfunded status of pension and postretirement benefit plans. Under SFAS 158,
actuarial gains and losses, prior service costs or credits, and any remaining
transition assets or obligations that have not been recognized under previous
accounting standards must be recognized in accumulated other comprehensive
income (loss) in equity, net of tax effects, until they are amortized as a
component of net periodic benefit cost. In addition, the measurement date (the
date at which plan assets and the benefit obligation are measured) is required
by SFAS 158 to be our Company’s fiscal year-end, which is consistent with the
measurement date we use.
In January 2006, we announced the
modernization of our retirement program for the majority of our active U.S.
employees. As part of the retirement benefit modernization program, we froze
both our U.S. qualified defined benefit plan and Supplemental Benefit
Restoration Plan, effective February 28, 2006. Additionally, we terminated
the 2002 Supplemental Executive Retirement Plan (the “Executive Plan”) in
December 2005. On March 1, 2006, we made enhancements to our 401(k) plan
for the employees impacted by the freeze of the defined benefit plan. These
enhancements include an automatic 3% contribution to each affected employee’s
401(k) account, a match (the percentage of which is determined annually for the
next year) of employees’ discretionary contributions, the addition of a success
sharing component to the 401(k) plan, and the provision of transition
contributions for five years, based upon an employee’s age and years of service.
We recorded expense with respect to
the 401(k) plans for the years ended December 31, 2008 and 2007 as shown in
the table below:
(In thousands) | 2008 | 2007 | ||||
401(k) employer
match
|
$ | 310 | $ | 496 | ||
3% defined
contribution
|
1,075 | 1,627 | ||||
Success share
|
— | 776 | ||||
Transition credit
|
468 | 767 | ||||
Total
|
$ | 1,853 | $ | 3,666 | ||
The 401(k) employer match and the 3%
defined contribution programs were funded during 2008.
68
U.S. Qualified Retirement Plan
We have a U.S. defined benefit
pension plan (U.S. Retirement Plan) that is noncontributory 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. As mentioned above, on February 28,
2006, we froze the benefits available under this plan. As a result of the
freeze, all future benefit accruals ceased for U.S. Retirement Plan participants
as of February 28, 2006. Participants maintain U.S. Retirement Plan
benefits accrued through that date.
On February 29, 2008, the
Company sold substantially all the assets and liabilities of its Altoona,
Pennsylvania STP manufacturing facility (discussed previously in this report).
The pension obligation for employees who had retired before the time of the sale
was retained by the Company. The expenses for this program through
February 29, 2008 for STP are in the Consolidated Statement of Operations
as discontinued operations. The pension obligation for the STP retirees at
December 31, 2008 is reflected in the Consolidated Balance Sheet.
The weighted average asset
allocations for our U.S. Retirement Plan at December 31, 2008 and 2007 are
as follows:
2008 | 2007 | |||||
Equity securities
|
52 | % | 59 | % | ||
Debt securities
|
47 | 39 | ||||
Cash and
equivalents
|
1 | 2 | ||||
Total
|
100 | % | 100 | % | ||
The investment policy of our U.S.
Retirement Plan states that the overall target allocation of investments should
be 60% equities and 40% bonds. The investment policy of our U.S. Retirement Plan
states that all assets selected for the portfolio must have a readily
ascertainable market value and must be readily marketable. The policy expressly
prohibits certain types of assets or transactions including commodities,
futures, private placements, warrants, purchasing of securities on margin,
selling short, options, derivatives, interest rate swaps, limited partnerships,
and real estate.
The investment policy of our U.S.
Retirement Plan states that investments in equity securities must be of good
quality and diversified so as to avoid undue exposure to any single economic
sector, industry, or group or individual security. The policy states that
investments in debt securities should be rated “A” or better, allowing debt
securities with a rating of “BBB” as long as the total amount rated “BBB” does
not exceed 10% of the debt securities portfolio at the time of purchase and as
long as the debt securities portfolio maintains an overall rating of at least
“A.” The investment policy limits the debt securities of any one issuer,
excluding investments in U.S. government guaranteed obligations, and states that
no debt securities should have a maturity of longer than 30 years at the time of
purchase.
The U.S. Retirement Plan uses a
December 31 measurement date.
The amounts recognized in the
Consolidated Balance Sheets before taxes are as follows at December 31:
(In thousands) | 2008 | 2007 | ||||||
Accrued benefit liability —
non-current
|
$ | (44,561 | ) | $ | (16,602 | ) |
The accumulated other comprehensive
income (loss) for the years ended December 31, 2008 and 2007, was a net
actuarial loss of $53.9 million and $14.9 million, respectively.
Certain assumptions utilized in
determining the benefit obligations for the U.S. Retirement Plan for the years
ended December 31 are as follows:
2008 | 2007 | |||||
Discount rate
|
6.90 | % | 6.55 | % | ||
Rate of increase in
compensation
|
N/A | N/A |
A summary of the components of net
periodic pension cost for the U.S. Retirement Plan for the years ended
December 31 is as follows:
(In thousands) | 2008 | 2007 | ||||||
Interest cost
|
9,401 | 9,481 | ||||||
Expected return on plan
assets
|
(11,172 | ) | (10,750 | ) | ||||
Amortization of net actuarial
loss
|
— | 1,046 | ||||||
Net periodic pension
income
|
$ | (1,771 | ) | $ | (223 | ) | ||
69
The amortization of our net
actuarial loss under the Qualified Pension Plan in 2007 of $1.0 million is the
amortization of total unrecognized losses as of January 1, 2007 that
exceeds 10% of our projected benefit obligation. We had no unrecognized losses
that exceed 10% of our projected benefit obligation as of January 1, 2008
to amortize. The table below illustrates the changes in plan assets and
projected benefit obligation recognized in accumulated other comprehensive
income (loss), before taxes.
(In thousands) | 2008 | 2007 | |||||
Net pension actuarial (gain)
loss
|
$ | 38,982 | $ | (8,158 | ) | ||
Amortization of net pension
actuarial loss
|
— | (1,046 | ) | ||||
Pension curtailment
gain
|
— | (547 | ) | ||||
Total recognized in
accumulated other comprehensive income (loss)
|
$ | 38,982 | $ | (9,751 | ) | ||
We estimate there will be
approximately $4.0 million net actuarial loss that will need to be amortized
from accumulated other comprehensive income (loss) during 2009.
Certain assumptions utilized in
determining the net periodic benefit cost for the years ended December 31
are as follows:
2008 | 2007 | |||||
Discount rate
|
6.55 | % | 5.92 | % | ||
Rate of increase in
compensation
|
N/A | N/A | ||||
Expected long-term rate of
return on plan assets
|
8.25 | % | 8.25 | % |
The expected long-term rate of
return on plan assets is selected by taking into account the expected weighted
averages of the investments of the assets, the fact that the plan assets are
actively managed to mitigate downside risks, the historical performance of the
market in general and the historical performance of the U.S. Retirement Plan
assets over the past 10 years. For the 10-year period ended December 31,
2008 and 2007, the U.S. Retirement Plan assets have provided a weighted average
rate of return of 7.2% and 8.5%, respectively.
The accumulated benefit obligations
at December 31, 2008 and 2007 were $144.9 million and $153.1 million,
respectively. The following table sets forth a reconciliation of the projected
benefit obligation for the years ended December 31:
(In thousands) | 2008 | 2007 | ||||||
Benefit obligation at the
beginning of the year
|
$ | 153,103 | $ | 161,673 | ||||
Interest costs
|
9,401 | 9,481 | ||||||
Actuarial gain
|
(7,369 | ) | (8,955 | ) | ||||
Benefits paid
|
(10,274 | ) | (8,549 | ) | ||||
Curtailment
|
— | (547 | ) | |||||
Benefit obligation at the end
of the year
|
$ | 144,861 | $ | 153,103 | ||||
The actuarial gain for the year
ended December 31, 2008 results from a $4.6 million gain due to personnel
experience and a $2.8 million net gain due to the change in the discount rate
from 6.55% to 6.90%. The actuarial gain for the year ended December 31,
2007 resulted from a $2.6 million loss due to personnel experience and a $11.5
million gain due to the change in the discount rate from 5.92% to 6.55%.
The following table sets forth a
reconciliation of the plan assets for the years ended December 31:
(In thousands) | 2008 | 2007 | ||||||
Fair value of plan assets at
the beginning of the year
|
$ | 136,501 | $ | 134,262 | ||||
Company
contributions
|
9,253 | 835 | ||||||
Actual return on plan
assets
|
(35,180 | ) | 9,953 | |||||
Benefits paid
|
(10,274 | ) | (8,549 | ) | ||||
Fair value of plan assets at
the end of the year
|
$ | 100,300 | $ | 136,501 | ||||
In 2009, with regard to the U.S.
Retirement Plan, we anticipate making mandatory contributions totaling $2.9
million as required by funding regulations or laws.
70
The following table sets forth the
funded status of the plan and the amounts recognized in our Consolidated Balance
Sheets at December 31:
(In thousands) | 2008 | 2007 | ||||||
Funded status
|
$ | (44,561 | ) | $ | (16,602 | ) | ||
Unrecognized amount in
accumulated other comprehensive income (loss)
|
53,864 | 14,882 | ||||||
Recognized amount
|
$ | 9,303 | $ | (1,720 | ) | |||
The expected future benefits
payments for the plan are as follows:
(In thousands) | |||
2009
|
$ | 10,263 | |
2010
|
10,390 | ||
2011
|
10,521 | ||
2012
|
10,675 | ||
2013
|
10,972 | ||
2014-2018
|
58,279 |
U.S. Nonqualified Pension Plans
Our Company previously had two
nonqualified pension plans in the United States. The Restoration Plan was
established as of January 1, 1994. The Restoration Plan is a non-funded,
defined benefit pension plan that provides benefits to employees identical to
the benefits provided by the U.S. Retirement Plan, except that under the U.S.
Retirement Plan final average annual compensation for purposes of determining
plan benefits for 2006 was capped at $220,000 by Internal Revenue Code. Benefits
under the Restoration Plan are not subject to this limitation. However,
Restoration Plan benefits are offset by any benefits payable from the U.S.
Retirement Plan. We announced the freezing of the Restoration Plan, effective
February 28, 2006. As a result of the freeze, all future benefit accruals
ceased for Plan participants as of February 28, 2006. Participants maintain
Plan benefits accrued through that date.
The U.S. nonqualified pension plans
use a December 31 measurement date.
The amounts recognized in the
Consolidated Balance Sheets before taxes are as follows at December 31:
(In thousands) | 2008 | 2007 | ||||||
Accrued benefit
liability-current
|
$ | (80 | ) | $ | (126 | ) | ||
Accrued benefit
liability-noncurrent
|
(991 | ) | (1,014 | ) | ||||
Total amount
recognized
|
$ | (1,071 | ) | $ | (1,140 | ) | ||
As of December 31, 2008,
included in accumulated other comprehensive income (loss) was a net actuarial
loss of $50,000.
Certain assumptions utilized in
determining the benefit obligations for the nonqualified pension plans for the
years ended December 31 are as follows:
2008 | 2007 | |||||
Discount rate
|
6.90 | % | 6.34 | % | ||
Rate of increase in
compensation
|
N/A | N/A |
A summary of the components of net
periodic pension cost for the nonqualified pension plans for the years ended
December 31 is as follows:
(In thousands) | 2008 | 2007 | ||||
Interest cost
|
$ | 67 | $ | 68 | ||
Amortization of net actuarial
loss
|
— | 6 | ||||
Net periodic pension
cost
|
$ | 67 | $ | 74 | ||
The table below illustrates the
changes in plan assets and projected benefit obligation recognized in other
comprehensive income (loss), before taxes, under the U.S. Nonqualified Pension
Plan.
(In thousands) | 2008 | 2007 | ||||||
Net actuarial
loss
|
$ | (56 | ) | $ | (21 | ) | ||
Amortization of net actuarial
loss
|
— | (5 | ) | |||||
Total recognized in
accumulated other comprehensive income (loss)
|
$ | (56 | ) | $ | (26 | ) | ||
71
We estimate there will be no net
actuarial loss that will need to be amortized from accumulated other
comprehensive income (loss) during 2009.
Certain assumptions utilized in
determining the net periodic benefit cost for the years ended December 31
are as follows:
2008 | 2007 | |||||
Discount rate
|
6.3 | % | 5.83 | % | ||
Rate of increase in
compensation
|
N/A | N/A |
The unfunded accumulated benefit
obligation for the nonqualified pension plan was $1.1 million at
December 31, 2008 and $1.1 million at December 31, 2007. The following
table sets forth a reconciliation of the projected benefit obligation for the
years ended December 31:
(In thousands) | 2008 | 2007 | ||||||
Benefit obligation at the
beginning of the year
|
$ | 1,140 | $ | 1,173 | ||||
Interest costs
|
67 | 68 | ||||||
Actuarial gain
|
(56 | ) | (21 | ) | ||||
Benefits paid
|
(80 | ) | (80 | ) | ||||
Benefit obligation at the end
of the year
|
$ | 1,071 | $ | 1,140 | ||||
The following table sets forth a
reconciliation of the plan assets for the years ended December 31:
(In thousands) | 2008 | 2007 | ||||||
Fair value of plan assets at
the beginning of the year
|
$ | — | $ | — | ||||
Company
contributions
|
80 | 80 | ||||||
Benefits paid
|
(80 | ) | (80 | ) | ||||
Fair value of plan assets at
the end of the year
|
$ | — | $ | — | ||||
In 2009, we anticipate making
payments to participants of $0.1 million, which represents the equivalent of the
normal amount of benefits.
The following table sets forth the
funded status of the plan and the amounts recognized in our Consolidated Balance
Sheets at December 31:
(In thousands) | 2008 | 2007 | ||||||
Funded status
|
$ | (1,071 | ) | $ | (1,140 | ) | ||
Unrecognized amount in
accumulated other comprehensive income (loss)
|
50 | 106 | ||||||
Recognized amount
|
$ | (1,021 | ) | $ | (1,034 | ) | ||
The expected future benefits
payments for the plan are as follows:
(In thousands) | |||
2009
|
$ | 80 | |
2010
|
80 | ||
2011
|
81 | ||
2012
|
81 | ||
2013
|
80 | ||
2014-2018
|
486 |
Canadian Plans
Prior to the sale of our London,
Ontario operation on July 8, 2008, we sponsored 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. This plan went
with the sale of the London, Ontario operation. Company contributions were $0.5
million in 2008 and $0.7 million in 2007.
72
We had two noncontributory defined
benefit pension plans covering substantially all our employees at the Montreal,
Quebec facility. The two plans were the Wolverine Tube (Canada) Inc. Pension
Plan for Salaried Employees (the “Salaried Plan”) and the Wolverine Tube
(Canada) Inc. Pension Plan for Operational Employees (the “Operational Plan”).
We contributed the actuarially determined amounts annually into the plans.
Benefits for the hourly employees were based on years of service and a
negotiated rate. Benefits for salaried employees were based on years of service
and the employee’s highest annual average compensation over five consecutive
years.
On January 31, 2007, in
connection with the closure of our Montreal, Quebec facility, the plans were
terminated. On February 23, 2007, we purchased annuities for the retirees
in these plans from plan assets. These plans were settled in the third quarter
of 2007 when all remaining participants’ benefits were distributed. In
accordance with SFAS 158, we reflected in third quarter earnings of 2007, the
accumulated other comprehensive income (loss) at the time of settlement of $1.3
million representing unamortized actuarial losses. We also recognized a
settlement gain of $1.5 million which was partially offset by a curtailment loss
of $0.8 million in the third quarter. As a result of closing and settling the
plans in 2007, there were no amounts related to these plans on the Company’s
Consolidated Balance Sheets at December 31, 2007 and 2008.
A summary of the components of net
periodic pension cost for the Canadian plans to terminate and settle the plans
for the year ended December 31, 2007 is as follows:
(In thousands) | Salaried Plan |
Operational Plan |
||||||
Interest cost
|
$ | 313 | $ | 547 | ||||
Expected return on plan
assets
|
(96 | ) | (325 | ) | ||||
Effect of
settlement
|
1,940 | — | ||||||
Effect of
curtailment
|
— | (1,178 | ) | |||||
Net periodic pension
cost
|
$ | 2,157 | $ | (956 | ) | |||
In April 2007, annuities were
purchased for all retirees. Other vested recipients were paid on a lump-sum
basis on the settlement date. At the end of 2007, all obligations under this
plan were satisfied. The following table sets forth a reconciliation of the
projected benefit obligation for the Canadian plans for the year ended
December 31, 2007:
(In thousands) | Salaried Plan |
Operational Plan |
||||||
Benefit obligation at the
beginning of the year
|
$ | 11,871 | $ | 20,099 | ||||
Interest costs
|
314 | 547 | ||||||
Benefits paid
|
(12,953 | ) | (21,640 | ) | ||||
Effect of
curtailment
|
— | (803 | ) | |||||
Effect of
settlement
|
(292 | ) | — | |||||
Foreign currency exchange rate
changes
|
1,060 | 1,797 | ||||||
Benefit obligation at the end
of the year
|
$ | — | $ | — | ||||
The following table sets forth a
reconciliation of the plans assets for the Canadian plans for the year ended
December 31, 2007:
(In thousands) | Salaried Plan |
Operational Plan |
||||||
Fair value of plan assets at
the beginning of the year
|
$ | 10,695 | $ | 18,500 | ||||
Actual return on plan
assets
|
96 | 325 | ||||||
Company
contribution
|
1,207 | 1,161 | ||||||
Benefits paid
|
(12,953 | ) | (21,640 | ) | ||||
Foreign currency exchange rate
changes
|
955 | 1,654 | ||||||
Fair value of plan assets at
the end of the year
|
$ | — | $ | — | ||||
17. | Postretirement Benefit Obligation |
We sponsor a health care plan and
life insurance plan that provides post retirement medical benefits to
substantially all our full-time U.S. and Canadian employees who have worked 10
years after age 50 (52 for employees of our Altoona, Pennsylvania facility), and
spouses 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. The plan was modified twice in 2005 to grant retiree coverage
at active rates, without regard to the age requirement to one executive officer
and to exclude employees who are not yet age 55 (age 57 for employees located in
Altoona, Pennsylvania) or older as of February 28, 2006 from subsidized
retiree medical coverage. We have plans that provide life insurance to
substantially all our full-time U.S. and Canadian employees.
73
On February 29, 2008, the
Company sold substantially all the assets and liabilities of its STP
manufacturing facility (see note 7, Discontinued Operations). The
post retirement benefit obligation for employees who had retired before the time
of the sale was retained by the Company. The expenses for this program through
February 29, 2008 for STP are in the Consolidated Statement of Operations
as discontinued operations. The post retirement benefit obligation for the STP
retirees at December 31, 2008 are reflected in the Consolidated Balance
Sheet.
On July 8, 2008, the Company
sold its stock in WTCI, which at the time of sale was substantially all the
assets and liabilities of our London operation. Prior to the closing of the sale
of WTCI, in a reorganization to remove certain assets and liabilities that were
not being purchased, the Company removed from WTCI the postretirement benefit
obligation for Montreal together with the postretirement benefit obligation for
a limited number of retirees from the Company’s Fergus, Ontario, Canada facility
closed in 2002. The liability for Montreal and Fergus was recorded on the
Company’s Wolverine Tube Canada Limited Partnership. The postretirement benefit
obligation associated with WTCI at the time of the sale was assumed by the
purchaser in the transaction. The expenses for this program through July 8,
2008 for London are in the Consolidated Statement of Operations as discontinued
operations. Due to the timing of the sale of WTCI, there are no amounts
reflected at December 31, 2008 on the Consolidated Balance Sheet.
On September 13, 2006, the
Company announced its intent to close its Montreal, Quebec, Canada plant
(“Montreal”) and terminate the employees, thereby freezing the number of
participants eligible for the postretirement benefit plan. On September 25,
2008, the Company sold Montreal land, building, and certain pieces of equipment.
The combined benefit obligation retained for the Montreal and Fergus retirees at
December 31, 2008 and 2007 was $1.5 million and $2.6 million, respectively.
The amounts recognized in the
Consolidated Balance Sheets before taxes are as follows at December 31:
(In thousands) | 2008 | 2007 | ||||||
Accrued benefit liability –
current
|
$ | (755 | ) | $ | (955 | ) | ||
Accrued benefit liability –
non current
|
(4,662 | ) | (18,776 | ) | ||||
Total amount
recognized
|
$ | (5,417 | ) | $ | (19,731 | ) | ||
As of December 31, 2008,
included in accumulated other comprehensive income (loss) was a net actuarial
loss of $3.2 million.
Net periodic postretirement benefit
cost for the years ended December 31 includes the following components:
(In thousands) | 2008 | 2007 | ||||||
Service cost
|
$ | 74 | $ | 322 | ||||
Interest cost
|
379 | 995 | ||||||
Amortization of prior service
cost
|
(31 | ) | (49 | ) | ||||
Amortization of net actuarial
gain
|
(1,089 | ) | (679 | ) | ||||
Effect of
curtailment
|
(370 | ) | (207 | ) | ||||
Net periodic postretirement
benefit cost (gain)
|
$ | (1,037 | ) | $ | 382 | |||
The change in benefit obligation for
the years ended December 31 includes the following components:
(In thousands) | 2008 | 2007 | ||||||
Benefit obligation at the
beginning of the year
|
$ | 19,731 | $ | 18,532 | ||||
Sale of London
facility
|
(10,653 | ) | — | |||||
Service cost
|
74 | 322 | ||||||
Interest cost
|
379 | 995 | ||||||
Participants’
contributions
|
464 | 543 | ||||||
Actuarial (gain)
|
(1,304 | ) | (959 | ) | ||||
Benefits paid
|
(1,534 | ) | (1,487 | ) | ||||
Reduction in benefit
obligation due to curtailment gain
|
(545 | ) | (264 | ) | ||||
Foreign currency exchange rate
changes
|
(1,195 | ) | 2,049 | |||||
Benefit obligation at the end
of the year
|
$ | 5,417 | $ | 19,731 | ||||
The following table reconciles the
beginning and ending balances of the fair value of plan assets for the following
years:
(In thousands) | 2008 | 2007 | ||||||
Fair value at beginning of
year
|
$ | — | $ | — | ||||
Company
contributions
|
797 | 338 | ||||||
Plan participant’s
contributions
|
464 | 1,201 | ||||||
Benefits paid
|
(1,261 | ) | (1,539 | ) | ||||
Fair value at end of
year
|
$ | — | $ | — | ||||
74
The following table sets forth the
funded status of the plans at December 31:
(In thousands) | 2008 | 2007 | ||||||
Funded status
|
$ | 5,417 | $ | 19,731 | ||||
Unrecognized amount in
accumulated other comprehensive income (loss)
|
(3,181 | ) | (6,439 | ) | ||||
Recognized amount
|
$ | 2,236 | $ | 13,292 | ||||
The following chart shows the
estimated Future Benefit Payments for U.S. and Canadian plans for the next five
years, and the aggregate for the five fiscal years thereafter.
Expected Future Benefit Payments
(In thousands) | Payments | ||
2009
|
$ | 814 | |
2010
|
844 | ||
2011
|
875 | ||
2012
|
870 | ||
2013
|
847 | ||
2014-2018
|
3,702 |
As indicated in Note 2, Summary of Significant Accounting
Policies, of the Notes to the Consolidated Financial Statements, under
SFAS 158 gains and losses, prior service costs and credits, and any remaining
transition amounts under SFAS 106 that have not yet been recognized through net
periodic benefit cost will be recognized in accumulated other comprehensive
income (loss), net of tax effects, until they are amortized as a component of
net periodic cost.
The following chart sets forth the
amounts recognized in accumulated other comprehensive income (loss) at
December 31, 2008:
(In thousands) | 2008 | |||
Prior service
cost
|
$ | (5 | ) | |
Net gain
|
(3,176 | ) | ||
Total accumulated
comprehensive income (loss)
|
$ | (3,181 | ) | |
The following table sets forth the
amounts in accumulated other comprehensive income (loss) expected to be
recognized as components of net periodic benefit cost during fiscal year 2009:
(In thousands) | 2009 | |||
Amortization of prior service
costs
|
$ | (32 | ) | |
Amortization of net
gain
|
(846 | ) | ||
Total expected fiscal year
2009 contribution
|
$ | (878 | ) | |
The table below illustrates the
changes in plan assets and projected benefit obligation recognized in
accumulated other comprehensive income (loss) under the Medical and Life
Insurance Plans:
(In thousands) | 2008 | |||
Net actuarial
(gain)/loss
|
$ | (1,358 | ) | |
Amortization of net actuarial
(gain)/loss
|
1,092 | |||
Prior service
cost
|
(43 | ) | ||
Amortization of prior service
cost
|
32 | |||
(Gain)/loss due to
curtailment
|
(545 | ) | ||
Amortization of (gain)/loss
due to curtailment
|
369 | |||
Total recognized in other
comprehensive loss
|
$ | (453 | ) | |
The weighted average discount rate
used in determining the postretirement benefit obligation was 7.07% and 5.44% at
December 31, 2008 and December 31, 2007, respectively. The weighted
average discount rate used to determine net periodic benefit cost was 6.58% and
5.30% at December 31, 2008 and December 31, 2007, respectively.
Expected contributions to be paid to
the U.S. and Canadian plans during the fiscal year of 2009 is $0.8 million.
For purposes of determining the U.S.
cost and obligation for pre-Medicare postretirement medical benefits, an 8.0%
annual rate of increase in the per capita cost of covered benefits (i.e., health
care trend rate) was assumed for our U.S. Plan, grading down to an ultimate rate
of 5.0% in 2015.
75
An 9.5% annual rate of increase in
the health care trend rate was assumed for our Canadian Plan, and is expected to
decrease 1% per year to an ultimate rate of 4.5%. Assumed health care cost
trend rates have a significant effect on the amounts reported for health care
plans. A one-percentage change in the assumed health care cost trend rate would
have had the following effects:
(In thousands) | 1% Increase | 1% Decrease | |||||
U.S. Plan:
|
|||||||
Effect on total of service and
interest cost components
|
$ | 5 | $ | (5 | ) | ||
Effect on postretirement
benefit obligation
|
$ | 79 | $ | (72 | ) | ||
Canadian Plan:
|
|||||||
Effect on total of service and
interest cost components
|
$ | 3 | $ | (3 | ) | ||
Effect on postretirement
benefit obligation
|
$ | 36 | $ | (38 | ) |
18. | Environmental Matters |
We are subject to extensive
environmental regulations imposed by federal, state, provincial, and local
authorities in the U.S., Canada, China, Portugal, and Mexico, 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 certain
environmental responsibilities. We have incurred, and may continue to incur,
liabilities under environmental statutes and regulations. Some of these
liabilities relate to contamination of sites we own or operate or have
previously owned or operated (including contamination caused by prior owners and
operators of such sites, or adjoining properties), as well as the off-site
disposal of hazardous substances.
We have established an accrual of
approximately $9.6 million for undiscounted estimated environmental remediation
costs at December 31, 2008. The total cost of environmental assessment and
remediation depends on a variety of regulatory, technical and factual issues,
some of which are not known or cannot be anticipated. While we believe that the
accrual, under existing laws and regulations, is adequate to cover
presently-identified environmental remediation liabilities as we presently
understand them, 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.
Our Company accrued $8.6 million to
cover potential environmental responsibilities related to the significant
downsizing of operations at our Decatur facility. This includes complete closure
of the industrial wastewater treatment system; disposal of industrial waste
associated with the facility closure; delineation of any potential soil and
groundwater contamination from previously reported events; and reports and
analysis prepared for environmental agency approval.
We have $1.0 million accrued to meet
expected additional costs associated with soil and groundwater contamination
remediation at our Ardmore, Tennessee facility. On December 28, 1995, we
entered into a Consent Order and Agreement with the Tennessee Division of
Superfund, relating to the Ardmore facility, under which the Company agreed to
conduct an investigation. That investigation has revealed contamination,
including elevated concentrations of volatile organic compounds, in the soil and
groundwater in areas of the Ardmore facility. Under the terms of the Order, we
submitted a Remedial Investigation and Feasibility Study (RI/FS) Work Plan,
which Tennessee accepted on October 30, 1996, and have initiated this Work
Plan. We began the Work Plan in September 2005, which continued through
December 31, 2008. Based on a recommendation by our environmental
consultants in October of 2008 we have adjusted our Ardmore, Tennessee accrual
to $1.0 million in anticipation of continuing monitoring and remediation efforts
for an additional five years. We will continue the Work Plan and assess our
progress with the state of Tennessee until such time the necessary remediation
is complete.
We believe our operations are in
substantial compliance with all applicable environmental laws and regulations.
We utilize an active environmental auditing and evaluation process to facilitate
compliance. However, future regulations and/or changes in the text or
interpretation of existing regulations may subject our operations to more
stringent standards. While we cannot quantify the effect of such changes on our
business, compliance with more stringent requirements could 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.
19. | Litigation |
Our facilities and operations are
subject to extensive environmental laws and regulations, and we are currently
involved in various proceedings relating to environmental matters (see Note 18,
Environmental Matters,
of the Notes to the Consolidated Financial Statements). We are not involved in
any other legal proceedings that we believe could have a material adverse effect
upon our business, operating results, or financial condition.
76
20. | Income Taxes |
The components of loss from
continuing operations before income taxes for the years ended December 31
are as follows:
(In thousands) | 2008 | 2007 | ||||||
U.S.
|
$ | (62,963 | ) | $ | (77,092 | ) | ||
Foreign
|
14,607 | 3,924 | ||||||
Total
|
$ | (48,356 | ) | $ | (73,168 | ) | ||
The provision for income taxes for
the years ended December 31 consists of the following:
(In thousands) | 2008 | 2007 | |||||
Current expense
(benefit):
|
|||||||
U.S. federal
|
$ | — | $ | — | |||
Foreign
|
(20,013 | ) | 1,617 | ||||
State
|
156 | 30 | |||||
Total current
|
(19,857 | ) | 1,647 | ||||
Deferred expense
(benefit):
|
|||||||
U.S. federal and
state
|
(1,283 | ) | 1,808 | ||||
Foreign
|
21,817 | 21 | |||||
Total deferred
|
20,534 | 1,829 | |||||
Total income tax expense –
continuing operations
|
677 | 3,476 | |||||
Income tax benefit –
discontinued operations
|
90 | 5,040 | |||||
Total income tax
expense
|
$ | 767 | $ | 8,516 | |||
Deferred income taxes included in
our Consolidated 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
at December 31:
(In thousands) | 2008 | 2007 | ||||||
Deferred tax
liabilities:
|
||||||||
Property, plant and
equipment
|
$ | (30,245 | ) | $ | (29,815 | ) | ||
Intangibles
|
4,870 | (4,559 | ) | |||||
Inventory
|
(6,804 | ) | (6,146 | ) | ||||
Other
|
(9,075 | ) | (11,242 | ) | ||||
Total deferred tax
liabilities
|
(41,254 | ) | (51,762 | ) | ||||
Deferred tax
assets:
|
||||||||
Environmental remediation
reserves
|
3,611 | 7,126 | ||||||
Net operating loss
carryforward
|
23,307 | 24,945 | ||||||
Restructuring
reserves
|
26,791 | 31,236 | ||||||
Pension
obligation
|
8,699 | 17,688 | ||||||
Other
|
6,743 | 11,707 | ||||||
Total deferred tax
assets
|
69,151 | 92,702 | ||||||
Valuation
allowance
|
(29,498 | ) | (44,681 | ) | ||||
Total deferred tax assets net
of valuation allowance
|
39,653 | 48,021 | ||||||
Net deferred tax
liability
|
$ | (1,601 | ) | $ | (3,741 | ) | ||
Reconciliation of differences
between the statutory U.S. federal income tax rate and our effective tax rate
follows for the years ended December 31:
(In thousands) | 2008 | 2007 | ||||||
Income tax benefit at federal
statutory rate
|
$ | (16,925 | ) | $ | (25,609 | ) | ||
Increase (decrease) in taxes
resulting from:
|
||||||||
State and local
taxes
|
(853 | ) | (2,604 | ) | ||||
Effect of difference between
U.S. and foreign rates
|
18,696 | 331 | ||||||
Embedded
derivative
|
— | (5,514 | ) | |||||
Items related to Canada
sale
|
5,334 | — | ||||||
Goodwill
|
5,884 | — | ||||||
Other permanent
differences
|
421 | 49 | ||||||
Foreign dividend
repatriation
|
— | 3,121 | ||||||
Increase (decrease) in
valuation allowance
|
(10,859 | ) | 35,006 | |||||
Other
|
(1,021 | ) | (1,304 | ) | ||||
Income tax expense –
continuing operations
|
$ | 677 | $ | 3,476 | ||||
Income tax benefit –
discontinued operations
|
90 | 5,040 | ||||||
Total income tax
expense
|
$ | 767 | $ | 8,516 | ||||
77
During 2008, the Company sold the
stock of its Canadian operations. After filing the Company’s Canadian tax
returns for the change in control, the remaining foreign net operating losses
(“NOLs”) transferred with the ownership. During 2007, the Company experienced an
ownership change, which caused a limitation on the utilization of NOLs incurred
prior to the ownership change from being utilized in future years. As such, the
gross deferred tax asset related to the NOLs was reduced to reflect the amount
that could be utilized. There was a corresponding decrease in the valuation
allowance resulting in no impact on results from operations due to this
adjustment. At December 31, 2008, we have U.S. federal and state NOL
carryforwards available to be utilized of $61.8 million and $59.4 million,
respectively. These NOL carryforwards expire at various times beginning in 2009
through 2028.
During 2008, there was a net
decrease in the valuation allowance for U.S. and foreign deferred tax assets
from $44.2 million to $29.5 million. This change was attributable to the
decrease in the valuation allowance due to the transfer of ownership of our
Canadian operations mentioned above, partly offset by an increase attributable
to the current year U.S. loss. The increase for the current year loss resulted
in a $10.3 million charge to operations. All net deferred tax assets have a
valuation allowance against them. At December 31, 2008, we are in a net
deferred tax liability position of $1.6 million primarily as a result of the
remaining accrual for withholding taxes on the planned repatriation of
undistributed foreign earnings as discussed below in the amount of $1.4 million.
At December 31, 2007, the
undistributed earnings of our foreign subsidiaries amounted to approximately
$47.7 million. During 2007, Management re-evaluated their position under
Accounting Principles Board (“APB”) Opinion No. 23 and determined that
$20.0 million of the foreign earnings were not going to be indefinitely
reinvested. Accordingly, $2.9 million of foreign withholding taxes were accrued
as of December 31, 2007 leaving foreign withholding taxes of approximately
$1.8 million that would also be payable upon remittance of any previously
unremitted earnings at December 31, 2007. The exact amount of the charge
depends on the pending technical corrections to the legislation and expected
interpretive guidance to be issued by the Internal Revenue Service. During 2008
the Company repatriated dividends of $8.0 million from its Wolverine Tube
Shanghai affiliate. In 2007 the Company had accrued withholding taxes of $1.5
million, which due to changes in the withholding tax laws of China was not
assessed at the time of repatriation. As a result, income tax expense for 2008
was lowered by the reversal of these previously accrued withholding taxes.
Uncertain Tax Positions
Effective January 1, 2007,
Wolverine Tube adopted FIN 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109. FIN 48 dictates
a more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This interpretation also provides guidance on derecognition of income tax assets
and liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures. The adoption of FIN 48 in the first quarter of 2007 resulted in a
reclassification of certain liabilities, but had no impact on results from
operations.
As part of the ongoing review of the
company’s FIN 48 liabilities, management determined in 2007 and again in 2008
that while its uncertain tax positions in the U.S. and Canada (2007 only, as the
stock of our Canadian operations were sold in 2008) still exist, there is no
longer a need for a separate liability for uncertain tax positions (“UTPs”). As
such, in 2007 we reduced the UTP liability and corresponding deferred tax asset.
The impact of this adjustment on prior periods was not material. The liability
for UTPs for 2007 and 2008 are reflected as a reduction in the deferred tax
assets related to the NOL carryforwards. Since there is a full valuation
allowance against the deferred tax assets attributable to the NOLs in these tax
jurisdictions, the Company cannot foresee an event which would give rise to
either (1) paying any cash taxes due to an examination of a previously
filed tax return or (2) any assets being impaired (such as the NOL). In
2008, the Company identified UTPs related to one of its foreign operations. The
impact on results from operations to establish a reserve for this UTP was a
charge of $0.4 million.
Penalties and tax-related interest
expense are reported in other expense, net and interest and amortization
expense, net, respectively, on the Consolidated Statements of Operations. As of
December 31, 2008, no amounts have been recognized in the financial
statements relative to FIN 48 in the United States as we have significant NOL
carryforwards in the tax jurisdictions where we have uncertain tax positions and
we would utilize these NOLs in the event of an adjustment resulting from an
audit by the respective taxing authority.
Wolverine and its subsidiaries file
income tax returns in the United States as well as various foreign countries and
state jurisdictions. The Internal Revenue Service has examined the tax years up
through 2004 and all subsequent years are still open to examination. The statue
of limitations on state jurisdictions vary between two and four years past the
filing date. Open years are either 2004 or 2005 to present, based on the state
authority.
78
In the provisions of the purchase
and sale agreement for the Canadian operation sale, the Company was indemnified
for tax claims on open tax audits up to $1.0 million Canadian dollars ($0.8
million US). Years currently under review include 2006, 2007, and the partial
year of 2008. Based on prior audit results in this jurisdiction, the Company has
accrued $0.5 million Canadian dollars ($0.4 million US) as a contingent
liability for audit results, which may exceed the indemnification.
A reconciliation of the beginning
and ending amount of gross unrecognized tax benefits is as follows:
(In thousands) | ||||
Balance at beginning of
year
|
$ | 4,518 | ||
Deletions based on tax
positions related to the current year including the effects of the sale of
our Canadian operations
|
(3,583 | ) | ||
Additions for tax positions of
prior years
|
— | |||
Settlements
|
— | |||
Balance at end of
year
|
$ | 935 | ||
None of the Company’s liability for
gross unrecognized tax benefits as of December 31, 2008 would affect the
Company’s effective tax rate, if recognized. Management is also unaware of any
items which would result in a significant increase (or decrease) in the
unrecognized tax benefits disclosed above.
21. | Accumulated Other Comprehensive Income (Loss) |
The components of accumulated other
comprehensive loss at December 31, are as follows:
(In thousands) | Foreign Currency Translation Adjustment |
Unrealized Gain (Loss) on Cash Flow Hedges |
Pension Liability Adjustment |
Accumulated Other Comprehensive Income (Loss) |
||||||||||||
Balance at December 31,
2006
|
$ | 12,049 | $ | (3,424 | ) | $ | (18,014 | ) | $ | (9,389 | ) | |||||
Activity in 2007
|
11,556 | (518 | ) | 10,923 | 21,961 | |||||||||||
Reclassification adjustment
for realized cash flow hedge losses
|
— | 3,424 | — | 3,424 | ||||||||||||
Balance at December 31,
2007
|
23,605 | (518 | ) | (7,091 | ) | 15,996 | ||||||||||
Activity in 2008
|
(15,523 | ) | (5,145 | ) | (35,292 | ) | (55,960 | ) | ||||||||
Reclassification adjustment
for realized cash flow hedge losses
|
— | 518 | — | 518 | ||||||||||||
Balance at December 31,
2008
|
$ | 8,082 | $ | (5,145 | ) | $ | (42,383 | ) | $ | (39,446 | ) | |||||
22. | Common Stock |
All holders of common stock are
entitled to receive dividends when and if declared by our 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
declare a dividend.
23. | Stock-Based Compensation Plans |
The 1993 Equity Incentive Plan (the
“1993 Equity Plan”) provided for the issuance of stock options, restricted
shares, stock appreciation rights, and other additional awards to key executives
and employees. The maximum number of shares provided for under the 1993 Equity
Plan was 2,075,000 at a price as determined by our Compensation Committee. All
options granted under the plan were issued at the market value at the date of
the grant. Options granted prior to 1999 under the 1993 Equity Plan vested 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 vested 33.3% 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
Equity Plan was terminated by its terms in 2003.
On March 22, 2001, the Board
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 allows us to compensate and
reward our directors. The terms of the 2001 Directors’ Plan provides for the
issuance of stock options to outside directors at the fair market value on the
date of grant. The initial options granted at the time the Director joins the
Board vest at 33.3% per year, but must be held one year before exercising.
All subsequent grants vest immediately. All options terminate on the tenth
anniversary of the date of grant.
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. We made the Exchange Offer available
because a large number of stock options had exercise prices that were
significantly higher than current trading prices of our common stock, and thus
the stock options did not provide our employees and outside directors the
incentive to acquire and maintain stock ownership in the Company and to
participate
79
in the Company’s long-term growth
and success. As a result of this exchange of options, 836,860 shares with an
average option price of $30.48 were canceled, 38,000 of which were under the
1993 Directors’ Plan. On April 11, 2002 we granted 383,075 stock options,
19,000 of which were under the 1993 Directors’ Plan. New options granted under
the 1993 Equity 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 Directors’ Plan 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. A stock option holder must have continued
to have been employed by us or provide service to us through April 11, 2002
in order to have been eligible to receive the new options granted.
The 2003 Equity Incentive Plan (the
“2003 Equity Plan”) was adopted by the Board on March 25, 2003 and was
approved by the stockholders on May 14, 2003, and was amended on
July 24, 2003. The 2003 Equity Plan provides for the issuance of awards in
the form of stock options, restricted shares, stock appreciation rights and
other additional awards to key executives and employees. The maximum number of
shares of common stock that may be issued under the plan is limited to 850,000
shares, provided that no more than 250,000 shares may be issued in the form of
awards other than options or stock appreciation rights. The duration of the 2003
Equity Plan is 10 years.
On March 29, 2007, the Board
approved the 2007 Non-Qualified Stock Option Plan (the “2007 Plan”), which
provides for the grant of non-qualified stock options to certain employees and
consultants. While there are still outstanding options, which have been issued
under various plans, all stock options issued after March 29, 2007 are done
so under, and governed by, the 2007 Plan.
In the first quarter of 2007, the
2007 Plan was adopted by the Board. The 2007 Plan provides for the granting of
non-qualified stock options to certain of our consultants and employees. The
2007 Plan is administered and interpreted by a committee appointed by the Board.
The maximum aggregate number of shares reserved and available for grant under
the 2007 Plan is the lesser of (a) 25,000,000 shares of our common stock or
(b) 15% of the outstanding shares of our common stock calculated on a
fully-diluted basis. The grants vest 20% ratably at each anniversary date of the
grant for five years. The grants under the 2007 Plan have a 10-year term. As
part of the administration of the 2007 Plan, all of the outstanding restricted
stock was immediately vested. There are no provisions in the 2007 Plan for
restricted stock.
Upon adoption of SFAS 123(R), the
Company elected to value its stock-based payment awards granted using the
Black-Scholes option-pricing model (Black-Scholes model), which was previously
used for pro forma information. The Black-Scholes model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. The Black-Scholes model requires the input of
certain assumptions. The determination of fair value of stock-based payment
awards on the date of grant using the Black-Scholes model is affected by our
stock price as well as the input of other subjective assumptions, including:
expected stock price volatility, the expected pre-vesting forfeiture rate, and
the expected option term (the amount of time from the grant date until the
options are exercised or expire). Expected volatility is determined based upon
actual historical stock price movements over the expected option term. Expected
pre-vesting forfeitures are estimated based on actual historical pre-vesting
forfeitures for the expected option term. The expected option term is calculated
using the “simplified” method permitted by Staff Accounting Bulletin
No. 107, which the Company has applied in its adoption of SFAS 123(R). Our
options have characteristics significantly different from those of traded
options, and changes in the assumptions can materially affect the fair value
estimates.
2008 Grants
Alpine Grant
During the fourth quarter of 2008,
the Board granted an option to purchase 540,294 shares, to Alpine, as
consultants, pursuant to the 2007 Plan. The Alpine Option vests ratably at a
rate of 20% on each anniversary of the original grant date.
The applicable exercise prices for
vested option shares under the Alpine Option are as follows:
Exercise Price | Shares | 12/31/2008 Option Costs |
Valuation | ||||||||
40% of stock
options
|
$ | 0.740 | 216,118 | $ | 0.083 | $ | 17,938 | ||||
30% of stock
options
|
$ | 0.950 | 162,088 | $ | 0.078 | $ | 12,643 | ||||
30% of stock
options
|
$ | 1.490 | 162,088 | $ | 0.070 | $ | 11,346 |
The Alpine Option has a 10-year
term, subject to early termination in the event that Alpine’s consulting
relationship with us is terminated prior to the end of such term. Upon such
early termination, the Alpine Option will remain exercisable as to all vested
portions and will be terminated as to all unvested portions. In addition,
vesting of the Alpine Option will be accelerated in the event that we fail to
offer to extend the term of the Management Agreement between us and Alpine,
dated February 16, 2007 (the “Management Agreement”). If we offer to extend
the term of the Management Agreement, but Alpine declines to accept such offer,
any unvested portion of the Alpine Option will terminate as of the expiration of
the term of the Management Agreement. Under the Alpine Stock Option Agreement,
if on the six-month anniversary of the effective date of the Management
Agreement, we have not yet named a CEO, Alpine will automatically receive, on
each of the six-month and 18-month anniversaries of the effective date of the
Management Agreement, an option to purchase an additional amount of shares of
common stock equal to 0.5% of the total shares authorized under the 2007 Plan,
with each such option having the same exercise prices as the initial Alpine
Option. As of August 16, 2008, we had not named a CEO. Accordingly, during
the fourth quarter, the Board approved an additional option grant to Alpine in
accordance with the terms of the Alpine Stock Option Agreement.
80
Employee Grants
During the first quarter of 2008,
the Board granted options to purchase 12,500 shares of our common stock having a
fair value at the time of the grant of $5,000 under the 2007 Plan to certain
employees. The exercise price for the options was $0.60, and was based on the
closing market value of our common stock on the date of the grants. The option
grants vest ratably at a rate of 20% on each of the five anniversaries from the
grant date. The option grants have a 10-year term.
During the second quarter of 2008,
the Board granted options to purchase 32,000 shares of our common stock having a
fair value at the time of the grant of $16,000 under the 2007 Plan to certain
employees. The exercise price for the options ranged from $0.73 to $0.83, and
was based on the closing market value of our common stock on the date of the
grants. 25,000 of the option grants vest ratably at a rate of 20% on each of the
five anniversaries from the grant date. The option grants have a 10-year term.
The remaining 7,000 shares granted to Board members also have a 10-year term,
but vest immediately.
During the third quarter of 2008,
the Board granted options to purchase 1,120,463 shares of our common stock
having a fair value at the time of the grant of $0.5 million under the 2007 Plan
to certain employees.
The applicable exercise prices for
vested option shares granted are as follows:
Exercise Price | Shares | Option Costs | Valuation | ||||||||
40% of stock
options
|
$ | 0.74 | 432,185 | $ | 0.39 – 0.62 | $ | 213,019 | ||||
30% of stock
options
|
$ | 0.95 | 344,139 | $ | 0.36 – 0.58 | $ | 157,258 | ||||
30% of stock
options
|
$ | 1.49 | 344,139 | $ | 0.32 – 0.52 | $ | 137,421 |
The option grants vest ratably at a
rate of 20% on each of the five anniversaries from the grant date. The option
grants have a 10-year term.
Our stock option plans are
summarized as follows:
2007 Plan |
2003 Equity Plan |
2001 Directors’ Plan |
1993 Directors’ Plan |
1993 Equity Plan |
Option Price | Weighted- Average Exercise Price |
|||||||||||||||
Outstanding at
December 31, 2007
|
8,753,059 | 459,143 | 122,122 | 72,611 | 898,060 | $ | 1.10 - $22.25 | $ | 2.68 | ||||||||||||
Anti-dilutive effect of Rights
Offering
|
4,707,474 | — | — | — | — | — | — | ||||||||||||||
Granted
|
1,698,257 | 40,000 | 7,000 | — | — | $ | 0.74 - $1.49 | $ | 1.00 | ||||||||||||
Exercised
|
— | — | — | — | — | — | — | ||||||||||||||
Forfeited
|
(1,841,275 | ) | (117,403 | ) | (82,202 | ) | (44,420 | ) | (271,609 | ) | $ | 0.74 - $22.25 | $ | 2.79 | |||||||
Outstanding at
December 31, 2008
|
13,317,515 | 381,740 | 46,920 | 28,191 | 626,451 | $ | 0.74 - $22.25 | $ | 1.64 | ||||||||||||
Exercisable at:
|
|||||||||||||||||||||
December 31,
2007
|
— | 459,143 | 120,122 | 72,611 | 898,060 | $ | 2.76 - $22.25 | $ | 9.29 | ||||||||||||
December 31,
2008
|
2,323,859 | 341,740 | 41,920 | 28,191 | 626,451 | $ | 0.74 - $22.25 | $ | 3.64 |
There were no stock options
exercised during the fiscal years ended December 31, 2008 and 2007. As
such, the Company has no intrinsic value associated with its stock options to
report. Because the stock options were ‘underwater’ at the end of 2008, the
vested options had no fair value.
The determination of the fair value
of the stock option awards granted during the year ended December 31, 2008,
using the Black-Scholes model, incorporated the assumptions set forth in the
following table. The risk-free rate is based on the U.S. Treasury yield curve in
effect at the time of grant. Expected volatility is based on historical
volatility. Expected life is based on historical experience and consideration of
changes in option terms.
Range of Assumptions used | Year
ended December 31, 2008 |
|
Expected stock price
volatility
|
68.67%-103.6% | |
Expected life (in
years)
|
6.9 | |
Risk-free interest
rate
|
1.87%-3.61% | |
Expected dividend
yield
|
0% |
81
The Company recorded stock-based
compensation expense for the years ending December 31, as follows:
(In thousands) | 2008 | 2007 | ||||
Stock-based compensation
expense
|
||||||
Non-qualified stock
options
|
$ | 845 | $ | 2,347 | ||
Restricted stock
|
2 | 282 | ||||
Total stock-based compensation
expense
|
$ | 847 | $ | 2,629 | ||
As of December 31, 2008, the
Company had not yet recognized compensation expense on the following non-vested
awards:
(In thousands) | Non-vested Compensation |
Average Remaining Recognition Period (Months) |
|||
Non-qualified stock
options
|
$ | 525 | 46 | ||
Restricted stock
awards
|
27 | 54 | |||
Total
|
$ | 552 | 54 | ||
The range of exercise prices of the
exercisable options and outstanding options at December 31, 2008 are as
follows:
Weighted Average Exercise Price | Number
of Exercisable Options |
Number
of Outstanding Options |
Weighted Average Remaining Life (Years) |
|||
$0.74 - $4.11
|
2,536,347 | 13,575,003 | 8.4 | |||
$4.12 - $8.23
|
34,420 | 34,420 | 4.3 | |||
$8.24 - $12.34
|
611,278 | 611,278 | 3.7 | |||
$12.35 - $16.45
|
166,616 | 166,616 | 1.1 | |||
$16.46 - $20.57
|
9,500 | 9,500 | 1.2 | |||
$20.58 - $24.68
|
4,000 | 4,000 | 0.1 | |||
Totals
|
3,362,161 | 14,400,817 | 8.5 | |||
Restricted stock award activity for
the year ended December 31, 2008 is summarized below:
Shares | Weighted Average Grant-Date Fair Value per Award |
||||
Unvested restricted stock
awards – January 1, 2008
|
— | $ | — | ||
Granted
|
40,000 | $ | 0.74 | ||
Vested
|
— | — | |||
Cancelled or
expired
|
— | — | |||
Unvested restricted stock
awards – December 31, 2008
|
40,000 | $ | 0.74 | ||
24. | Commitments and Contingencies |
We lease certain assets such as
motorized vehicles, distribution and warehousing space, computers, office
equipment, and production testing equipment. Terms of the leases, including
purchase options, renewals and maintenance costs, vary by lease. Minimum future
rental commitments under our operating leases having non-cancelable lease terms
in excess of one year totaled approximately $2.8 million as of December 31,
2008 and are payable as follows: $0.9 million in 2010, $0.7 million in 2011,
$0.6 million in 2012, and $0.6 million in 2013. Rental expense for operating
leases was $2.9 million in 2008 and $3.4 million in 2007
At December 31, 2008, we had
commitments to purchase approximately 26.8 million pounds of copper in 2009
from suppliers to be priced at COMEX at either the date of shipment or average
for the month plus an average premium of approximately $0.01 per pound. Based
upon COMEX copper price at December 31, 2008 (including the aforementioned
premium) of $1.41 per pound, this commitment totals approximately $37.8 million.
In February 2009, the Pension
Benefit Guaranty Corporation (the “PBGC”) advised the Company that it may be
required to securitize or otherwise accelerate funding of certain pension
related obligations as a result of the closure and/or sale of certain operations
of the Company. The PBGC has not made a final determination of the amount or
timing of any payments. Since February 2009, the Company and the PBGC have been
engaged in discussions regarding this matter. Based upon these discussions and
in consultation with special counsel, the Company believes it is reasonably
possible that the matter will ultimately be resolved through an agreement
82
with the PBGC to fund an amount to
be determined and paid in the future. The Company believes any such agreement
would result in accelerated funding of the already accrued pension obligations.
Accordingly, no additional pension accrual is required at December 31, 2008
since the amount and timing of additional contributions, if any, cannot be
reasonably estimated.
25. | Goodwill |
In accordance with SFAS 142, Goodwill and Other Intangible
Assets, we performed our annual impairment test of goodwill as of
July 31, 2008. As a result of our Step 1 analysis under SFAS 142, we
preliminarily determined that a goodwill impairment loss was probable and could
be reasonably estimated. Based on the preliminary impairment assessment, the
Company recorded a goodwill impairment loss of $44.0 million in the third
quarter of 2008. The Company determined the fair value of the reporting unit
using a discounted cash flow model with the assistance of a third-party
valuation specialist. The impairment of goodwill was principally related to the
deterioration in profitability of our business located in Carrollton, Texas and
the low market price of our common stock, resulting in a substantially depressed
enterprise value. Subsequently, the Step 2 under SFAS 142 analysis was performed
by a third party, and it was determined that all of the reporting unit’s
goodwill was impaired. As a result, in the fourth quarter of 2008, the remaining
$2.6 million of goodwill was impaired and subsequently written off of the books.
The changes in the carrying amount
of goodwill for the year ended December 31, 2007 and 2008 are as follows:
Balance as of January 1,
2007
|
$ | 46,486 | ||
Exchange rate
differences
|
217 | |||
Balance as of
December 31, 2007
|
46,703 | |||
Impairment loss
|
(46,560 | ) | ||
Exchange rate
differences
|
(143 | ) | ||
Balance as of
December 31, 2008
|
$ | — | ||
26. | Industry Segments and Foreign Operations |
For internal purposes, we prepare
business unit operating statements (operating segment level), which include net
sales, metal costs, production costs, operating income, and Earnings Before
Interest Taxes Depreciation Amortization (“EBITDA”) for one operating segment
(or business unit): Wolverine Tube Consolidated. Historically, we have reviewed
the financial operations of our business from a wholesale and commercial
standpoint. In the first quarter of 2008, we closed our facility in Decatur,
Alabama, which included substantially all of our wholesale business. In July
2008 we sold the London, Canada facility, which produced the remaining amount of
our wholesale products and dissolved the wholesale business unit at that time.
The wholesale business segment results were previously reported within our
wholesale segment reporting group. The related revenue and expenses of the
wholesale segment were at one time material to our consolidated results, and
this business unit was dissolved rather than being merged into another business
unit. Accordingly, we have removed the historical results for the wholesale
segment. In addition, no goodwill was allocated to this business unit and no
intangible assets on the books prior to the dissolution of the business unit.
Accordingly, there was no related write-off of goodwill or write-down of
intangible assets as a result of the dissolution of this business unit.
The accounting policies for the
reportable segment are the same as those described in Note 2, Summary of Significant Accounting
Policies, of the Notes to Consolidated Financial Statements. With the
elimination of our Wholesale Products segment, the Company now has only one
business segment.
Our manufacturing operations are
primarily conducted in the U.S. We also have manufacturing facilities in
Shanghai, China, Esposende, Portugal, and Monterrey, Mexico.
Sales to unaffiliated customers and
long-lived assets are based on our Company’s location providing the products:
(In thousands) | U.S. | Canada | Other Foreign Operations |
Consolidated | ||||||||
Year ended December 31,
2008:
|
||||||||||||
Sales
|
$ | 693,620 | $ | 2,818 | $ | 119,363 | $ | 815,801 | ||||
Long-lived assets
|
39,448 | — | 15,189 | 54,637 | ||||||||
Year ended December 31,
2007:
|
||||||||||||
Sales
|
$ | 890,052 | $ | 3,691 | $ | 117,276 | $ | 1,011,019 | ||||
Long-lived assets
|
85,062 | — | 20,788 | 105,850 |
83
27. | Restructuring and Other Charges |
On September 13, 2006, we
announced the planned closure of our manufacturing facilities located in
Jackson, Tennessee, and Montreal, Quebec. In addition, we also announced moving
our U.S. wholesale distribution facility into the Decatur, Alabama plant
location. According to plan, the operations at the Montreal, Quebec and Jackson,
Tennessee facilities were phased out by the end of the 2006. The consolidation
of the U.S. wholesale distribution facility was also completed by the end of
2006. The two facilities that were closed employed approximately 400 persons at
the time of the closure announcement.
We continue to serve most of our
customers previously supplied by these closed facilities through alternate
means. Customers of the Jackson plant are now serviced through our global value
added strategic sourcing programs. Production of wholesale and industrial copper
tube formerly manufactured in our Montreal facility was successfully transferred
to our other facilities.
On November 6, 2007, we
announced the planned realignment and restructuring of the Company’s North
American operations to include the closure of our Booneville, Mississippi
facility and the commodity depot warehouse located at the Decatur, Alabama site
and the significant downsizing of our Decatur, Alabama operations by eliminating
substantially all the manufacturing operations at that site. These actions are
in line with our strategy of focusing resources on the development and sale of
high performance tubular products, fabricated tube assemblies, and metal joining
products. Additionally, we announced the elimination of approximately 40% of our
corporate, general and administrative positions.
We estimated impairment and
restructuring charges of approximately $67.1 million in connection with the
closure of the Booneville, Mississippi facility, the significant downsizing of
our Decatur operations and the reduction in our corporate staff. Approximately
$50.8 million of the impairment and restructuring charge represents a non-cash
reduction of the carrying value of certain assets. The remaining $16.3 million
represents for cash charges related to severance, other employee-related costs,
plant closure, and environmental expenses. Our total incurred charges at the end
of December 31, 2008 for these facilities were $70.3 million. These actions
resulted in the reduction of approximately 440 full-time and 50 temporary
employees. The 40% reduction in corporate and general and administrative
employees eliminated about 40 positions.
Restructuring expenses (credits) for
the years ended December 31, 2008 and 2007 are as follows:
(In thousands) | 2008 | 2007 | |||||
Montreal, Quebec
|
$ | 1,446 | $ | 2,503 | |||
Jackson,
Tennessee
|
(3 | ) | 7,138 | ||||
U.S. wholesale distribution
relocation
|
— | 41 | |||||
Decatur, Alabama
|
2,321 | 60,951 | |||||
Commodity Depot
|
(201 | ) | 533 | ||||
Booneville,
Mississippi
|
1,979 | 3,736 | |||||
Corporate and
General & Administrative reduction
|
278 | 195 | |||||
Total
|
$ | 5,820 | $ | 75,097 | |||
The following set forth the major
types of costs associated with our active restructuring activities:
Montreal, Quebec Closing
(In
thousands)
Major Type
Costs
|
Estimated Charges |
Cumulative incurred through December 31, 2008 |
Incurred
for the Year December 31, 2008 |
|||||||
Impair and liquidate current
assets
|
$ | 9,322 | $ | 4,053 | $ | 81 | ||||
Employee-related
costs
|
9,932 | 10,785 | 199 | |||||||
Environmental
remediation
|
11,538 | 11,577 | 39 | |||||||
Post closing
costs
|
4,629 | 3,239 | 1,144 | |||||||
Other costs
currency
|
438 | 244 | (17 | ) | ||||||
Fixed asset
impairment
|
14,796 | 14,796 | — | |||||||
Total
|
$ | 50,655 | $ | 44,694 | $ | 1,446 | ||||
84
Jackson, Tennessee Closing
(In
thousands)
Major Type
Costs
|
Estimated Charges |
Cumulative incurred through December 31, 2008 |
Incurred
for the Year December 31, 2008 |
|||||||
Impair and liquidate current
assets
|
$ | 762 | $ | 746 | $ | — | ||||
Employee-related
costs
|
388 | 302 | — | |||||||
Environmental
remediation
|
75 | 86 | — | |||||||
Post closing
costs
|
339 | 869 | (3 | ) | ||||||
Other costs
|
695 | 657 | — | |||||||
Fixed asset
impairment
|
14,760 | 20,950 | — | |||||||
Total
|
$ | 17,019 | $ | 23,610 | $ | (3 | ) | |||
Wholesale Distribution Relocation
(In
thousands)
Major Type
Costs
|
Estimated Charges |
Cumulative incurred through December 31, 2008 |
Incurred
for the Year December 31, 2008 |
||||||
Cost to move
inventory
|
$ | 40 | $ | — | $ | — | |||
Building lease
termination
|
328 | 392 | — | ||||||
Other costs
|
5 | 7 | — | ||||||
Fixed asset
impairment
|
71 | 71 | — | ||||||
Total
|
$ | 444 | $ | 470 | $ | — | |||
Commodity Depot Closing
(In
thousands)
Major Type
Costs
|
Estimated Charges |
Cumulative incurred through December 31, 2008 |
Incurred
for the Year December 31, 2008 |
|||||||
Impair and liquidate current
assets
|
$ | 495 | $ | 250 | $ | (245 | ) | |||
Other costs
|
— | 2 | 2 | |||||||
Employee-related
costs
|
38 | 80 | 42 | |||||||
Total
|
$ | 533 | $ | 332 | $ | (201 | ) | |||
Booneville, Mississippi Closing
(In
thousands)
Major Type
Costs
|
Estimated Charges |
Cumulative incurred through December 31, 2008 |
Incurred
for the Year December 31, 2008 |
||||||
Impair and liquidate current
assets
|
$ | 915 | $ | 915 | $ | — | |||
Employee-related
costs
|
149 | 156 | 5 | ||||||
Post closing
costs
|
1,230 | 1,595 | 1,583 | ||||||
Fixed asset
impairment
|
2,658 | 3,049 | 391 | ||||||
Total
|
$ | 4,952 | $ | 5,715 | $ | 1,979 | |||
Corporate Selling General &
Administrative Reduction
(In
thousands)
Major Type
Costs
|
Estimated Charges |
Cumulative incurred through December 31, 2008 |
Incurred
for the Year December 31, 2008 |
||||||||
Employee-related
costs
|
$ | 336 | $ | 532 | $ | 189 | |||||
Postretirement benefit
gain
|
(213 | ) | (208 | ) | — | ||||||
Other
|
400 | 149 | 89 | ||||||||
Total
|
$ | 523 | $ | 473 | $ | 278 | |||||
85
Decatur, Alabama Closing
(In
thousands)
Major Type
Costs
|
Estimated Charges |
Cumulative incurred through December 31, 2008 |
Incurred
for the Year December 31, 2008 |
|||||||
Impair and liquidate current
assets
|
$ | 6,517 | $ | 6,517 | $ | — | ||||
Employee-related
costs
|
2,980 | 3,031 | (105 | ) | ||||||
Environmental
remediation
|
8,601 | 8,608 | 7 | |||||||
Post closing
costs
|
1,931 | 4,223 | 1,880 | |||||||
Other costs
|
966 | 759 | 539 | |||||||
Fixed asset
impairment
|
40,134 | 40,134 | — | |||||||
Total
|
$ | 61,129 | $ | 63,272 | $ | 2,321 | ||||
Grand Total
|
$ | 135,255 | $ | 138,566 | $ | 5,820 | ||||
At December 31, 2008 and 2007,
we had $8.6 million and $13.0 million, respectively, of accruals related to the
realignment and restructuring of the Company’s North American operations as
outlined above. The $8.6 million accrual at the end of 2008 relates to potential
environmental charges at our Decatur, Alabama facility.
28. | Earnings (Loss) Per Share |
For the year ended December 31,
2008, we accounted for earnings (loss) per share in accordance with EITF 03-6,
which established standards regarding the computation of earnings (loss) per
share by companies that have securities other than common stock that
contractually entitle the holder to participate in dividends and earnings of the
Company. EITF 03-6 requires earnings available to common stockholders for the
period, after deduction of preferred stock dividends, be allocated between the
common and preferred stockholders based on their respective rights to receive
dividends. Basic earnings (loss) per share are then calculated by dividing the
net income (loss) allocable to common stockholders by the weighted average
number of shares outstanding. EITF 03-6 does not require the presentation of
basic and diluted earnings (loss) per share for securities other than common
stock. Therefore, the following earnings (loss) per share amounts only pertain
to common stock.
Under the guidance of EITF 03-6,
diluted earnings (loss) per share is calculated by dividing income (loss)
allocable to common stockholders by the weighted average common shares
outstanding plus potential dilutive common stock such as stock options, unvested
restricted stock, and preferred stock. To the extent that stock options,
unvested restricted stock, and preferred stock are anti-dilutive, they are
excluded from the calculation of diluted earnings (loss) per share in accordance
with SFAS 128.
For the 12 months ended
December 31, 2008, the basic (loss) per share is calculated by dividing net
loss available to common stockholders (which is income from continuing
operations, plus the costs associated with the accretion of preferred stock and
the preferred stock dividends) by the weighted average common shares outstanding
during the year. For the 12 months ended December 31, 2007, the calculation
for basic (loss) per share and diluted (loss) per share is the same (dividing
net loss by the weighted average common shares outstanding) because the
preferred stockholders do not share in the net losses.
86
The calculation of loss per share
for the 12 months ended December 31, 2008 is presented below:
(In thousands, except per share data) | 2008 | 2007 | ||||||
Basic Earnings Per
Share
|
||||||||
Net loss
|
$ | (48,473 | ) | $ | (98,227 | ) | ||
Less: accretion of convertible
preferred stock and beneficial conversion feature
|
5,021 | 4,618 | ||||||
Less: preferred stock
dividends
|
6,810 | 13,284 | ||||||
Net loss applicable to common
stockholders
|
$ | (60,304 | ) | $ | (116,129 | ) | ||
Income (loss) from
discontinued operations
|
769 | (21,583 | ) | |||||
Net loss from continuing
operations
|
(61,073 | ) | (94,546 | ) | ||||
Amount allocable to common
stockholders from continuing operations (1)
|
100 | % | 100 | % | ||||
Amount allocable to common
stockholders from discontinued operations (1)
|
41 | % | 100 | % | ||||
Net loss from continuing
operations allocated to common stockholders
|
(61,073 | ) | (94,546 | ) | ||||
Net income (loss) from
discontinued operations allocable to common stockholders
|
$ | 315 | $ | (21,583 | ) | |||
Basic weighted average number
of common shares (2)
|
40,624 | 19,038 | ||||||
Basic income (loss) per share
– Two-class Method
|
||||||||
Continuing
operations
|
(1.50 | ) | (4.97 | ) | ||||
Discontinued operations
(1)
|
$ | 0.01 | $ | (1.13 | ) | |||
Net loss per common
share
|
(1.49 | ) | (6.10 | ) | ||||
Diluted Earnings Per
Share
|
||||||||
Net loss available to common
stockholders
|
$ | (60,304 | ) | $ | (116,129 | ) | ||
Plus: accretion of convertible
preferred stock and beneficial conversion feature
|
5,021 | 4,618 | ||||||
Plus: preferred stock
dividends
|
6,810 | 13,284 | ||||||
Loss available to common
stockholders in addition to assumed conversions
|
(48,473 | ) | (98,227 | ) | ||||
Income (loss) from
discontinued operations
|
769 | (21,583 | ) | |||||
Net loss from continuing
operations available to common stockholders in addition to assumed
conversions
|
$ | (49,242 | ) | $ | (76,644 | ) | ||
Amount allocable to common
stockholders (1)
|
100 | % | 100 | % | ||||
Net loss from continuing
operations allocable to common stockholders
|
$ | (61,073 | ) | $ | (94,546 | ) | ||
Net income (loss) from
discontinued operations allocable to common stockholders
|
$ | 315 | $ | (21,583 | ) | |||
Diluted weighted average
number of common shares (2)
|
40,624 | 19,038 | ||||||
Diluted income (loss) per
share – Two-class Method
|
||||||||
Continuing
operations
|
$ | (1.50 | ) | $ | (4.97 | ) | ||
Discontinued
operations
|
0.01 | (1.13 | ) | |||||
Net loss per common
share
|
$ | (1.49 | ) | $ | (6.10 | ) | ||
1) | Amount allocable to common stockholders is calculated as the weighted average number of common shares outstanding divided by the sum of common and preferred shares outstanding for the year ended December 31, 2008 and 2007, respectively. In computing basic EPS using the Two-Class Method, we have not allocated the loss available to common stockholders for the year ended December 31, 2008 between common and preferred stockholders as the preferred stockholders do not have a contractual obligation to share in the net losses. |
2) | We had stock options of 14.4 million and 10.3 million shares for the year ended December 31, 2008 and 2007, respectively. The assumed conversion of our Series A Convertible Preferred Stock is 49.6 million and our Series B Convertible Preferred Stock is 9.1 million shares. |
87
29. | Quarterly Results of Operations (Unaudited) |
The following is a summary of the
unaudited quarterly results of operations for the years ended December 31,
2008 and 2007:
(In thousands, except per share data) | March 30 | June 29 | September 28 | December 31 | ||||||||||||
2008 Two-Class
Method
|
||||||||||||||||
Net income (loss)
|
$ | 4,192 | $ | (11,859 | ) | $ | (23,908 | ) | $ | (16,898 | ) | |||||
Less: accretion of convertible
preferred stock and beneficial conversion feature
|
1,255 | 1,255 | 1,255 | 1,256 | ||||||||||||
Less: preferred stock
dividends
|
1,191 | 1,625 | 1,951 | 2,043 | ||||||||||||
Net income (loss) applicable
to common stockholders
|
$ | 1,746 | $ | (14,739 | ) | $ | (27,114 | ) | $ | (20,197 | ) | |||||
Income (loss) from
discontinued operations
|
6,146 | (5,769 | ) | 403 | (11 | ) | ||||||||||
Net loss from continuing
operations
|
(4,400 | ) | (8,970 | ) | (27,517 | ) | (20,186 | ) | ||||||||
Amount allocable to common
stockholders from continuing operations
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Amount allocable to common
stockholders from discontinued operations
|
41 | % | 100 | % | 41 | % | 100 | % | ||||||||
Net loss from continuing
operations allocated to common stockholders
|
(4,400 | ) | (8,970 | ) | (27,517 | ) | (20,186 | ) | ||||||||
Net income (loss) from
discontinued operations allocable to common stockholders
|
$ | 2,515 | $ | (5,769 | ) | $ | 165 | $ | (11 | ) | ||||||
Basic weighted average number
of common shares
|
40,624 | 40,624 | 40,624 | 40,624 | ||||||||||||
Diluted weighted average
number of common shares
|
40,812 | 40,624 | 40,664 | 40,664 | ||||||||||||
Basic income (loss) per share
– Two-Class Method
|
||||||||||||||||
Continuing
operations
|
$ | (0.11 | ) | $ | (0.22 | ) | $ | (0.68 | ) | $ | (0.50 | ) | ||||
Discontinued
operations
|
0.06 | (0.14 | ) | 0.00 | 0.00 | |||||||||||
Net loss per common
share
|
$ | (0.05 | ) | $ | (0.36 | ) | $ | (0.68 | ) | $ | (0.50 | ) | ||||
Diluted income (loss) per
share – Two-Class Method
|
||||||||||||||||
Continuing
operations
|
$ | (0.11 | ) | $ | (0.22 | ) | $ | (0.68 | ) | $ | (0.50 | ) | ||||
Discontinued
operations
|
0.06 | (0.14 | ) | 0.00 | 0.00 | |||||||||||
Net loss per common
share
|
$ | (0.05 | ) | $ | (0.36 | ) | $ | (0.68 | ) | $ | (0.50 | ) | ||||
2007 Two Class
Method
|
||||||||||||||||
Net income (loss) available to
common stockholders
|
$ | (3,002 | ) | $ | 13,299 | $ | (3,477 | ) | $ | (105,047 | ) | |||||
Plus: accretion of convertible
preferred stock and beneficial conversion feature
|
852 | 1,255 | 1,255 | 1,256 | ||||||||||||
Plus: preferred stock
dividends
|
10,118 | 1,000 | 1,104 | 1,062 | ||||||||||||
Income (loss) available to
common stockholders in addition to assumed conversions
|
$ | (13,972 | ) | $ | 11,044 | $ | (5,836 | ) | $ | (107,365 | ) | |||||
Income (loss) from
discontinued operations
|
3,034 | 2,388 | 765 | (27,770 | ) | |||||||||||
Net income (loss) from
continuing operations available to common stockholders in addition to
assumed conversions
|
(17,006 | ) | 8,656 | (6,601 | ) | (79,595 | ) | |||||||||
Amount allocable to common
stockholders from continued operations
|
100 | % | 25 | % | 100 | % | 100 | % | ||||||||
Amount allocable to common
stockholders from discontinued operations
|
100 | % | 25 | % | 25 | % | 100 | % | ||||||||
Net income (loss) from
continuing operations allocable to common stockholders
|
$ | (17,006 | ) | $ | 2,164 | $ | (6,601 | ) | $ | (79,595 | ) | |||||
Net income (loss) from
discontinued operations allocable to common stockholders
|
$ | 3,034 | $ | 597 | $ | 191 | $ | (27,770 | ) | |||||||
Basic weighted average number
of common shares
|
15,132 | 15,176 | 15,178 | 30,667 | ||||||||||||
Diluted weighted average
number of common shares
|
15,132 | 15,176 | 15,178 | 30,667 | ||||||||||||
Basic income (loss) per share
– Two-Class Method
|
||||||||||||||||
Continuing
operations
|
$ | (1.12 | ) | $ | 0.14 | $ | (0.43 | ) | $ | (2.60 | ) | |||||
Discontinued
operations
|
0.20 | 0.04 | 0.01 | (0.91 | ) | |||||||||||
Net income (loss) per common
share
|
$ | (0.92 | ) | $ | 0.18 | $ | (0.42 | ) | $ | (3.51 | ) | |||||
Diluted income (loss) per
share – Two-Class Method
|
||||||||||||||||
Continuing
operations
|
$ | (1.12 | ) | $ | 0.14 | $ | (0.43 | ) | $ | (2.60 | ) | |||||
Discontinued
operations
|
0.20 | 0.04 | 0.01 | (0.91 | ) | |||||||||||
Net income (loss) per common
share
|
$ | (0.92 | ) | $ | 0.18 | $ | (0.42 | ) | $ | (3.51 | ) | |||||
88
Net income (loss) and earnings per
share for the period ended December 31, 2007, have been corrected to
reflect an immaterial error of approximately $1.3 million related to the
adjustment of the preferred stock embedded derivative fair value, inventory, and
foreign currency resulting in previously reported net income (loss) available to
common stockholders and loss per common share being reduced to $(105,047) and
$3.51, respectively.
30. | 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, LLC; Small Tube
Manufacturing, LLC; Wolverine Joining Technologies, LLC; WT Holding Company,
Inc.; and Tube Forming Holdings, Inc.; and (c) on a combined basis, the
Non-Guarantor Subsidiaries, which include Wolverine Tube (Canada) Inc.; 3072452
Nova Scotia Company; 3072453 Nova Scotia Company; 3072996 Nova Scotia Company;
3226522 Nova Scotia Ltd.; Wolverine Tube Canada Limited Partnership; Wolverine
Tube (Shanghai) Co., Limited, Wolverine Metal Shanghai Company Ltd.; Wolverine
European Holdings BV; Wolverine Tube Europe BV; Wolverine Tube, BV; Wolverine
Tubagem (Portugal), Lda; Wolverine Joining Technologies Canada, Inc.; WLVN de
Latinoamerica, S. de R.L. de C.V.; WLV Mexico, S. de R.L. de C.V.; and DEJ 98
Finance LLC. Each of the Subsidiary Guarantors is 100% owned by the Parent with
the exception of Wolverine Tube (Shanghai) Co., Limited, which is 50% owned with
Wieland. The guarantees issued by each of the Subsidiary Guarantors are full,
unconditional, joint, and several. Accordingly, separate financial statements of
the 100% 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
manufacturing operations and certain corporate management, sales and marketing,
information services, and finance and administrative functions located in
Alabama, Oklahoma, and Tennessee.
89
Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of
Operations
For the Year Ended December 31,
2008
(In thousands) | Parent | Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net sales
|
$ | 574,490 | $ | 135,014 | $ | 120,685 | $ | (14,388 | ) | $ | 815,801 | |||||||||
Cost of goods
sold
|
561,537 | 132,162 | 109,619 | (14,388 | ) | 788,930 | ||||||||||||||
Gross
profit
|
12,953 | 2,852 | 11,066 | — | 26,871 | |||||||||||||||
Selling, general and
administrative expenses
|
22,369 | 2,345 | 2,002 | — | 26,716 | |||||||||||||||
Net gain on
divestitures
|
(23,588 | ) | — | (2,760 | ) | — | (26,348 | ) | ||||||||||||
Advisory fees and
expenses
|
984 | — | — | — | 984 | |||||||||||||||
Goodwill
impairment
|
— | 44,747 | 1,813 | — | 46,560 | |||||||||||||||
Restructuring and impairment
charges
|
4,374 | — | 1,446 | — | 5,820 | |||||||||||||||
Operating income
(loss)
|
8,814 | (44,240 | ) | 8,565 | — | (26,861 | ) | |||||||||||||
Other expenses
(income):
|
||||||||||||||||||||
Interest expense,
net
|
17,815 | (427 | ) | (32 | ) | — | 17,356 | |||||||||||||
Amortization
expense
|
2,698 | — | 356 | — | 3,054 | |||||||||||||||
Loss on sale of
receivables
|
— | — | 484 | — | 484 | |||||||||||||||
Embedded derivative mark to
fair value
|
— | — | (3 | ) | — | (3 | ) | |||||||||||||
Other (income) expense,
net
|
425 | 484 | (305 | ) | — | 604 | ||||||||||||||
Equity in earnings (loss) of
subsidiaries
|
(38,944 | ) | — | — | 38,944 | — | ||||||||||||||
Income (loss) from continuing
operations before minority interest
|
(51,068 | ) | (44,297 | ) | 8,065 | 38,944 | (48,356 | ) | ||||||||||||
Minority
interest
|
541 | — | — | — | 541 | |||||||||||||||
Equity income from
unconsolidated subsidiary
|
(332 | ) | — | — | — | (332 | ) | |||||||||||||
Income tax expense
(benefit)
|
(2,035 | ) | 469 | 2,243 | — | 677 | ||||||||||||||
Income (loss) from continuing
operations
|
(49,242 | ) | (44,766 | ) | 5,822 | 38,944 | (49,242 | ) | ||||||||||||
Income from discontinued
operations
|
769 | — | — | — | 769 | |||||||||||||||
Net income
(loss)
|
(48,473 | ) | (44,766 | ) | 5,822 | 38,944 | (48,473 | ) | ||||||||||||
Less: Accretion of convertible
preferred stock and beneficial conversion feature
|
5,021 | — | — | — | 5,021 | |||||||||||||||
Preferred stock
dividends
|
6,810 | — | — | — | 6,810 | |||||||||||||||
Net income (loss) applicable to
common shares
|
$ | (60,304 | ) | $ | (44,766 | ) | $ | 5,822 | $ | 38,944 | $ | (60,304 | ) | |||||||
90
Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of
Operations
For the Year Ended December 31,
2007
(In thousands) | Parent | Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Net sales
|
$ | 876,229 | $ | 135,829 | $ | 120,895 | $ | (121,934 | ) | $ | 1,011,019 | |||||||||
Cost of goods
sold
|
849,732 | 122,841 | 110,178 | (121,934 | ) | 960,817 | ||||||||||||||
Gross profit
|
26,497 | 12,988 | 10,717 | — | 50,202 | |||||||||||||||
Selling, general and
administrative expenses
|
26,027 | 2,774 | 1,627 | — | 30,428 | |||||||||||||||
Advisory fees and
expenses
|
6,014 | — | — | — | 6,014 | |||||||||||||||
Restructuring and other
charges
|
72,594 | — | 2,503 | — | 75,097 | |||||||||||||||
Operating income
(loss)
|
(78,138 | ) | 10,214 | 6,587 | — | (61,337 | ) | |||||||||||||
Other expenses
(income):
|
||||||||||||||||||||
Interest expense,
net
|
13,149 | (2,994 | ) | 11,170 | — | 21,325 | ||||||||||||||
Amortization
expense
|
1,588 | — | 903 | — | 2,491 | |||||||||||||||
Loss on sale of
receivables
|
— | — | 2,531 | — | 2,531 | |||||||||||||||
Embedded derivative mark to
fair value
|
(15,755 | ) | — | — | — | (15,755 | ) | |||||||||||||
Other (income) expense,
net
|
2,381 | 761 | (1,903 | ) | — | 1,239 | ||||||||||||||
Equity in earnings (loss) of
subsidiaries
|
(774 | ) | — | — | 774 | — | ||||||||||||||
Income (loss) from continuing
operations before income taxes
|
(80,275 | ) | 12,447 | (6,114 | ) | 774 | (73,168 | ) | ||||||||||||
Income tax expense
(benefit)
|
(3,631 | ) | 5,586 | 1,521 | — | 3,476 | ||||||||||||||
Net income (loss) from
continuing operations
|
(76,644 | ) | 6,861 | (7,635 | ) | 774 | (76,644 | ) | ||||||||||||
Loss from discontinued
operations
|
(21,583 | ) | — | — | — | (21,583 | ) | |||||||||||||
Net income (loss)
|
(98,227 | ) | 6,861 | (7,635 | ) | 774 | (98,227 | ) | ||||||||||||
Less: Accretion of convertible
preferred stock and beneficial conversion feature
|
4,618 | — | — | — | 4,618 | |||||||||||||||
Preferred stock
dividends
|
13,284 | — | — | — | 13,284 | |||||||||||||||
Net income (loss) applicable
to common shares
|
$ | (116,129 | ) | $ | 6,861 | $ | (7,635 | ) | $ | 774 | $ | (116,129 | ) | |||||||
91
Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, 2008
(In thousands) | Parent | Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Assets
|
||||||||||||||||||||
Current assets
|
||||||||||||||||||||
Cash and cash
equivalents
|
$ | 18,778 | $ | — | $ | 14,759 | $ | — | $ | 33,537 | ||||||||||
Restricted cash
|
37,173 | 1 | 564 | — | 37,738 | |||||||||||||||
Accounts receivable,
net
|
4,362 | 8,338 | 25,926 | — | 38,626 | |||||||||||||||
Inventories
|
18,605 | 23,366 | 11,313 | — | 53,284 | |||||||||||||||
Assets held for
sale
|
3,680 | — | — | — | 3,680 | |||||||||||||||
Derivative assets
|
291 | — | — | — | 291 | |||||||||||||||
Prepaid expenses and other
assets
|
1,514 | 3,575 | 291 | — | 5,380 | |||||||||||||||
Total current
assets
|
84,403 | 35,280 | 52,853 | — | 172,536 | |||||||||||||||
Property, plant and equipment,
net
|
23,033 | 14,644 | 14,327 | — | 52,004 | |||||||||||||||
Intangible assets and deferred
charges, net
|
2,588 | 5 | 41 | — | 2,634 | |||||||||||||||
Notes receivable
|
— | — | 585 | — | 585 | |||||||||||||||
Investment in unconsolidated
subsidiary
|
9,373 | — | — | — | 9,373 | |||||||||||||||
Investments in
subsidiaries
|
357,759 | 325 | — | (358,084 | ) | — | ||||||||||||||
Total assets
|
$ | 477,156 | $ | 50,254 | $ | 67,806 | $ | (358,084 | ) | $ | 237,132 | |||||||||
Liabilities and Stockholders’
Equity (Deficit)
|
||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||
Accounts payable
|
$ | 16,190 | $ | 12,315 | $ | 6,208 | $ | — | $ | 34,713 | ||||||||||
Accrued
liabilities
|
14,352 | 2,684 | 1,999 | — | 19,035 | |||||||||||||||
Derivative
liabilities
|
5,415 | — | — | — | 5,415 | |||||||||||||||
Short-term
borrowings
|
19,745 | — | 14 | — | 19,759 | |||||||||||||||
Deferred income
taxes
|
1,561 | (211 | ) | 251 | — | 1,601 | ||||||||||||||
Intercompany balances,
net
|
261,022 | (239,316 | ) | (21,706 | ) | — | — | |||||||||||||
Total current
liabilities
|
318,285 | (224,528 | ) | (13,234 | ) | — | 80,523 | |||||||||||||
Deferred income taxes,
non-current
|
3,549 | (3,549 | ) | — | — | — | ||||||||||||||
Long-term debt
|
117,911 | — | — | — | 117,911 | |||||||||||||||
Pension
liabilities
|
45,552 | — | — | — | 45,552 | |||||||||||||||
Postretirement benefit
obligation
|
3,375 | — | 1,287 | — | 4,662 | |||||||||||||||
Accrued environmental
remediation
|
9,628 | — | — | — | 9,628 | |||||||||||||||
Other liabilities
|
2,981 | — | — | — | 2,981 | |||||||||||||||
Total liabilities
|
501,281 | (228,077 | ) | (11,947 | ) | — | 261,257 | |||||||||||||
Preferred stock
|
23,608 | — | — | — | 23,608 | |||||||||||||||
Stockholders’ equity
(deficit)
|
(47,733 | ) | 278,331 | 79,753 | (358,084 | ) | (47,733 | ) | ||||||||||||
Total liabilities, convertible
preferred stock and stockholders’ equity
|
$ | 477,156 | $ | 50,254 | $ | 67,806 | $ | (358,084 | ) | $ | 237,132 | |||||||||
92
Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, 2007
(In thousands) | Parent | Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||
Assets
|
||||||||||||||||||
Current assets
|
||||||||||||||||||
Cash and cash
equivalents
|
$ | 37,981 | $ | — | $ | 25,322 | $ | — | $ | 63,303 | ||||||||
Restricted cash
|
1,446 | 1 | 679 | — | 2,126 | |||||||||||||
Accounts receivable,
net
|
56,380 | 17,860 | 34,158 | — | 108,398 | |||||||||||||
Inventories
|
38,278 | 39,511 | 26,953 | — | 104,742 | |||||||||||||
Assets held for
sale
|
10,622 | 25,447 | 6,932 | — | 43,001 | |||||||||||||
Derivative assets
|
975 | — | — | — | 975 | |||||||||||||
Prepaid expenses and other
assets
|
6,092 | 3,990 | 1,479 | — | 11,561 | |||||||||||||
Total current
assets
|
151,774 | 86,809 | 95,523 | — | 334,106 | |||||||||||||
Property, plant and equipment,
net
|
25,641 | 15,001 | 28,436 | — | 69,078 | |||||||||||||
Goodwill
|
— | 44,747 | 1,956 | — | 46,703 | |||||||||||||
Intangible assets and deferred
charges, net
|
3,774 | 5 | 505 | — | 4,284 | |||||||||||||
Deferred income taxes,
non-current
|
6,493 | (6,493 | ) | — | — | — | ||||||||||||
Notes receivable
|
— | — | 815 | — | 815 | |||||||||||||
Investments in
subsidiaries
|
445,001 | 325 | — | (445,326 | ) | — | ||||||||||||
Total assets
|
$ | 632,683 | $ | 140,394 | $ | 127,235 | $ | (445,326 | ) | $ | 454,986 | |||||||
Liabilities and Stockholders’
Equity (Deficit)
|
||||||||||||||||||
Current
liabilities
|
||||||||||||||||||
Accounts payable
|
$ | 19,575 | $ | 19,042 | $ | 17,244 | $ | — | $ | 55,861 | ||||||||
Accrued
liabilities
|
17,485 | 2,411 | 6,176 | — | 26,072 | |||||||||||||
Derivative
liabilities
|
925 | — | — | — | 925 | |||||||||||||
Liabilities of discontinued
operations
|
— | 1,853 | — | — | 1,853 | |||||||||||||
Short-term
borrowings
|
89,898 | — | 1,041 | — | 90,939 | |||||||||||||
Deferred income
taxes
|
1,000 | (525 | ) | 202 | — | 677 | ||||||||||||
Intercompany balances,
net
|
251,703 | (202,677 | ) | (49,026 | ) | — | — | |||||||||||
Total current
liabilities
|
380,586 | (179,896 | ) | (24,363 | ) | — | 176,327 | |||||||||||
Deferred income taxes,
non-current
|
2,375 | — | 689 | — | 3,064 | |||||||||||||
Long-term debt
|
146,021 | — | — | — | 146,021 | |||||||||||||
Pension
liabilities
|
17,616 | — | — | — | 17,616 | |||||||||||||
Postretirement benefits
obligation
|
5,176 | — | 13,600 | — | 18,776 | |||||||||||||
Accrued environmental
remediation
|
9,185 | — | 12,273 | — | 21,458 | |||||||||||||
Other liabilities
|
112 | — | — | — | 112 | |||||||||||||
Total liabilities
|
561,071 | (179,896 | ) | 2,199 | — | 383,374 | ||||||||||||
Preferred stock
|
4,393 | — | — | — | 4,393 | |||||||||||||
Stockholders’ equity
(deficit)
|
67,219 | 320,290 | 125,036 | (445,326 | ) | 67,219 | ||||||||||||
Total liabilities, convertible
preferred stock and stockholders’ equity (deficit)
|
$ | 632,683 | $ | 140,394 | $ | 127,235 | $ | (445,326 | ) | $ | 454,986 | |||||||
93
Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of
Cash Flows
For the Year Ended December 31,
2008
(In thousands) | Parent | Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Operating
Activities:
|
||||||||||||||||||||
Net income (loss) from
continuing operations
|
$ | (49,242 | ) | $ | (44,766 | ) | $ | 5,822 | $ | 38,944 | $ | (49,242 | ) | |||||||
Net income (loss) from
discontinued operations
|
769 | — | — | — | 769 | |||||||||||||||
Net income (loss)
|
$ | (48,473 | ) | $ | (44,766 | ) | $ | 5,822 | $ | 38,944 | $ | (48,473 | ) | |||||||
Depreciation
|
3,602 | 1,995 | 1,458 | — | 7,055 | |||||||||||||||
Amortization
|
2,708 | — | 471 | — | 3,179 | |||||||||||||||
Deferred income
taxes
|
8,737 | (10,127 | ) | (559 | ) | — | (1,949 | ) | ||||||||||||
Stock compensation
expense
|
847 | — | — | — | 847 | |||||||||||||||
Impairment of assets held for
sale and Goodwill
|
390 | 44,747 | 1,813 | — | 46,950 | |||||||||||||||
Net gain on
divestitures
|
(33,409 | ) | — | 7,061 | — | (26,348 | ) | |||||||||||||
Non-cash environmental and
other restructuring charges
|
1,985 | — | (2,544 | ) | — | (559 | ) | |||||||||||||
Gain on early extinguishment
of debt
|
(858 | ) | — | — | — | (858 | ) | |||||||||||||
Minority interest
|
541 | — | — | — | 541 | |||||||||||||||
Equity in earnings of
unconsolidated subsidiary
|
(332 | ) | — | — | — | (332 | ) | |||||||||||||
Equity in earnings of
subsidiaries
|
38,944 | — | — | (38,944 | ) | — | ||||||||||||||
Changes in operating assets
and liabilities
|
73,357 | 1,550 | (36,447 | ) | — | 38,460 | ||||||||||||||
Net cash provided by (used in)
continuing operating activities
|
47,270 | (6,601 | ) | (22,925 | ) | — | 17,744 | |||||||||||||
Net cash used in discontinued
operating activities
|
(9,754 | ) | — | — | — | (9,754 | ) | |||||||||||||
Net cash provided by (used in)
operating activities
|
37,516 | (6,601 | ) | (22,925 | ) | — | 7,990 | |||||||||||||
Investing
Activities:
|
||||||||||||||||||||
Additions to property, plant,
and equipment
|
(1,516 | ) | (1,599 | ) | (706 | ) | — | (3,821 | ) | |||||||||||
Proceeds from sale of
assets
|
7,012 | — | (572 | ) | — | 6,440 | ||||||||||||||
Purchase of
patents
|
(368 | ) | — | — | — | (368 | ) | |||||||||||||
Proceeds from sale of interest
in Chinese subsidiary
|
19,419 | — | — | — | 19,419 | |||||||||||||||
Change in restricted
cash
|
(35,727 | ) | — | 115 | — | (35,612 | ) | |||||||||||||
Net cash used in continuing
investing activities
|
(11,180 | ) | (1,599 | ) | (1,163 | ) | — | (13,942 | ) | |||||||||||
Net cash provided by
discontinued investing activities
|
64,796 | — | — | — | 64,796 | |||||||||||||||
Net cash provided by (used in)
investing activities
|
53,616 | (1,599 | ) | (1,163 | ) | — | 50,854 | |||||||||||||
Financing
Activities:
|
||||||||||||||||||||
Issuance of preferred
stock
|
14,194 | — | — | — | 14,194 | |||||||||||||||
Financing fees and expenses
paid
|
(1,734 | ) | — | (161 | ) | — | (1,895 | ) | ||||||||||||
Payment of
dividends
|
(2,042 | ) | — | — | — | (2,042 | ) | |||||||||||||
Payments under revolving
credit facilities and other debt
|
— | — | (968 | ) | — | (968 | ) | |||||||||||||
Purchase of senior
notes
|
(97,661 | ) | — | — | — | (97,661 | ) | |||||||||||||
Intercompany borrowings
(payments)
|
974 | 8,200 | (9,174 | ) | — | — | ||||||||||||||
Net cash provided by (used in)
continuing financing activities
|
(86,269 | ) | 8,200 | (10,303 | ) | — | (88,372 | ) | ||||||||||||
Net cash provided by
discontinued financing activities
|
1 | — | — | — | 1 | |||||||||||||||
Net cash provided by (used in)
financing activities
|
(86,268 | ) | 8,200 | (10,303 | ) | — | (88,371 | ) | ||||||||||||
Effect of exchange rate on
cash and cash equivalents
|
(24,067 | ) | — | 23,828 | — | (239 | ) | |||||||||||||
Net decrease in cash and cash
equivalents
|
(19,203 | ) | — | (10,563 | ) | — | (29,766 | ) | ||||||||||||
Cash and cash equivalents at
beginning of period
|
37,981 | — | 25,322 | — | 63,303 | |||||||||||||||
Cash and cash equivalents at
end of period
|
$ | 18,778 | $ | — | $ | 14,759 | $ | — | $ | 33,537 | ||||||||||
94
Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of
Cash Flows
For the Year Ended December 31,
2007
(In thousands) | Parent | Subsidiary Guarantors |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
Operating
Activities
|
||||||||||||||||||||
Income (loss) from continuing
operations
|
$ | (76,644 | ) | $ | 6,861 | $ | (7,635 | ) | $ | 774 | $ | (76,644 | ) | |||||||
Loss from discontinued
operations
|
(21,583 | ) | — | — | — | (21,583 | ) | |||||||||||||
Net income (loss)
|
$ | (98,227 | ) | $ | 6,861 | $ | (7,635 | ) | $ | 774 | $ | (98,227 | ) | |||||||
Depreciation
|
6,172 | 2,148 | 1,208 | — | 9,528 | |||||||||||||||
Amortization
|
1,665 | — | 921 | — | 2,586 | |||||||||||||||
Deferred income
taxes
|
5,953 | (3,113 | ) | (73 | ) | — | 2,767 | |||||||||||||
Impairment of assets held for
sale
|
48,983 | — | — | — | 48,983 | |||||||||||||||
Loss on disposal of fixed
assets
|
(1 | ) | 40 | 7 | — | 46 | ||||||||||||||
Non-cash environmental,
restructuring and other charges
|
8,482 | — | 2,095 | — | 10,577 | |||||||||||||||
Change in fair value of
embedded derivative
|
(15,755 | ) | — | — | — | (15,755 | ) | |||||||||||||
Stock compensation
expense
|
2,629 | — | — | — | 2,629 | |||||||||||||||
Purchase of accounts
receivable
|
— | — | (43,882 | ) | — | (43,882 | ) | |||||||||||||
Equity in earnings of
subsidiaries
|
774 | — | — | (774 | ) | — | ||||||||||||||
Changes in operating assets
and liabilities
|
(42,589 | ) | (5,214 | ) | 72,166 | — | 24,363 | |||||||||||||
Net cash provided by (used in)
continuing operating activities
|
(60,331 | ) | 722 | 24,807 | — | (34,802 | ) | |||||||||||||
Net cash provided by
discontinued operating activities
|
11,588 | — | — | — | 11,588 | |||||||||||||||
Net cash provided by (used in)
operating activities
|
(48,743 | ) | 722 | 24,807 | — | (23,214 | ) | |||||||||||||
Investing
Activities
|
||||||||||||||||||||
Additions to property, plant
and equipment
|
(323 | ) | (641 | ) | (1,744 | ) | — | (2,708 | ) | |||||||||||
Proceeds from sale of
assets
|
375 | — | — | — | 375 | |||||||||||||||
Purchase of
patents
|
(176 | ) | — | — | — | (176 | ) | |||||||||||||
Change in restricted
cash
|
2,514 | — | 989 | — | 3,503 | |||||||||||||||
Investment
purchases
|
(1,618 | ) | — | — | — | (1,618 | ) | |||||||||||||
Net cash used in continuing
investing activities
|
772 | (641 | ) | (755 | ) | — | (624 | ) | ||||||||||||
Net cash used in discontinued
investing activities
|
(1,309 | ) | — | — | — | (1,309 | ) | |||||||||||||
Net cash used in investing
activities
|
(537 | ) | (641 | ) | (755 | ) | — | (1,933 | ) | |||||||||||
Financing
Activities
|
||||||||||||||||||||
Issuance of preferred
stock
|
45,179 | — | — | — | 45,179 | |||||||||||||||
Proceeds from common stock
rights offering
|
27,510 | — | — | — | 27,510 | |||||||||||||||
Financing fees and expenses
paid
|
(213 | ) | — | 103 | — | (110 | ) | |||||||||||||
Payment of
dividends
|
(2,958 | ) | — | — | — | (2,958 | ) | |||||||||||||
Payments under revolving
credit facilities and other debt
|
(1,971 | ) | (86 | ) | (1,606 | ) | — | (3,663 | ) | |||||||||||
Borrowings from revolving
credit facilities and other debt
|
— | — | 230 | — | 230 | |||||||||||||||
Other financing
activities
|
77 | — | — | — | 77 | |||||||||||||||
Intercompany borrowings
(payments)
|
21,213 | 5 | (21,218 | ) | — | — | ||||||||||||||
Net cash provided by (used in)
continuing financing activities
|
88,837 | (81 | ) | (22,491 | ) | — | 66,265 | |||||||||||||
Net cash used in discontinued
financing activities
|
(24 | ) | — | — | — | (24 | ) | |||||||||||||
Net cash provided by (used in)
financing activities
|
88,813 | (81 | ) | (22,491 | ) | — | 66,241 | |||||||||||||
Effect of exchange rate on
cash and equivalents
|
(4,311 | ) | — | 9,166 | — | 4,855 | ||||||||||||||
Net increase in cash and
equivalents
|
35,222 | — | 10,727 | — | 45,949 | |||||||||||||||
Cash and cash equivalents at
beginning of period
|
2,759 | — | 14,595 | — | 17,354 | |||||||||||||||
Cash and equivalents at end of
period
|
$ | 37,981 | $ | — | $ | 25,322 | $ | — | $ | 63,303 | ||||||||||
95
31. | Preferred Stock and Embedded Derivatives |
We completed a private placement of
50,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”)
pursuant to a Preferred Stock Purchase Agreement among the Company, The Alpine
Group, Inc. and a fund managed by Plainfield Asset Management LLC, for $50
million on February 16, 2007. In accordance with the provisions of APB
Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants, the net proceeds from the
issuance of the Preferred Stock were allocated to a freestanding written option
available to the holders to increase their number of shares of Preferred Stock
based upon the results of a subsequent stockholder rights offering, with the
residual value allocated to the Preferred Stock. For the year ended
December 31, 2007, we recorded pre-tax non-cash income of $15.8 million to
mark to fair value the embedded derivative associated with the Preferred Stock
written option, which brought the embedded derivative value to zero. Therefore,
there is no subsequent mark to fair value adjustments recorded for this
derivative in future periods.
Separately, in accordance with
Emerging Issues Task Force (“EITF”) Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingency Adjustable
Conversion Ratios and EITF Issue No. 00-27, Application of Issue No. 98-5
to Certain Convertible Instruments, the beneficial conversion feature
(“BCF”) present in the convertible Preferred Stock has been valued and measured
by allocating a portion of the proceeds equal to the intrinsic value of that
feature to additional paid-in capital. The BCF is a function of the conversion
price of the Preferred Stock, the fair value attributed to the written option
and the fair value of the underlying common stock on the commitment date of the
Preferred Stock private placement transaction (February 16, 2007). This BCF is
recorded to additional paid-in capital and will be recorded as a deemed dividend
to preferred stockholders over the stated life of the Preferred Stock, which is
ten years.
We did not have a sufficient number
of authorized shares of common stock available to fully settle the conversion
options embedded in the Preferred Stock upon issuance on February 16, 2007.
Accordingly, as a result of not meeting the criteria of EITF Issue No. 00-19,
Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock and therefore not being eligible for the 11A scope exception in
SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities (“SFAS 133”), the fair
value of this option was determined and the related derivative liability
bifurcated from the underlying Preferred Stock balance and included as a
component of current liabilities at the time of the issuance. In addition,
subsequent issuance of stock options by us (see Note 23, Stock-Based
Compensation Plans) further reduced the available shares, necessitating a
subsequent valuation of the conversion feature related to the additional shares
of Preferred Stock not convertible of this additional embedded derivative as of
March 29, 2007. Additionally, this transaction resulted in recording a
deemed dividend of $9.6 million in the first quarter of 2007 for the difference
in the proceeds allocated to the Preferred Stock and the fair value of the
conversion option that required liability classification.
On May 24, 2007, at the Annual
Meeting of Stockholders, the stockholders voted to increase the authorized
shares of common stock to 180 million. As a result, after recording $5.6 million
in pre-tax income from February 16, 2007 to the date of the Annual Meeting
of Stockholders to mark to market the conversion option, this liability was
reclassified to equity in accordance with EITF Issue No. 06-7 Issuer’s Accounting for a Previously
Bifurcated Conversion Option in a Convertible Debt Instrument When the
Conversion Option No Longer Meets the Bifurcation Criteria in SFAS 133.
In addition, the discount of the
Preferred Stock resulting from the allocations discussed above was accreted
during 2008 and 2007 on a straight-line basis over the period from the date of
issuance and will continue to be accreted to the earliest redemption date as a
deemed dividend. The balance remaining as of December 31, 2008 and 2007 was
$40.6 million and $45.6 million, respectively.
32. | Related-Party Transactions |
On February 16, 2007, the
Company closed the Preferred Stock Purchase Agreement with Alpine and Plainfield
providing for the issuance and sale of 50,000 shares of Series A Convertible
Preferred Stock of the Company, at a price of $1,000 per share, for a total
purchase price of $50,000,000. Following the completion of our common stock
rights offering, Alpine purchased an additional 4,494 shares of Series A
Convertible Preferred Stock on January 25, 2008 for $4.5 million in order
to maintain the fully diluted ownership by Alpine and Plainfield in Wolverine at
55.0%. On March 20, 2008 Alpine purchased 10,000 shares of Series B
Convertible Preferred Stock, which have substantially the same terms and
conditions as the Series A Convertible Preferred Stock except that the initial
rate of interest on the Series B Convertible Preferred Stock is 8.5% and could
increase to 10.5% if the underlying shares of common stock into which the Series
B Convertible Preferred Stock can be converted are not successfully registered
for resale. The 10,000 shares were issued at the $1.10 conversion price and are
convertible into 9.1 million shares of stock.
The Company and Alpine entered into
a management agreement at closing of the initial transaction for a two-year
period pursuant to which Alpine will provide the Company with certain services
in exchange for an annual fee of $1,250,000 and reimbursement of reasonable and
customary expenses incurred by Alpine. For the year ended December 31,
2008, the Company paid Alpine management fees in the amount of $1,250,000 and
reimbursed customary and reasonable expenses in the amount of $31,195. For the
year ended December 31, 2007, the Company paid Alpine management fees in
the amount of $1,041,667 and reimbursed customary and reasonable expenses in the
amount of $118,918. The Company has renewed the management agreement on a month
to month basis.
96
On April 30, 2007, the Company
entered into a consulting agreement with Keith Weil, the Company’s former Senior
Vice President, International and Strategic Development, which was effective as
of February 19, 2007, whereby Mr. Weil agreed to provide consulting
and advisory services to the Company. Under the terms of the consulting
agreement, for the year ended December 31, 2008 we paid Mr. Weil
$279,867 in consulting fees and reimbursed his expenses incurred in connection
with his assigned duties in the amount of $3,183. The consulting agreement
terminated in January, 2009.
On February 29, 2008, the
Company entered into a Consultant Agreement with Mr. James E. Deason,
the former Senior Vice President, Chief Financial Officer and Secretary of
Wolverine, effective as of January 1, 2008. Mr. Deason provided
consulting and advisory services to Wolverine in 2008. Under the terms of the
consulting agreement, for 2008 we paid Mr. Deason $165,084 in consulting
fees and reimbursed his expenses incurred in connection with his assigned duties
in the amount of $4,219 as well as provided certain medical insurance coverage.
The consulting agreement terminated on December 31, 2008.
Effective as of January 1,
2008, we entered into a sole source purchasing agreement with Exeon, Inc.
(“Exeon”), a wholly owned subsidiary of Alpine, whereby we have agreed to
purchase all of our scrap and cathode copper requirements for our Shawnee,
Oklahoma and London, Ontario facilities. Under the agreement, we will purchase
copper scrap and cathode at substantially the same prices paid prior to entering
into the agreement, but with enhanced terms thus improving our working capital
usage. However, we believe consolidating our purchases in this manner is more
efficient and provides more opportunities to purchase materials from secondary
markets since Exeon has been in the scrap reclamation business for a number of
years. During 2008, we purchased 75.8 million pounds of copper cathode and
scrap from Exeon at the COMEX current month average price. This represented
73.5% of our North America copper purchases for the year. Fees charged by Exeon
to purchase copper cathode and scrap on our behalf totaled $0.5 million for the
year. These fees approximate our cost to perform the same services in-house. As
of December 31, 2008, the amount payable to Exeon was $1.7 million and we
had $10.8 million of restricted cash related to margin deposits with Exeon.
33. | Subsequent Events |
On February 26, 2009, the
Company announced the commencement of an Exchange Offer to each of the holders
of its 10.5% Senior Notes and its 10.5% Senior Exchange Notes due 2009 for
Senior Secured Notes due 2012. The Exchange Offer was extended and amended on
March 23, 2009, April, 2, 2009, April 15, 2009, and
April 21, 2009. On April 21, 2009, the Company announced that it had
received tenders with respect to $83.3 million in aggregate principal amount of
the 10.5% Senior Notes, representing 84% of the outstanding 10.5% Senior Notes
of $99.4 million. Including the $38.3 million in principal amount of the 10.5%
Senior Exchange Notes, holders of $121.6 million, or 88%, of the Company’s
$137.7 million 10.5% Senior Notes and 10.5% Senior Exchange Notes agreed to
exchange their notes for the 15% Senior Secured Notes due 2012. The Company
closed the Exchange offer on April 28, 2009. The Company redeemed $16.1
million of the 10.5% Senior Notes and paid a 3% exchange fee to holders of the
10.5% Senior Notes and 10.5% Senior Exchange Notes that exchanged their notes
for the 15% Senior Secured Notes.
The terms of the Exchange Offer and
new 15% Senior Secured Notes are as follows:
The Senior Secured Notes will mature
on March 31, 2012. We will pay interest on the Senior Secured Notes at
15% per annum until maturity, of which 10% is payable in cash and 5% is
payable by issuing additional Senior Secured Notes (“PIK Notes”); provided
however, that (a) if the outstanding principal amount of Senior Secured
Notes at the close of business on March 31, 2010 exceeds $90 million, the
interest rate will increase to 16%, of which 10% will be payable in cash and 6%
will be payable in PIK Notes, and (b) if the outstanding principal amount
of Senior Secured Notes at the close of business on March 31, 2011 exceeds
$60 million, the interest rate will increase to 17%, of which 10% will be
payable in cash and 7% will be payable in PIK Notes. We will pay interest
semiannually on March 31 and September 30 of each year, commencing
September 30, 2009. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Senior Secured Notes are secured
on a first-priority basis by substantially all of our assets and those of the
subsidiary guarantors and will rank pari passu in right of payment with all of
our existing and future senior indebtedness and senior in right of payment to
all of our future subordinated indebtedness, if any. The Guarantee and
Collateral Agreement provides for the unconditional guarantee by the subsidiary
guarantors of the payment of the principal and interest on the Senior Secured
Notes and the performance by us of all other obligations under the indenture.
At any time and from time to time,
we may redeem all or a part of the Senior Secured Notes upon not less than 30
nor more than 60 days’ notice, at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, on the
Senior Secured Notes redeemed to the applicable redemption date, subject to the
rights of holders on the relevant record date to receive interest on the
relevant interest payment date. Unless we default in the payment of the
redemption price, interest will cease to accrue on the Senior Secured Notes or
portions thereof called for redemption on the applicable redemption date. Under
the indenture, we are not required to make mandatory redemption or sinking fund
payments with respect to the Senior Secured Notes; provided however, that if the
Company grants any liens to lenders under a credit agreement, we will issue a
notice of redemption to redeem an amount of Senior Secured Notes equal to 55% of
“eligible NAFTA inventory” and “eligible NAFTA accounts receivable” (in each
case as such terms are defined in such credit agreement). A notice of redemption
will be delivered immediately prior to or concurrently with the closing of such
credit agreement.
97
The indenture related to the Senior
Secured Notes contains covenants that limit the ability of the Company and our
subsidiaries to incur additional indebtedness; pay dividends or distributions
on, or redeem or repurchase capital stock; make investments; issue or sell
capital stock of subsidiaries; engage in transactions with affiliates; create
liens on assets; transfer or sell assets; guarantee indebtedness; restrict
dividends or other payments of subsidiaries; consolidate, merge or transfer all
or substantially all of its assets and the assets of its subsidiaries; and
engage in sale/leaseback transactions. These covenants are subject to important
exceptions and qualifications.
98
The Board of Directors and
Stockholders
Wolverine Tube, Inc.:
We have audited the accompanying
consolidated balance sheets of Wolverine Tube, Inc. and subsidiaries (the
Company) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ equity (deficit) and comprehensive
income (loss), and cash flows for the years then ended. In connection with our
audits of the consolidated financial statements, we also have audited the
accompanying financial statement schedule II. These consolidated financial
statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Wolverine Tube, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their
cash flows for the years then ended in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects the
information set forth therein.
The accompanying consolidated
financial statements and schedule have been prepared assuming that the Company
will continue as a going concern. As discussed in note 1 to the consolidated
financial statements, the Company does not currently have additional borrowing
capacity, and future funding requirements with respect to its liquidity
requirements could vary materially from the Company’s current estimates. Those
matters raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in regard to these matters are also described
in note 1. The consolidated financial statements and schedule do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Birmingham,
Alabama
June 11, 2009
99
WOLVERINE
TUBE , INC. AND
SUBSIDIARIES
SCHEDULE
II—VALUATION AND QUALIFYING
ACCOUNTS
Description | Balance Beginning of Period |
Charged to Cost and Expenses |
Charged to Other Accounts |
Deductions | Balance End of Period |
|||||||||||||
(In thousands) | ||||||||||||||||||
YEAR ENDED DECEMBER 31,
2008:
|
||||||||||||||||||
Reserve for sales returns and
allowances
|
$ | 386 | $ | (252 | ) | $ | — | $ | (11 | ) | $ | 123 | ||||||
Allowances for doubtful
accounts
|
$ | 613 | $ | (172 | ) | $ | — | $ | 1 | $ | 442 | |||||||
Deferred tax valuation
allowance
|
$ | 44,681 | $ | (12,158 | ) | $ | (3,025 | ) | $ | — | $ | 29,498 | ||||||
Maintenance, Repair and
Operations reserve
|
$ | 8,436 | $ | 1,220 | $ | (2,128 | ) | $ | — | $ | 7,528 | |||||||
YEAR ENDED DECEMBER 31,
2007:
|
||||||||||||||||||
Reserve for sales returns and
allowances
|
$ | 205 | $ | 173 | $ | — | $ | 8 | $ | 386 | ||||||||
Allowances for doubtful
accounts
|
$ | 460 | $ | 91 | $ | — | $ | 62 | $ | 613 | ||||||||
Deferred tax valuation
allowance
|
$ | 56,339 | $ | 32,342 | $ | (44,000 | ) | $ | — | $ | 44,681 | |||||||
Maintenance, Repair, and
Operations reserve
|
$ | 5,753 | $ | 7,236 | $ | (4,553 | ) | $ | — | $ | 8,436 |
(1)
|
Reduction of reserve, net of
translation adjustments, for actual sales returns and allowances.
|
(2)
|
Uncollectible accounts written
off from both continuing and discontinued operations, net of translation
adjustments and recoveries.
|
100
Signatures
Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereto duly
authorized.
WOLVERINE TUBE, INC. | |||
December 29, 2009 | By: |
/s/ David A.
Owen
|
|
David A. Owen | |||
Senior Vice
President, Chief Financial Officer
and
Secretary
|
101
EXHIBIT
INDEX
Exhibit
Number |
Description
|
|
23.1 | Consent of KPMG LLP, Independent Registered Public Accounting Firm | |
31.1 | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Management contract or compensatory plan or arrangement |
102