##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q
 (Mark One) x
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
  OR o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 
 Commission file number 1-12164 WOLVERINE TUBE, INC. 
  Delaware
    
    63-0970812(State of Incorporation)
    
    (IRS Employer Identification No.)200 Clinton Avenue West, Suite 1000
Huntsville, Alabama
    
    35801(Address of Principal Executive Offices)
    
    (Zip Code)
 (256) 353-1310 
  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. x o
 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES x NO o Indicate the number of shares outstanding of each class of Common Stock, as of
the latest practicable date: Class
    
    Outstanding as of August 5, 2004Common Stock, $0.01 Par Value
    
    14,814,879 Shares




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FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS  
 Page No.PART IItem 1.
    
    Financial StatementsCondensed Consolidated Statements of Income (Unaudited)- Three-Month and Six-Month Periods Ended July 4, 2004 and June 29, 2003
    
    
    1Condensed Consolidated Balance Sheets July 4, 2004 and December 31, 2003
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)- Six-Month Periods Ended July 4, 2004 and June 29, 2003
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4.
    
    Controls and Procedures
    
    
    33PART IIItem 1.
    
    Legal Proceedings
    
    
    34Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    35EX-31.1  SECTION 302 CERTIFICATION OF THE CEOEX-31.2  SECTION 302 CERTIFICATION OF THE CFOEX-32.1  SECTION 906 CERTIFICATION OF THE CEOEX-32.2  SECTION 906 CERTIFICATION OF THE CFO




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS Wolverine Tube, Inc. and Subsidiaries 
 Condensed Consolidated Statements of Income
 Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands except per share amounts)Net sales
    
    $
    214,080
    
    
    $
    152,978
    
    
    $
    419,885
    
    
    $
    296,475Cost of goods sold
    
    
    192,499
    
    
    
    140,373
    
    
    
    380,819
    
    
    
    269,248Gross profit
    
    
    21,581
    
    
    
    12,605
    
    
    
    39,066
    
    
    
    27,227Selling, general and administrative expenses
    
    
    10,062
    
    
    
    7,565
    
    
    
    19,499
    
    
    
    15,707Restructuring charges
    
    
    294
    
    
    
    
    
    
    
    865
    
    
    
    Operating income from continuing operations
    
    
    11,225
    
    
    
    5,040
    
    
    
    18,702
    
    
    
    11,520Other expenses:Interest expense, net
    
    
    5,760
    
    
    
    5,292
    
    
    
    10,830
    
    
    
    10,470Amortization and other, net
    
    
    1,106
    
    
    
    492
    
    
    
    1,774
    
    
    
    1,034Income (loss) from continuing operations
before income taxes
    
    
    4,359
    
    
    
    (744
    )
    
    
    6,098
    
    
    
    16Income tax provision (benefit)
    
    
    1,059
    
    
    
    (843
    )
    
    
    1,430
    
    
    
    (721
    )Income from continuing operations
    
    $
    3,300
    
    
    $
    99
    
    
    $
    4,668
    
    
    $
    737Loss from discontinued operations, net of
income tax benefit of $0.1 million
    
    
    (252
    )
    
    
    
    
    
    
    (252
    )
    
    
    Net income
    
    $
    3,048
    
    
    $
    99
    
    
    $
    4,416
    
    
    $
    737Earnings per common share basic:Continuing operations
    
    $
    0.26
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.06Discontinued operations
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.24
    
    
    $
    0.01
    
    
    $
    0.35
    
    
    $
    0.06Basic weighted average number of common shares
    
    
    12,648
    
    
    
    12,277
    
    
    
    12,469
    
    
    
    12,270Earnings per common share diluted:Continuing operations
    
    $
    0.25
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.06Discontinued operations
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.23
    
    
    $
    0.01
    
    
    $
    0.35
    
    
    $
    0.06Diluted weighted average number of common and
common equivalent shares
    
    
    13,063
    
    
    
    12,489
    
    
    
    12,764
    
    
    
    12,426
 See Notes to Condensed Consolidated Financial Statements. 1




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Wolverine Tube, Inc. and Subsidiaries 
 Condensed Consolidated Balance Sheets
 July 4,
    
    December 31,2004
    
    2003(In thousands except share and per share amounts)
    
    (Unaudited)
    
    (Note)AssetsCurrent assetsCash and equivalents
    
    $
    42,649
    
    
    $
    46,089Accounts receivable, net
    
    
    117,300
    
    
    
    86,825Inventories
    
    
    112,490
    
    
    
    108,005Prepaid expenses and other
    
    
    17,827
    
    
    
    12,782Total current assets
    
    
    290,266
    
    
    
    253,701Property, plant and equipment, net
    
    
    193,108
    
    
    
    198,542Deferred charges, net
    
    
    13,870
    
    
    
    14,770Goodwill, net
    
    
    77,112
    
    
    
    77,159Assets held for sale
    
    
    4,001
    
    
    
    4,797Investments
    
    
    4,348
    
    
    
    4,289Total assets
    
    $
    582,705
    
    
    $
    553,258Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    59,600
    
    
    $
    47,503Accrued liabilities
    
    
    24,930
    
    
    
    29,787Short-term borrowings
    
    
    529
    
    
    
    1,502Total current liabilities
    
    
    85,059
    
    
    
    78,792Deferred income taxes
    
    
    1,666
    
    
    
    359Long-term debt
    
    
    249,670
    
    
    
    254,284Pension liabilities
    
    
    23,647
    
    
    
    22,316Postretirement benefit obligation
    
    
    17,156
    
    
    
    16,995Accrued environmental remediation
    
    
    1,077
    
    
    
    1,161Total liabilities
    
    
    378,275
    
    
    
    373,907Stockholders equityCommon stock, par value $0.01 per share;
40,000,000 shares authorized; 16,873,633
and 14,344,806 shares issued as of July 4,
2004 and December 31, 2003, respectively
    
    
    169
    
    
    
    143Additional paid-in capital
    
    
    126,679
    
    
    
    103,339Retained earnings
    
    
    128,342
    
    
    
    123,926Unearned compensation
    
    
    (466
    )
    
    
    (172
    )Accumulated other comprehensive loss
    
    
    (12,919
    )
    
    
    (10,510
    )Treasury stock, at cost; 2,063,800 shares
as of July 4, 2004 and December 31, 2003
    
    
    (37,375
    )
    
    
    (37,375
    )Total stockholders equity
    
    
    204,430
    
    
    
    179,351Total liabilities and stockholders equity
    
    $
    582,705
    
    
    $
    553,258
  Note:
    
    The Balance Sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. See
Notes to Condensed Consolidated Financial Statements. 2




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Wolverine Tube, Inc. and Subsidiaries 
 Condensed Consolidated Statements of Cash Flows
 Six-month period ended:July 4, 2004
    
    June 29, 2003(In thousands)Operating ActivitiesIncome from continuing operations
    
    $
    4,668
    
    
    $
    737Adjustments to reconcile income from continuing
operations to net cash used for operating activities:Depreciation and amortization
    
    
    9,033
    
    
    
    9,374Deferred income taxes
    
    
    972
    
    
    
    (1,058
    )Other non-cash items
    
    
    
    
    
    
    175Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (31,397
    )
    
    
    (19,808
    )Inventories
    
    
    (5,268
    )
    
    
    (4,106
    )Refundable income taxes
    

    
    (808
    )
    
    
    (444
    )Prepaid expenses and other
    
    
    (6,051
    )
    
    
    (1,998
    )Accounts payable
    
    
    13,844
    
    
    
    (1,644
    )Accrued liabilities including pension,
postretirement benefit and environmental
    
    
    (1,639
    )
    
    
    (2,866
    )Net cash used for operating activities
    
    
    (16,646
    )
    
    
    (21,638
    )Investing ActivitiesAdditions to property, plant and equipment
    
    
    (4,167
    )
    
    
    (2,657
    )Disposal of property, plant and equipment
    
    
    280
    
    
    
    3Net cash used for investing activities
    
    
    (3,887
    )
    
    
    (2,654
    )Financing ActivitiesFinancing fees and expenses paid
    
    
    
    
    
    
    (28
    )Issuance of Common Stock
    
    
    22,942
    
    
    
    Retirement of senior notes
    
    
    (4,125
    )
    
    
    Net (payments) borrowings on revolving credit facilities
    
    
    (715
    )
    
    
    497Other financing activities
    
    
    (105
    )
    
    
    (3
    )Net cash provided by financing activities
    
    
    17,997
    
    
    
    466Effect of exchange rate on cash and equivalents
    
    
    (605
    )
    
    
    1,830Net cash used for continuing operations
    
    
    (3,141
    )
    
    
    (21,996
    )Net cash (used for) provided by discontinued operations
    
    
    (299
    )
    
    
    381Net decrease in cash and equivalents
    
    
    (3,440
    )
    
    
    (21,615
    )Cash and equivalents at beginning of period
    
    
    46,089
    
    
    
    53,920Cash and equivalents at end of period
    
    $
    42,649
    
    
    $
    32,305
 See Notes to Condensed Consolidated Financial Statements. 3




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Wolverine Tube, Inc. and Subsidiaries 
 Notes to Condensed Consolidated Financial Statements
July 4, 2004
 NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include
the accounts of Wolverine Tube, Inc. (the Company) and its majority-owned
subsidiaries after elimination of significant intercompany accounts and
transactions. References to the Company, we or us refer to Wolverine
Tube, Inc. and its consolidated subsidiaries, unless the context otherwise
requires. The accompanying condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and do not include
all the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The
accompanying condensed consolidated financial statements (and all information
in this report) have not been examined by independent auditors; but, in the
opinion of management, all adjustments, which consist of normal recurring
accruals necessary for a fair presentation of the results for the periods, have
been made. The results of operations for the three-month and six-month periods
ended July 4, 2004 are not necessarily indicative of the results of operations
that may be expected for the year ending December 31, 2004. For further
information, refer to the consolidated financial statements and notes included
in our Annual Report on Form 10-K for the year ended December 31, 2003. We use our internal operational reporting cycle for quarterly financial reporting. NOTE 2. CONTINGENCIES We are subject to extensive environmental regulations imposed by federal,
state, provincial and local authorities in the United States, Canada, China and
Portugal with respect to emissions to air, discharges to waterways, and the
generation, handling, storage, transportation, treatment and disposal of waste
materials, and we have received various communications from regulatory
authorities concerning environmental matters. We have accrued undiscounted
estimated environmental remediation costs of $1.1 million at July 4, 2004,
consisting primarily of $0.2 million for the Decatur, Alabama facility and $0.9
million for the Ardmore, Tennessee facility. Based on information currently
available, we believe that the ultimate costs for these matters are not
reasonably likely to have a material effect on our business, financial
condition or results of operations. However, actual costs related to
environmental matters could differ materially from the amounts we estimated and
accrued at July 4, 2004 and could result in additional exposure if these
environmental matters are not resolved as anticipated. 4




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NOTE 3. INVENTORIES Inventories are as follows: July 4, 2004
    
    December 31, 2003(In thousands)Finished products
    
    $
    36,123
    
    
    $
    34,082Work-in-process
    
    
    30,561
    
    
    
    27,484Raw materials
    
    
    19,073
    
    

    
    17,083Supplies
    
    
    26,733
    
    
    
    29,356Totals
    
    $
    112,490
    
    
    $
    108,005
 NOTE 4. INTEREST EXPENSE, NET Interest expense is net of interest income and capitalized interest of $0.3
million and $0.1 million, respectively, for the three-month period ended July
4, 2004, and $0.2 million and $16,100, respectively, for the three-month period
ended June 29, 2003. Interest expense is net of interest income and
capitalized interest of $0.4 million and $0.1 million, respectively, for the
six-month period ended July 4, 2004, and $0.3 million and $33,200,
respectively, for the six-month period ended June 29, 2003. NOTE 5. DEBT Long-term debt consists of the following: July 4, 2004
    
    December 31, 2003(In thousands)Senior Notes, 10.5%, due April 2009
    
    $
    113,875
    
    
    $
    118,000Discount on 10.5% Senior Notes, original
issue discount amortized over 7 years
    
    
    (933
    )
    
    
    (1,069
    )Senior Notes, 7.375%, due August 2008
    
    
    135,714
    
    
    
    136,308Discount on 7.375% Senior Notes,
original issue discount amortized over
10 years
    
    
    (117
    )
    
    
    (132
    )Capital lease
    
    
    14
    
    
    
    Netherlands facility, 5.1%, due on demand
    
    
    464
    
    
    
    1,201Other foreign facilities
    
    
    1,182
    
    
    
    1,478250,199
    
    
    
    255,786Less short-term borrowings
    
    
    (529
    )
    
    
    (1,502
    )Totals
    
    $
    249,670
    
    
    $
    254,284
 On June 23, 2004, we closed a Private Investment in Public Equity sale
transaction whereby we sold 2.45 million shares of our Common Stock at $10.00
per share. After fees, we netted $22.9 million. We used these funds to
repurchase a portion of our 10.5% Senior Notes and for other general corporate
purposes. On June 30, 2004, we repurchased $4,125,000 in face value of the
10.5% bonds. The premium paid to repurchase these bonds was $0.4 million.
Unamortized bond discount and prepaid financing fees associated with the
repurchase of the bonds amounted
to $0.2 million. Together, the effect on net income of the repurchase of bonds
on the second quarter ended July 4, 2004 was a charge of $0.6 million ($0.4
million net of tax). 5




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##### Table of Contents



Subsequent to July 4, 2004, we repurchased an additional $14,475,000 in face
value of our 10.5% bonds at a premium of $1.5 million. Unamortized bond
discount and prepaid financing fees associated with the repurchase of these
bonds amounted to $0.9 million. Together, the effect on net income of the
repurchase of bonds on the third quarter ending September 3, 2004 will be a
charge of $2.4 million ($1.6 million net of tax). As of July 4, 2004, we had no outstanding borrowings under our secured
revolving credit facility. We had approximately $9.3 million of standby
letters of credit issued under the secured revolving credit facility and
approximately $27.2 million (subject to a $2.0 million excess availability
requirement) in additional borrowing availability thereunder. In October 2002, we completed an interest rate swap on $50 million notional
amount of our 7.375% Senior Notes. The interest rate swap resulted in a
reduction to interest expense in the second quarters of 2004 and 2003 of $0.2
million and $0.3 million, respectively and $0.4 million and $0.6 million for
the six month periods of 2004 and 2003, respectively. On March 31, 2004, we amended our secured revolving credit facility to extend
the term for an additional two years to March 2007. In addition, certain
covenants were modified. The covenants of significance that were modified
included lowering the Fixed Charge Coverage Ratios and the Minimum Consolidated
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and
certain restrictions on the annual amount of capital expenditures. 6




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NOTE 6. STOCK-BASED COMPENSATION PLANS We account for our stock option compensation plans using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. No stock option
compensation expense is reflected in net income because the exercise price of
our stock options equals the market price of the underlying stock on the date
of grant. The following table illustrates the effect on net income and
earnings per share if we had applied the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation to our stock option compensation plans. Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands, except per share amounts)Net income, as reported
    
    $
    3,048
    
    
    $
    99
    
    
    $
    4,416
    
    
    $
    737Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (216
    )
    
    
    (209
    )
    
    
    (272
    )
    
    
    (412
    )Pro forma net income (loss)
    
    $
    2,832
    
    
    $
    (110
    )
    
    $
    4,144
    
    
    $
    325Earnings (loss) per share:Basic  as reported
    
    $
    0.24
    
    
    $
    0.01
    
    
    $
    0.35
    
    
    $
    0.06Basic  pro forma
    
    $
    0.22
    
    
    $
    (0.01
    )
    
    $
    0.33
    
    
    $
    0.03Diluted  as reported
    
    $
    0.23
    
    
    $
    0.01
    
    
    $
    0.35
    
    
    $
    0.06Diluted  pro forma
    
    $
    0.22
    
    
    $
    (0.01
    )
    
    $
    0.33
    
    
    $
    0.03
 NOTE 7. COMPREHENSIVE (LOSS) INCOME Comprehensive (loss) income is as follows: Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands)Net income
    
    $
    3,048
    
    
    $
    99
    
    
    $
    4,416
    
    
    $
    737Translation adjustment for
financial statements
denominated in a foreign
currency
    
    
    (892
    )
    
    
    7,088
    
    
    
    (2,711
    )
    
    
    12,491Unrealized (loss) gain on
cash flow hedges, net of
tax
    
    
    (2,551
    )
    
    
    86
    
    
    
    265
    
    
    
    403Minimum pension liability
adjustment, net of tax
    
    
    11
    
    
    
    (134
    )
    
    
    37
    
    
    
    (242
    )Comprehensive (loss) income
    
    $
    (384
    )
    
    $
    7,139
    
    
    $
    2,007
    
    
    $
    13,389
 7




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NOTE 8. RESTRUCTURING CHARGES In the third quarter of 2003, we announced our intention to close our
Booneville, Mississippi facility and did so in December of 2003. Accordingly,
we recorded a restructuring charge in the amount of $10.4 million and
established a reserve for certain items associated with the write-down of
impaired assets, relocation of equipment, severance and other personnel related
costs. Given the strong start and prolonged 2004 HVAC cooling season and
normal seasonal demands, we are using a limited number of assets at the
Booneville, Mississippi facility to provide additional capacity to meet
increased demand. This temporary measure that we anticipate will continue for
several more months does not change our strategy regarding this facility.
Expenses at the Booneville facility related to production are charged to
continuing operations, while the plant closing activities continue to be
reflected in our restructuring expenses in accordance with FAS 146. Given the
temporary and limited timeframe of this matter, we continue to carry the assets
of the Booneville facility at the carrying values established at the end of
2003. In the fourth quarter of 2003, we charged $6.8 million against the reserve,
mostly related to the write down of assets to their estimated carrying values
and severance related costs, leaving a balance in the reserve at December 31,
2003 of $3.5 million. In the first and second quarters of 2004, we charged
$3.2 million and $0.1 million against the reserve, respectively, related to the
impaired assets, relocation of equipment, severance and other employee related
costs, the cost of terminating certain operating leases and preparing the
facility for sale, leaving a balance in the reserve at July 4, 2004 of $151
thousand for outstanding charges. Further, in accordance with FAS 146, regarding the Booneville, Mississippi
facility closure, we recognized restructuring expenses in the first and second
quarters of 2004 of $329 thousand and $139 thousand, respectively, mostly for
costs related to maintaining the facility, terminating leases and other costs
associated with removing equipment and preparing the facility for eventual
sale. Also in the third quarter of 2003, we formalized a workforce reduction program
affecting approximately 200 employees. During the first and second quarters of
2004, in accordance with FAS 146, we recognized costs of $176 thousand and $88
thousand, respectively, for severance, medical and other separation related
expenditures associated with this workforce reduction program. Finally, in the first and second quarters of 2004, we recognized charges of $46
thousand and $27 thousand, respectively, related to carrying costs and other
closing related matters regarding our closed Roxboro, North Carolina facility
and $20 thousand and $40 thousand, respectively, in other restructuring related
issues. The value of the Roxboro facility is accounted for in assets held for
sale in the amount of $3.1 million as of July 4, 2004. We are actively seeking
a buyer for the facility. Although we believe we have appropriately reduced
the carrying value of the assets to their estimated recoverable amounts, net of
disposal costs where appropriate, actual results could be different and the
difference will be reported in restructuring charges in future periods. In total, in the first and second quarters of 2004, we recorded restructuring
expenses of $571 thousand pre-tax ($377 thousand net of tax) and $294 thousand
pre-tax ($194 thousand net of tax), respectively. 8




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NOTE 9. INDUSTRY SEGMENTS Our reportable segments are based on our three product groups: commercial
products, wholesale products and rod, bar and other products. Commercial
products consist primarily of high value added products sold directly to
original equipment manufacturers. Wholesale products are commodity-type
plumbing tube products, which are primarily sold to plumbing wholesalers and
distributors. Rod, bar and other products consist of products sold to a
variety of customers and includes our European distribution business. We
evaluate the performance of our operating segments based on sales and gross
profit; however, we do not allocate asset amounts and items of income and
expense below gross profit or depreciation and amortization. Summarized financial information concerning our reportable segments is shown in
the following table: Rod, BarCommercial
    
    Wholesale
    
    & Other
    
    Consolidated(In thousands)Three-month period ended July 4, 2004Net sales
    
    $
    155,024
    
    
    $
    43,109
    
    
    $
    15,947
    
    
    $
    214,080Gross profit
    
    
    16,081
    
    
    
    3,501
    
    
    
    1,999
    
    
    
    21,581Three-month period ended June 29, 2003Net sales
    
    $
    115,681
    
    
    $
    28,468
    
    
    $
    8,829
    
    
    $
    152,978Gross profit
    
    
    12,097
    
    
    
    398
    
    
    
    110
    
    
    
    12,605Six-month period ended July 4, 2004Net sales
    
    $
    299,951
    
    
    $
    88,683
    
    
    $
    31,251
    
    
    $
    419,885Gross profit
    
    
    30,998
    
    
    
    5,248
    
    
    
    2,820
    
    
    
    39,066Six-month period ended June 29, 2003Net sales
    
    $
    226,001
    
    
    $
    52,405
    
    
    $
    18,069
    
    
    $
    296,475Gross profit
    
    
    25,875
    
    
    
    462
    
    
    
    890
    
    
    
    27,227
 9




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NOTE 10. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings
per share: Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands, except per share data)Income from continuing operations
    
    $
    3,300
    
    
    $
    99
    
    
    $
    4,668
    
    
    $
    737Loss from discontinued operations,
net of tax benefit of $0.1 million
    
    
    (252
    )
    
    
    
    
    
    
    (252
    )
    
    
    Net income
    
    $
    3,048
    
    
    $
    99
    
    
    $
    4,416
    
    
    $
    737Basic weighted average common shares
    
    
    12,648
    
    
    
    12,277
    
    
    
    12,469
    
    
    
    12,270Stock options and restricted shares
    
    
    415
    
    
    
    212
    
    
    
    295
    
    
    
    156Diluted weighted average common and
common equivalent shares
    
    
    13,063
    
    
    
    12,489
    
    
    
    12,764
    
    
    
    12,426Earnings per common share basic:Continuing operations
    
    $
    0.26
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.06Discontinued operations
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.24
    
    
    $
    0.01
    
    
    $
    0.35
    
    
    $
    0.06Earnings per common share diluted:Continuing operations
    
    $
    0.25
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.06Discontinued operations
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.23
    
    
    $
    0.01
    
    
    $
    0.35
    
    
    $
    0.06
 NOTE 11. DISCONTINUED OPERATIONS During the year ended December 31, 2001, we decided to discontinue the
operations of Wolverine Ratcliffs, Inc. (WRI), which were previously included
in the rod, bar and other products segment. Accordingly, the operating results
of WRI are reported in discontinued operations in the consolidated financial
statements. In 2002, we stopped all manufacturing operations of WRI,
liquidated substantially all of its inventory and net receivables and began
liquidating the equipment. In the first quarter of 2004, we sold the
remainder of the equipment for $0.8 million leaving only the land and building
as assets held for resale and we are continuing our efforts to sale or lease
the land and building. There were no operating results of the discontinued WRI operations in the first
six months of 2004 charged to previously established reserves. We recognized
approximately $0.4 million ($0.2 million, net of tax) of charges for the
discontinued operations of WRI in the second quarter of 2004, mainly related to
personnel costs and costs related to maintaining the facility. Assets and liabilities of the discontinued WRI operations have been reflected
in the consolidated balance sheets as current or non-current based on the
original classification of these accounts, net of any necessary valuation
allowances, except that property, plant and equipment to be disposed in the
amount of $0.9 million, net of a necessary valuation allowance, have been
included in assets held for sale. Although we believe we have appropriately
reduced the carrying value of the assets to their estimated recoverable
amounts, net of disposal costs where appropriate, actual 10




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##### Table of Contents



results could be
different and the difference will be reported in discontinued operations in
future periods. Net liabilities of the discontinued WRI operations are as follows: July 4, 2004
    
    December 31, 2003(In thousands)Assets held for sale
    
    $
    901
    
    
    $
    1,697Other assets
    
    
    21
    
    
    
    26Current liabilities
    
    
    (1,420
    )
    
    
    (1,185
    )Other liabilities
    
    
    
    
    
    
    (1,096
    )Net liabilities of discontinued operations
    
    $
    (498
    )
    
    $
    (558
    )
 NOTE 12. PENSION EXPENSE U.S. Qualified Retirement Plan A summary of the components of net periodic pension cost for the U.S.
Retirement Plan is as follows: Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands)Service cost
    
    $
    954
    
    
    $
    943
    
    
    $
    2,178
    
    
    $
    1,886Interest cost
    
    
    2,052
    
    
    
    2,177
    
    
    
    4,684
    
    
    
    4,354Expected return on plan assets
    
    
    (2,451
    )
    
    
    (2,392
    )
    
    
    (5,594
    )
    
    
    (4,784
    )Amortization of prior service cost
    
    
    26
    
    
    
    33
    
    
    
    60
    
    
    
    66Amortization of net actuarial loss
    
    
    271
    
    
    
    262
    
    
    
    618
    
    
    
    524PBGC premium (underfunded plan)
    
    
    50
    
    
    
    
    
    
    
    114
    
    
    
    Net periodic pension cost
    
    $
    902
    
    
    $
    1,023
    
    
    $
    2,060
    
    
    $
    2,046
 U.S. Nonqualified Retirement Plan A summary of the components of net periodic pension cost for the Supplemental
Benefit Restoration Plan and the Supplemental Executive Retirement Plan is as
follows: Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands)Service cost
    
    $
    48
    
    
    $
    43
    
    
    $
    96
    
    
    $
    87Interest cost
    
    
    115
    
    
    
    123
    
    
    
    230
    
    
    
    246Amortization of prior service cost
    
    
    92
    
    
    
    106
    
    
    
    184
    
    
    
    212Net periodic pension cost
    
    $
    255
    
    
    $
    272
    
    
    $
    510
    
    
    $
    545
 11




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Canadian Plans A summary of the components of net periodic pension cost for the Canadian
pension plans is as follows: Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands)Service cost
    
    $
    147
    
    
    $
    68
    
    
    $
    297
    
    
    $
    162Interest cost
    
    
    351
    
    
    
    163
    
    
    
    708
    
    
    
    390Expected return on plan assets
    
    
    (319
    )
    
    
    (148
    )
    
    
    (644
    )
    
    
    (354
    )Amortization of prior service cost
    
    
    24
    
    
    
    11
    
    
    
    49
    
    
    
    26Amortization of net actuarial loss
    
    
    43
    
    
    
    14
    
    
    
    87
    
    
    
    33Net periodic pension cost
    
    $
    246
    
    
    $
    108
    
    
    $
    497
    
    
    $
    257
 Postretirement benefit obligation A summary of the components of net periodic pension cost for the postretirement
benefit cost is as follows: Three-month period ended:
    
    Six-month period ended:July 4, 2004
    
    June 29, 2003
    
    July 4, 2004
    
    June 29, 2003(In thousands)Service cost
    
    $
    182
    
    
    $
    166
    
    
    $
    365
    
    
    $
    332Interest cost
    
    
    252
    
    
    
    261
    
    
    
    507
    
    
    
    522Amortization of prior service cost
    
    
    38
    
    
    
    34
    
    
    
    76
    
    
    
    68Amortization of deferred gain
    
    
    5
    
    
    
    (19
    )
    
    
    10
    
    
    
    (38
    )Net periodic pension cost
    
    $
    477
    
    
    $
    442
    
    
    $
    958
    
    
    $
    884
 On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003, a law adding a prescription drug benefit beginning
in 2006 for Medicare-eligible retirees, was adopted. Among various provisions
of the law, the law introduced a new federal subsidy that will reimburse plan
sponsors of retiree health plans for 28% of certain prescription drug costs.
On May 19, 2004, the Financial Accounting Standards Board (FASB) released FASB
Staff Position (FSP) No. FAS 106-2, which provides guidance on the accounting
and disclosure requirements related to the new law and is effective for
financial reporting periods beginning after June 15, 2004, or our third
quarter. We do not believe that our prescription drug coverage for retirees is
actuarially equivalent to the new Medicare prescription coverage of the law and
thus we do not anticipate recognizing any impact of the 28% subsidy in the
third quarter of 2004. However, we do anticipate that the benefit we will be
required to pay in 2006 will be somewhat lower as a result of the new Medicare
provision. We are currently evaluating whether any other effects of the new
law will create a significant event under FAS 106 such that we would need to
account for them in the third quarter of 2004. We are also currently
evaluating the need for any amendments to our postretirement benefits as a
result of the new law. 12




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NOTE 13. 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 and 7.375% Senior
Notes (Subsidiary Guarantors), which include TF Investor, Inc.; Tube Forming,
L.P.; Wolverine Finance, LLC; Wolverine China Investments, 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;
Wolverine Tube Canada Limited Partnership; Wolverine Tube (Shanghai) Limited;
Wolverine European Holdings BV; Wolverine Tube Europe BV; Wolverine Tube, BV;
Wolverine Tubagem (Portugal), Lda; Wolverine Joining Technologies Canada, Inc.;
and Wolverine Europe (EURL). Each of the Subsidiary Guarantors is wholly-owned
by Wolverine Tube, Inc. The guarantees issued by each of the Subsidiary
Guarantors are full, unconditional, joint and several. Accordingly, separate
financial statements of the wholly-owned Subsidiary Guarantors are not
presented because the Subsidiary Guarantors are jointly, severally and
unconditionally liable under the guarantees, and we believe separate financial
statements and other disclosures regarding the Subsidiary Guarantors are not
material to investors. Furthermore, there are no significant legal
restrictions on the Parents ability to obtain funds from its subsidiaries by
dividend or loan. The parent is comprised of manufacturing operations located in Alabama,
Oklahoma, Tennessee, and Mississippi and certain corporate management, sales
and marketing, information services and finance functions mostly located in
Alabama but in the case of sales, regionally located near our major customers. 13




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Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three Months Ended July 4, 2004 (Unaudited) Non-Subsidiary
    
    GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)Net sales
    
    $
    114,009
    
    
    $
    45,535
    
    
    $
    72,551
    
    
    $
    (18,015
    )
    
    $
    214,080Cost of goods sold
    
    
    104,209
    
    
    
    40,022
    
    
    
    66,283
    
    
    
    (18,015
    )
    
    
    192,499Gross profit
    
    
    9,800
    
    
    
    5,513
    
    
    
    6,268
    
    
    
    
    
    
    
    21,581Selling, general and administrative expenses
    
    
    8,142
    
    
    
    900
    
    
    
    1,020
    
    
    
    
    
    
    
    10,062Restructuring charges
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294Operating income from continuing operations
    
    
    1,364
    
    
    
    4,613
    
    
    
    5,248
    
    
    
    
    
    
    
    11,225Other (income) expenses:Interest expense, net
    
    
    6,136
    
    
    
    (9
    )
    
    
    (367
    )
    
    
    
    
    
    
    5,760Amortization and other, net
    
    
    (198
    )
    
    
    (3,369
    )
    
    
    4,673
    
    
    
    
    
    
    
    1,106(Loss) income from continuing operations
before income taxes
    
    
    (4,574
    )
    
    
    7,991
    
    
    
    942
    
    
    
    
    
    
    
    4,359Income tax (benefit) provision
    
    
    (1,590
    )
    
    
    2,885
    
    
    
    (236
    )
    
    
    
    
    
    
    1,059(Loss) income from continuing operations
    
    
    (2,984
    )
    
    
    5,106
    
    
    
    1,178
    
    
    
    
    
    
    
    3,300Loss from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    
    
    
    
    (252
    )Equity in earnings of subsidiaries
    
    
    6,032
    
    
    
    
    
    
    
    
    
    
    
    (6,032
    )
    
    
    Net income
    
    $
    3,048
    
    
    $
    5,106
    
    
    $
    926
    
    
    $
    (6,032
    )
    
    $
    3,048
 Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three Months Ended June 29, 2003 (Unaudited) Non-Subsidiary
    
    GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)Net sales
    
    $
    81,597
    
    
    $
    32,823
    
    
    $
    49,900
    
    
    $
    (11,342
    )
    
    $
    152,978Cost of goods sold
    
    
    77,181
    
    
    
    28,480
    
    
    
    46,054
    
    
    
    (11,342
    )
    
    
    140,373Gross profit
    
    
    4,416
    
    
    
    4,343
    
    
    
    3,846
    
    
    
    
    
    
    
    12,605Selling, general and administrative expenses
    
    
    5,716
    
    
    
    821
    
    
    
    1,028
    
    
    
    
    
    
    
    7,565Operating (loss) income
    
    
    (1,300
    )
    
    
    3,522
    
    
    
    2,818
    
    
    
    
    
    
    
    5,040Other expenses (income):Interest expense, net
    
    
    5,481
    
    
    
    (4
    )
    
    
    (185
    )
    
    
    
    
    
    
    5,292Amortization and other, net
    
    
    1,469
    
    
    
    (2,441
    )
    
    
    1,464
    
    
    
    
    
    
    
    492Loss (income) before income taxes
    
    
    (8,250
    )
    
    
    5,967
    
    
    
    1,539
    
    
    
    
    
    
    
    (744
    )Income tax (benefit) provision
    
    
    (2,755
    )
    
    
    2,075
    
    
    
    (163
    )
    
    
    
    
    
    
    (843
    )(Loss) income net of tax
    
    
    (5,495
    )
    
    
    3,892
    
    
    
    1,702
    
    
    
    
    
    
    
    99Equity in earnings of subsidiaries
    
    
    5,594
    
    
    
    
    
    
    
    
    
    
    
    (5,594
    )
    
    
    Net income
    
    $
    99
    
    
    $
    3,892
    
    
    $
    1,702
    
    
    $
    (5,594
    )
    
    $
    99
 14




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Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
For the Six Months Ended July 4, 2004 (Unaudited) Non-Subsidiary
    
    GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)Net sales
    
    $
    223,015
    
    
    $
    87,455
    
    
    $
    143,145
    
    
    $
    (33,730
    )
    
    $
    419,885Cost of goods sold
    
    
    206,936
    
    
    
    75,452
    
    
    
    132,161
    
    
    
    (33,730
    )
    
    
    380,819Gross profit
    
    
    16,079
    
    
    
    12,003
    
    
    
    10,984
    
    
    
    
    
    
    
    39,066Selling, general and administrative expenses
    
    
    15,691
    
    
    
    1,667
    
    
    
    2,141
    
    
    
    
    
    
    
    19,499Restructuring charges
    
    
    865
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    865Operating (loss) income from continuing operations
    
    
    (477
    )
    
    
    10,336
    
    
    
    8,843
    
    
    
    
    
    
    
    18,702Other (income) expenses:Interest expense, net
    
    
    11,347
    
    
    
    (19
    )
    
    
    (498
    )
    
    
    
    
    
    
    10,830Amortization and other, net
    
    
    2,830
    
    
    
    (6,663
    )
    
    
    5,607
    
    
    
    
    
    
    
    1,774(Loss) income from continuing operations before
income taxes
    
    
    (14,654
    )
    
    
    17,018
    
    
    
    3,734
    
    
    
    
    
    
    
    6,098Income tax (benefit) provision
    
    
    (5,023
    )
    
    
    6,141
    
    
    
    312
    
    
    
    
    
    
    
    1,430(Loss) income from continuing operations
    
    
    (9,631
    )
    
    
    10,877
    
    
    
    3,422
    
    
    
    
    
    
    
    4,668Loss from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    
    
    
    
    (252
    )Equity in earnings of subsidiaries
    
    
    14,047
    
    
    
    
    
    
    
    
    

    
    
    (14,047
    )
    
    
    Net income
    
    $
    4,416
    
    
    $
    10,877
    
    
    $
    3,170
    
    
    $
    (14,047
    )
    
    $
    4,416
 Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
For the Six Months Ended June 29, 2003 (Unaudited) Non-Subsidiary
    
    GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)Net sales
    
    $
    158,356
    
    
    $
    65,304
    
    
    $
    95,931
    
    
    $
    (23,116
    )
    
    $
    296,475Cost of goods sold
    
    
    148,506
    
    
    
    56,337
    
    
    
    87,521
    
    
    
    (23,116
    )
    
    
    269,248Gross profit
    
    
    9,850
    
    
    
    8,967
    
    
    
    8,410
    
    
    
    
    
    
    
    27,227Selling, general and administrative expenses
    
    
    12,025
    
    
    
    1,622
    
    
    
    2,060
    
    
    
    
    
    
    
    15,707Operating (loss) income
    
    
    (2,175
    )
    
    
    7,345
    
    
    
    6,350
    
    
    
    
    
    
    
    11,520Other expenses (income):Interest expense, net
    
    
    10,737
    
    
    
    (7
    )
    
    
    (260
    )
    
    
    
    
    
    
    10,470Amortization and other, net
    
    
    3,639
    
    
    
    (5,430
    )
    
    
    2,825
    
    
    
    
    
    
    
    1,034Income (loss) before income taxes
    
    
    (16,551
    )
    
    
    12,782
    
    
    
    3,785
    
    
    
    
    
    
    
    16Income tax (benefit) provision
    
    
    (5,534
    )
    
    
    4,569
    
    
    
    244
    
    
    
    
    
    
    
    (721
    )(Loss) income net of tax
    
    
    (11,017
    )
    
    
    8,213
    
    
    
    3,541
    
    
    
    
    
    
    
    737Equity in earnings of subsidiaries
    
    
    11,754
    
    
    
    
    
    
    
    
    
    
    
    (11,754
    )
    
    
    Net income
    
    $
    737
    
    
    $
    8,213
    
    
    $
    3,541
    
    
    $
    (11,754
    )
    
    $
    737
 15




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##### Table of Contents



Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
July 4, 2004 (Unaudited) Non-Subsidiary
    
    GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)AssetsCurrent assetsCash and equivalents
    
    $
    17,649
    
    
    $
    
    
    
    $
    25,000
    
    
    $
    
    
    
    $
    42,649Accounts receivable, net
    
    
    8,107
    
    
    
    74,719
    
    
    
    34,474
    
    
    
    
    
    
    
    117,300Inventories
    
    
    49,868
    
    
    
    32,954
    
    
    
    29,668
    
    
    
    
    
    
    
    112,490Prepaid expenses and other
    
    
    14,562
    
    
    
    2,899
    
    
    
    366
    
    
    
    
    
    
    
    17,827Total current assets
    
    
    90,186
    
    
    
    110,572
    
    
    
    89,508
    
    
    
    
    
    
    
    290,266Property, plant and equipment, net
    
    
    124,500
    
    
    
    29,708
    
    
    
    38,900
    
    
    
    
    
    
    
    193,108Deferred charges, net
    
    
    11,931
    
    
    
    238
    
    
    
    1,701
    
    
    
    
    
    
    
    13,870Goodwill, net
    
    
    
    
    
    
    75,505
    
    
    
    1,607
    
    
    
    
    
    
    
    77,112Assets held for sale
    
    
    3,100
    
    
    
    
    
    
    
    901
    
    
    
    
    
    
    
    4,001Investments
    
    
    4,293
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    4,348Investments in subsidiaries
    
    
    421,177
    
    
    
    302
    
    
    
    
    
    
    
    (421,479
    )
    
    
    Total assets
    
    $
    655,187
    
    
    $
    216,325
    
    
    $
    132,672
    
    
    $
    (421,479
    )
    
    $
    582,705Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    26,427
    
    
    $
    16,611
    
    
    $
    16,562
    
    
    $
    
    
    
    $
    59,600Accrued liabilities
    
    
    6,935
    
    
    
    11,214
    
    
    
    6,781
    
    
    
    
    
    
    
    24,930Short-term borrowings
    
    
    
    
    
    
    14
    
    
    
    515
    
    
    
    
    
    
    
    529Intercompany balances
    
    
    133,058
    
    
    
    (120,068
    )
    
    
    (12,990
    )
    
    
    
    
    
    
    Total current liabilities
    
    
    166,420
    
    
    
    (92,229
    )
    
    
    10,868
    
    
    
    
    
    
    
    85,059Deferred income taxes
    
    
    3,098
    
    
    
    7,385
    
    
    
    (8,817
    )
    
    
    
    
    
    
    1,666Long-term debt
    
    
    248,539
    
    
    
    
    
    
    
    1,131
    
    
    
    
    
    
    
    249,670Pension liabilities
    
    
    21,128
    
    
    
    
    
    
    
    2,519
    
    
    
    
    
    
    
    23,647Postretirement benefit obligation
    
    
    10,505
    
    
    
    
    
    
    
    6,651
    
    
    
    
    
    
    
    17,156Accrued environmental remediation
    
    
    1,067
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    1,077Total liabilities
    
    
    450,757
    
    
    
    (84,844
    )
    
    
    12,362
    
    
    
    
    
    
    
    378,275Stockholders equity
    
    
    204,430
    
    
    
    301,169
    
    
    
    120,310
    
    
    
    (421,479
    )
    
    
    204,430Total liabilities and stockholders equity
    
    $
    655,187
    
    
    $
    216,325
    
    
    $
    132,672
    
    
    $
    (421,479
    )
    
    $
    582,705
 16




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##### Table of Contents



Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, 2003 Non-Subsidiary
    
    GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)AssetsCurrent assetsCash and equivalents
    
    $
    8,530
    
    
    $
    
    
    
    $
    37,559
    
    
    $
    
    
    
    $
    46,089Accounts receivable, net
    
    
    7,119
    
    
    
    54,931
    
    
    
    24,775
    
    
    
    
    
    
    
    86,825Inventories
    
    
    45,833
    
    
    
    33,139
    
    
    
    29,033
    
    
    
    
    
    
    
    108,005Prepaid expenses and other
    
    
    12,156
    
    
    
    408
    
    
    
    218
    
    
    
    
    
    
    
    12,782Total current assets
    
    
    73,638
    
    
    
    88,478
    
    
    
    91,585
    
    
    
    
    
    
    
    253,701Property, plant and equipment, net
    
    
    126,642
    
    
    
    30,838
    
    
    
    41,062
    
    
    
    
    
    
    
    198,542Deferred charges, net
    
    
    13,087
    
    
    
    291
    
    
    
    1,392
    
    
    
    
    
    
    
    14,770Goodwill, net
    
    
    
    
    
    
    75,505
    
    
    
    1,654
    
    
    
    
    
    
    
    77,159Assets held for sale
    
    
    3,100
    
    
    
    
    
    
    
    1,697
    
    
    
    
    
    
    
    4,797Investments
    
    
    4,289
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,289Investments in subsidiaries
    
    
    409,796
    
    
    
    302
    
    
    
    
    
    
    
    (410,098
    )
    
    
    Total assets
    
    $
    630,552
    
    
    $
    195,414
    
    
    $
    137,390
    
    
    $
    (410,098
    )
    
    $
    553,258Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    17,813
    
    
    $
    12,966
    
    
    $
    16,724
    
    
    $
    
    
    
    $
    47,503Accrued liabilities
    
    
    15,441
    
    
    
    8,073
    
    
    
    6,273
    
    
    
    
    
    
    
    29,787Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    1,502
    
    
    
    
    
    
    
    1,502Intercompany balances
    
    
    131,590
    
    
    
    (123,304
    )
    
    
    (8,286
    )
    
    
    
    
    
    
    Total current liabilities
    
    
    164,844
    
    
    
    (102,265
    )
    
    
    16,213
    
    
    
    
    
    
    
    78,792Deferred income taxes
    
    
    3,098
    
    
    
    7,385
    
    
    
    (10,124
    )
    
    
    
    
    
    
    359Long-term debt
    
    
    253,107
    
    
    
    
    
    
    
    1,177
    
    
    
    
    
    
    
    254,284Pension liabilities
    
    
    18,594
    
    
    
    
    
    
    
    3,722
    
    
    
    
    
    
    
    22,316Postretirement benefit obligation
    
    
    10,406
    
    
    
    
    
    
    
    6,589
    
    
    
    
    
    
    
    16,995Accrued environmental remediation
    
    
    1,152
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    1,161Total liabilities
    
    
    451,201
    
    
    
    (94,880
    )
    
    
    17,586
    
    
    
    
    
    
    
    373,907Stockholders equity
    
    
    179,351
    
    
    
    290,294
    
    
    
    119,804
    
    
    
    (410,098
    )
    
    
    179,351Total liabilities and stockholders equity
    
    $
    630,552
    
    
    $
    195,414
    
    
    $
    137,390
    
    
    $
    (410,098
    )
    
    $
    553,258
 17




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##### Table of Contents



Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months ended July 4, 2004 (Unaudited) Non-Subsidiary
    
    GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)Operating ActivitiesIncome from continuing operations
    
    $
    4,416
    
    
    $
    10,877
    
    
    $
    3,422
    
    
    $
    (14,047
    )
    
    $
    4,668Depreciation and amortization
    
    
    5,703
    
    
    
    1,767
    
    
    
    1,563
    
    
    
    
    
    
    
    9,033Other non-cash items
    
    
    917
    
    
    
    27
    
    
    
    28
    
    
    
    
    
    
    
    972Equity in earnings of subsidiaries
    
    
    (14,047
    )
    
    
    
    
    
    
    
    
    
    
    14,047
    
    
    
    Changes in operating assets and liabilities
    
    
    (5,524
    )
    
    
    (15,275
    )
    
    
    (10,520
    )
    
    
    
    
    
    
    (31,319
    )Net cash used for operating activities
    
    
    (8,535
    )
    
    
    (2,604
    )
    
    
    (5,507
    )
    
    
    
    
    
    
    (16,646
    )Investing ActivitiesAdditions to property, plant and equipment
    
    
    (2,807
    )
    
    
    (903
    )
    
    
    (457
    )
    
    
    
    
    
    
    (4,167
    )Other
    
    
    
    
    
    
    269
    
    
    
    11
    
    
    
    
    
    
    
    280Net cash used for investing activities
    
    
    (2,807
    )
    
    
    (634
    )
    
    
    (446
    )
    
    
    
    
    
    
    (3,887
    )Financing ActivitiesIssuance of Common Stock
    
    
    22,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,942Retirement of senior notes
    
    
    (4,125
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,125
    )Net payments on revolving credit facilities
    
    
    
    
    
    
    
    
    
    
    (715
    )
    
    
    
    
    
    
    (715
    )Intercompany borrowings (payments)
    
    
    1,202
    
    
    
    3,807
    
    
    
    (5,009
    )
    
    
    
    
    
    
    Other financing activities
    
    
    703
    
    
    
    (569
    )
    
    
    (239
    )
    
    
    
    
    
    
    (105
    )Net cash provided by (used for) financing activities
    
    
    20,722
    
    
    
    3,328
    
    
    
    (5,963
    )
    
    
    
    
    
    
    17,997Effect of exchange rate on cash and equivalents
    
    
    (261
    )
    
    
    
    
    
    
    (344
    )
    
    
    
    
    
    
    (605
    )Net cash provided by (used for) continuing
operations
    
    
    9,119
    
    
    
    
    
    
    
    (12,260
    )
    
    
    
    
    
    
    (3,141
    )Net cash used for discontinued operations
    
    
    
    
    
    
    
    
    
    
    (299
    )
    
    
    
    
    
    
    (299
    )Net increase (decrease) in cash and equivalents
    
    
    9,119
    
    
    
    
    
    
    
    (12,559
    )
    
    
    
    
    
    
    (3,440
    )Cash and equivalents at beginning of period
    
    
    8,530
    
    
    
    
    
    
    
    37,559
    
    
    
    
    
    
    
    46,089Cash and equivalents at end of period
    
    $
    17,649
    
    
    $
    
    
    
    $
    25,000
    
    
    $
    
    
    
    $
    42,649
 18




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##### Table of Contents



Wolverine Tube, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months ended June 29, 2003 (Unaudited) Subsidiary
    
    Non-GuarantorParent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(In thousands)Operating ActivitiesNet income
    
    $
    737
    
    
    $
    8,214
    
    
    $
    3,541
    
    
    $
    (11,755
    )
    
    $
    737Depreciation and amortization
    
    
    6,201
    
    
    
    1,732
    
    
    
    1,441
    
    
    
    
    
    
    
    9,374Other non-cash items
    
    
    (894
    )
    
    
    19
    
    
    
    (8
    )
    
    
    
    
    
    
    (883
    )Equity in earnings of subsidiaries
    
    
    (11,755
    )
    
    
    
    
    
    
    
    
    
    
    11,755
    
    
    
    Changes in operating assets and liabilities
    
    
    (11,594
    )
    
    
    (10,229
    )
    
    
    (9,043
    )
    
    
    
    
    
    
    (30,866
    )Net cash used for operating activities
    
    
    (17,305
    )
    
    
    (264
    )
    
    
    (4,069
    )
    
    
    
    
    
    
    (21,638
    )Investing ActivitiesAdditions to property, plant and equipment
    
    
    (1,981
    )
    
    
    (317
    )
    
    
    (359
    )
    
    
    
    
    
    
    (2,657
    )Other
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Net cash used for investing activities
    
    
    (1,981
    )
    
    
    (317
    )
    
    
    (356
    )
    
    
    
    
    
    
    (2,654
    )Financing ActivitiesFinancing fees and expenses paid
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )Net (payments) borrowings on revolving credit
facilities
    
    
    (1,002
    )
    
    
    1,002
    
    
    
    497
    
    
    
    
    
    
    
    497Intercompany borrowings (payments)
    
    
    890
    
    
    
    (421
    )
    
    
    (469
    )
    
    
    
    
    
    
    Other financing activities
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Net cash (used for) provided by financing activities
    
    
    (140
    )
    
    
    581
    
    
    
    25
    
    
    
    
    
    
    
    466Effect of exchange rate on cash and equivalents
    
    
    (546
    )
    
    
    
    
    
    
    2,376
    
    
    
    
    
    
    
    1,830Net cash used by continuing operations
    
    
    (19,972
    )
    
    
    
    
    
    
    (2,024
    )
    
    
    
    
    
    
    (21,996
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    
    
    
    
    381
    
    
    
    
    
    
    
    381Net decrease in cash and equivalents
    
    
    (19,972
    )
    
    
    
    
    
    
    (1,643
    )
    
    
    
    
    
    
    (21,615
    )Cash and equivalents at beginning of period
    
    
    22,462
    
    
    
    
    
    
    
    31,458
    
    
    
    
    
    
    
    53,920Cash and equivalents at end of period
    
    $
    2,490
    
    
    $
    
    
    
    $
    29,815
    
    
    $
    
    
    
    $
    32,305
 19




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of our results of operations and financial
condition. This discussion should be read in conjunction with our Condensed
Consolidated Financial Statements and notes thereto. OVERVIEW During the second quarter ended July 4, 2004, we have continued to experience
the steady improvement in all of our business segments that began in the first
quarter of 2004. For the second quarter, income from continuing operations was
$3.3 million or $0.25 per diluted share in 2004 compared with $0.1 million or
$0.01 per diluted share in 2003. Income from continuing operations in the
second quarter of 2004 includes $0.6 million of charges (net of tax) or $0.05
per share, $0.4 million of which are charges related to the premium paid on the
repurchase of $4.1 million of our senior notes and $0.2 million of
restructuring charges relating primarily to the previously announced
Booneville, Mississippi facility closure. Our operating results in the second
quarter of 2004 were favorably impacted by $0.4 million (net of tax) from our
metal valuation and hedge accounting. The main drivers for the improvement in our operating performance continue to
be the overall recovery in the industrial economy generating increased demand
for our products, much stronger pricing for our wholesale products and to a
lesser extent, improved pricing in certain other products, customer gains in
our commercial products business segment, growth in our fabricated products
business as original equipment manufacturers continue to outsource their
manufacturing and improved capacity utilization and efficiencies in our
manufacturing plants. During the second quarter of 2004, we sold in a private placement 2.45 million
shares of Common Stock and used a substantial portion of the $22.9 million of
net proceeds from the equity offering to repurchase a portion of our
10 1⁄2
percent senior notes. We purchased $4.1 million of our senior notes in the
second quarter of 2004 and another $14.5 million in the first month of the
third quarter of 2004. Additionally, net cash provided by operating activities
was $16.0 million in the second quarter of 2004 and we were able to pay down
the full balance of $20.0 million that had been outstanding on our secured
revolving credit facility at the end of the first quarter of 2004. RESULTS OF OPERATIONS Three-Month Period Ended July 4, 2004 Compared to
Three-Month Period Ended June 29, 2003 Consolidated net sales increased by $61.1 million, or 39.9%, to $214.1 million
for the second quarter ended July 4, 2004 from $153.0 million for the second
quarter ended June 29, 2003. This growth is due to increased volumes shipped,
higher COMEX copper and other metal prices, and improved pricing, especially in
the wholesale product segment. Pounds shipped increased by 5.6 million pounds,
or 6.6%, to 91.4 million in the second quarter of 2004 from 85.7 million in
2003. 20




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##### Table of Contents



The average COMEX copper price for the second quarter of 2004 was $1.23
per pound, as compared to $0.75 per pound in the second quarter of 2003, an
increase of approximately 65%. Pounds of commercial products shipped increased by 4.3 million pounds, or 7.4%,
to 62.3 million in the second quarter of 2004 from 58.0 million in the second
quarter of 2003, due primarily to continued volume growth for our industrial
tube, technical tube and fabricated products. Volumes grew for these products
in the second quarter of 2004 primarily due to stronger markets for HVAC
products, continued growth in commercial construction and favorable outsourcing
trends in our fabricated products facilities. We also experienced customer
gains and are beginning to benefit from the introduction of new technical and
welded tube products. Sales of commercial products increased $39.3 million, or
34.0%, to $155.0 million in the second quarter of 2004 from $115.7 million in
2003. The improvement in net sales reflects the previously mentioned volume
increase, the sharp rise in metal prices and an improvement in fabrication
revenues (defined as net sales less the selling price of the metal) due to mix
and price increases. In our commercial segment, COMEX copper prices are
generally a pass through to our customers. Revenue per pound for commercial
products was $2.49 per pound in the second quarter of 2004, compared to $1.99
per pound in 2003, reflecting primarily the sharp rise in metal prices and to a
lesser extent, an improvement in fabrication revenues as mentioned above.
Gross profit for commercial products increased by $4.0 million, or 32.9%, to
$16.1 million in the second quarter of 2004 from $12.1 million in 2003,
attributable to higher volumes and improved selling prices offset slightly by
higher manufacturing cost due to a richer mix of products and an unfavorable
Canadian currency translation impact on manufacturing costs. Pounds of wholesale products shipped decreased by 0.6 million pounds, or 2.6%,
to 22.9 million in the second quarter of 2004 from 23.5 million in 2003 because
of slowing demand in the latter part of the second quarter of 2004 and because
we shifted our production capacity away from this commodity product in order to
meet the demand for commercial products. Sales of wholesale products increased
$14.6 million, or 51.4%, to $43.1 million in the second quarter of 2004 from
$28.5 million in 2003, due to rising COMEX prices and a 58.1% improvement in
fabrication revenue. Revenue per pound was up $0.67 to $1.88 in the second
quarter of 2004 versus $1.21 in the second quarter of 2003. Gross profit from
wholesale products increased $3.1 million to $3.5 million in the second quarter
of 2004 from $0.4 million in 2003, due primarily to the improvement in pricing. Pounds of rod and bar products shipped increased by 2.0 million pounds, or
46.5%, to 6.2 million in the second quarter of 2004 from 4.2 million in 2003 as
we have gained market share in this segment from one competitor who exited a
portion of this market and we are benefiting from the economic recovery in
North America. Sales of rod, bar and other products increased $7.1 million, or
80.6%, to $15.9 million in the second quarter of 2004 from $8.8 million in
2003, due to the increase in COMEX and a 15.3% improvement in fabrication
pricing. Other products are primarily those products sold from our
distribution center in the Netherlands whose sales dollars increased
approximately $0.9 million in the second quarter of 2004 due to increased
volume and a stronger quarter over quarter Euro. Gross profit from rod, bar
and other products increased $1.9 million to $2.0 million in the second quarter
of 2004 from $0.1 million in 2003, due to increased volumes and pricing and the
favorable impact of the stronger Euro compared to the second quarter of the
prior year. Consolidated gross profit increased $9.0 million or 71.2% to $21.6 million in
the second quarter of 2004 from $12.6 million in 2003. In addition to a richer
mix of products, a stronger North 21




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##### Table of Contents



American economy, our global expansion,
increased volume, improved pricing and manufacturing efficiencies all favorably
impacted gross profit. Negatively impacting gross profit was the strong
Canadian dollar versus the U.S. dollar and its influence on the cost of
manufacturing in Canada. In comparing year over year, manufacturing costs were
impacted negatively by $0.5 million due to the strong Canadian dollar. Also,
our metal and hedge accounting provided a favorable pre-tax impact of $0.6
million. Our manufacturing cost per pound for the quarter increased $0.03 per
pound to $0.84 per pound in the second quarter of 2004 which includes higher
costs associated with the production of a richer mix of products and the
aforementioned $0.5 million or $0.01 per pound currency translation impact as
compared to $0.81 per pound in the second quarter of 2003. Consolidated selling, general and administrative expenses for the second
quarter of 2004 increased by $2.5 million, or 33.0%, to $10.1 million, compared
with $7.6 million in 2003, while remaining approximately five percent of sales
for both the second quarter of 2004 and 2003. Approximately $1.4 million of
the increase in selling, general and administrative expenses was due to
increased accruals for company-wide incentive compensation in light of our
improved operating results in 2004, especially as compared to the very low
levels of incentive compensation accruals in 2003. Additionally, selling,
general and administrative expenses increased $0.3 million due to higher
professional fees, including fees related to the compliance with the Sarbanes
Oxley Act of 2002 and the internal control related requirements of Section 404
as well as other professional expenses and increased $0.5 million for employee
related costs, primarily recruiting and relocation cost. Consolidated net interest expense increased by $0.5 million or 8.8%, to $5.8
million in the second quarter of 2004 from $5.3 million in 2003 primarily due
to increased borrowings against our secured revolving credit facility during
the second quarter of 2004 versus the second quarter of 2003 as well as a
decline in the favorable impact of the interest rate swap in 2004 versus 2003.
Consolidated net interest expense is net of interest income and capitalized
interest of $0.3 million and $0.1 million, respectively, for the three-month
period ended July 4, 2004 and $0.2 million and $16,100, respectively, for the
three-month period ended June 29, 2003. Interest expense will be reduced by
approximately $0.5 million per quarter beginning in the third quarter of 2004
as a
result of our purchase of $4.1 million and $14.5 million of our 10.5% Senior
Notes late in the second quarter of 2004 and early in the third quarter of
2004, respectively. Amortization and other, net was $1.1 million of expense in the second quarter
of 2004 compared to $0.5 million of expense in the second quarter of 2003.
Amortization and other, net in the second quarter of 2004 included $0.6 million
of charges relating to the premium paid on the purchase of $4.1 million of our
senior notes and the write-off of associated prepaid financing fees and bond
discount related to the transaction. Amortization and other, net in the second
quarter of 2003 included $0.1 million of losses related to foreign currency,
primarily associated with the fluctuation in the Canadian to U.S. dollar
exchange rate. Amortization expense, primarily deferred financing fees, was
$0.4 million in the second quarter of both 2004 and 2003. Tax expense of $1.1 million was recorded in the second quarter of 2004 as
compared to a net tax benefit of $0.8 million in the second quarter of 2003.
The effective tax rate for the second quarter of 2004 was 24.3% which reflects
a significant amount of income earned in the lower tax jurisdictions of China
and Portugal. The net tax benefit recorded in the second quarter of 2003
reflects i) lower effective tax rates from state tax planning activities; ii)
federal tax benefits generated in the higher effective tax rate jurisdiction of
the United States, in which we had pre- 22




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tax losses; and iii) foreign tax expense
generated in foreign jurisdictions in which we had income and where the tax
rates are lower due to tax holidays. A valuation allowance was recorded
against all state net operating losses generated in the second quarter of 2003. Six-Month Period Ended July 4, 2004 Compared to
Six-Month Period Ended June 29, 2003 Consolidated net sales increased by $123.4 million, or 41.6%, to $419.9 million
for the six-month period ended July 4, 2004 from $296.5 million for the
six-month period ended June 29, 2003. This growth is due to increased volumes
shipped, higher COMEX copper and other metal prices, and improved pricing,
especially in the wholesale product segment and to a lesser extent, improved
pricing for certain other products. Pounds shipped increased by 17.9 million
pounds, or 10.8%, to 184.7 million in 2004 from 166.8 million in 2003. The
average COMEX copper price for 2004 was $1.23 per pound, as compared to $0.75
per pound in 2003, an increase of approximately 64%. Pounds of commercial products shipped increased by 9.1 million pounds, or 8.0%,
to 123.4 million in 2004 from 114.3 million in 2003. This increase was
primarily due to volume growth for our industrial tube, technical tube and
fabricated products. Volumes grew for these products in 2004 primarily due to
the recovering North American economy, stronger markets for HVAC products,
continued growth in commercial construction and favorable outsourcing trends in
our fabricated products facilities. We also experienced customer gains and are
beginning to benefit from the introduction of new technical and welded tube
products. Sales of commercial products increased $74.0 million, or 32.7%, to
$300.0 million in 2004 from $226.0 million in 2003. The improvement in net
sales reflects the previously mentioned volume increase, the sharp rise in
metal prices and an improvement in fabrication revenues due to mix and price
increases. In our commercial segment, COMEX copper prices are generally a pass
through to our customers.
Revenue per pound for commercial products was $2.43 per pound in 2004, compared
to $1.98 per pound in 2003, reflecting primarily the sharp rise in metal prices
and to a lesser extent, an improvement in fabrication revenues as mentioned
above. Gross profit from commercial products increased by $5.1 million, or
19.8%, to $31.0 million in 2004 from $25.9 million in 2003, attributable to
higher volumes and improved selling prices offset slightly by higher
manufacturing cost due to a richer mix of products and an unfavorable Canadian
currency translation impact on manufacturing costs. Pounds of wholesale products shipped increased by 5.3 million pounds, or 12.3%,
to 48.8 million in 2004 from 43.5 million in 2003 due to our expanded channels
to this commodity market as well as improvements in demand in both the United
States and Canada caused by increased commercial construction. Sales of
wholesale products increased $36.3 million, or 69.2%, to $88.7 million in 2004
from $52.4 million in 2003, due to rising COMEX prices and a 50.7% improvement
in fabrication revenue. Revenue per pound was up $0.61 to $1.82 in 2004 versus
$1.21 in 2003. Gross profit from wholesale products increased $4.8 million to
$5.2 million in 2004 from $0.5 million in 2003, due primarily to better pricing
and increased demand. Pounds of rod and bar products shipped increased by 3.5 million pounds, or
38.6%, to 12.5 million in 2004 from 9.0 million in 2003 as we have gained
market share in this segment from one competitor who exited a portion of this
market and we are benefiting from the economic recovery in North America.
Sales of rod, bar and other products increased $13.2 million, or 23




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73.0%, to
$31.3 million in 2004 from $18.1 million in 2003 due to the increase in COMEX
and a 12.6% improvement in fabrication pricing. Other products are primarily
those products sold from our distribution center in the Netherlands whose sales
dollars increased approximately $2.2 million in 2004 due to increased volume
and a stronger period over period Euro. Gross profit from rod, bar and other
products increased $1.9 million to $2.8 million in 2004 from $0.9 million in
2003, due to increased volumes, better pricing and the favorable impact of the
stronger Euro compared to the first half of the prior year. Consolidated gross profit increased $11.8 million or 43.5% to $39.1 million in
2004 from $27.2 million in 2003 as we experienced a richer mix of products as
well as a strengthening North American economy, global expansion, increased
volume, improved pricing and manufacturing efficiencies. Negatively impacting
gross profit was the strong Canadian dollar versus the U.S. dollar and its
influence on the cost of manufacturing in Canada. In comparing year over year,
manufacturing costs were impacted negatively by $2.9 million due to the strong
Canadian dollar. Also, our metal and hedge accounting provided a favorable
pre-tax impact of $1.3 million. Our manufacturing cost per pound for the
period increased $0.02 per pound to $0.83 per pound in 2004 which includes
higher costs associated with the production of a richer mix of products and the
aforementioned $2.9 million or $0.02 per pound currency translation impact as
compared to $0.81 per pound in 2003. Consolidated selling, general and administrative expenses for 2004 increased by
$3.8 million, or 24.1%, to $19.5 million, compared with $15.7 million in 2003,
while remaining approximately five percent of sales for both 2004 and 2003.
Approximately $2.1 million of the increase in selling, general and
administrative expenses was due to increased accruals for company-wide
incentive compensation in light of our improved operating results in 2004,
especially as
compared to the very low levels of incentive compensation accruals in 2003.
Selling, general and administrative expenses increased $0.6 million due to
higher professional fees, including fees related to the compliance with the
Sarbanes Oxley Act of 2002 and the internal control related requirements of
Section 404 as well as other professional expenses and increased $0.5 million
for employee related costs, primarily recruiting and relocation cost. Consolidated net interest expense increased by $0.3 million or 3.4%, to $10.8
million in 2004 from $10.5 million in 2003 due to increased borrowings against
our secured revolving credit facility during 2004 versus 2003 as well as a
decline in the favorable impact of the interest rate swap in 2004 versus 2003.
Consolidated net interest expense is net of interest income and capitalized
interest of $0.4 million and $0.1 million, respectively, for 2004 and $0.3
million and $33,200, respectively, for 2003. Interest expense will be reduced
by approximately $0.5 million per quarter beginning in the third quarter of
2004 as a result of our purchase of $4.1 million and $14.5 million of our 10.5%
Senior Notes late in the second quarter of 2004 and early in the third quarter
of 2004, respectively. Amortization and other, net was $1.8 million of expense in 2004, as compared to
$1.0 million of expense in 2003. Amortization and other, net in the second
quarter of 2004 included $0.6 million of charges relating to the premium paid
on the purchase of $4.1 million of our senior notes and the write-off of
associated prepaid financing fees and bond discount related to the transaction.
Amortization and other, net in 2004 and 2003 included $0.1 million and $0.2
million of losses, respectively, related to foreign currency. These foreign
currency losses are largely attributable to fluctuations in the Canadian to
U.S. dollar exchange rate. Amortization 24




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expense was $0.7 million in both 2004
and 2003. In the first quarter of 2004, an uncollectible miscellaneous
receivable was written off amounting to $0.1 million. Tax expense of $1.4 million was recorded in 2004 as compared to a net tax
benefit of $0.7 million in 2003. The effective tax rate in 2004 was 23.4%
which reflects a significant amount of income earned in the lower tax
jurisdictions of China and Portugal. The net tax benefit recorded in 2003
reflects i) lower effective tax rates from state tax planning activities; ii)
federal tax benefits generated in the higher effective tax rate jurisdiction of
the United States, in which we had pre-tax losses; and iii) foreign tax expense
generated in foreign jurisdictions in which we had income and where the tax
rates are lower due to tax holidays. A valuation allowance was recorded
against all state net operating losses generated in 2003. Restructuring and Other Charges In the third quarter of 2003, we announced our intention to close our
Booneville, Mississippi facility and did so in December of 2003. Accordingly,
we recorded a restructuring charge in the amount of $10.4 million and
established a reserve for certain items associated with the write-down of
impaired assets, relocation of equipment, severance and other personnel related
costs. Given the strong start and prolonged 2004 HVAC cooling season and
normal seasonal demands, we are using a limited number of assets at the
Booneville, Mississippi facility to provide additional capacity to meet
increased demand. This temporary measure that we anticipate will continue for
several more months does not change our strategy regarding this facility.
Expenses at the Booneville facility related to production are charged to
continuing operations, while the
plant closing activities continue to be reflected in our restructuring expenses
in accordance with FAS 146. Given the temporary and limited timeframe of this
matter, we continue to carry the assets of the Booneville facility at the
carrying values established at the end of 2003. In the fourth quarter of 2003, we charged $6.8 million against the reserve,
mostly related to the write down of assets to their estimated carrying values
and severance related costs, leaving a balance in the reserve at December 31,
2003 of $3.5 million. In the first and second quarters of 2004, we charged
$3.2 million and $0.1 million against the reserve, respectively, related to the
impaired assets, relocation of equipment, severance and other employee related
costs, the cost of terminating certain operating leases and preparing the
facility for sale, leaving a balance in the reserve at July 4, 2004 of $151
thousand for outstanding charges. Further, in accordance with FAS 146, regarding the Booneville, Mississippi
facility closure, we recognized restructuring expenses in the first and second
quarters of 2004 of $329 thousand and $139 thousand, respectively, mostly for
costs related to maintaining the facility, terminating leases and other costs
associated with removing equipment and preparing the facility for eventual
sale. Also in the third quarter of 2003, we formalized a workforce reduction program
affecting approximately 200 employees. During the first and second quarters of
2004, in accordance with FAS 146, we recognized costs of $176 thousand and $88
thousand, respectively, for severance, medical and other separation related
expenditures associated with this workforce reduction program. Finally, in the first and second quarters of 2004, we recognized charges of $46
thousand and $27 thousand, respectively, related to carrying costs and other
closing related matters regarding our 25




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closed Roxboro, North Carolina facility
and $20 thousand and $40 thousand, respectively, in other restructuring related
issues. The value of the Roxboro facility is accounted for in assets held for
sale in the amount of $3.1 million as of July 4, 2004. We are actively seeking
a buyer for the facility. Although we believe we have appropriately reduced
the carrying value of the assets to their estimated recoverable amounts, net of
disposal costs where appropriate, actual results could be different and the
difference will be reported in restructuring charges in future periods. In total, in the first and second quarters of 2004, we recorded restructuring
expenses of $571 thousand pre-tax ($377 thousand net of tax) and $294 thousand
pre-tax ($194 thousand net of tax), respectively. Liquidity and Capital Resources Cash used by continuing operating activities in the first half of 2004 totaled
$16.6 million. Income from continuing operations, depreciation and
amortization was more than offset by increased working capital, largely the
result of the effect of increased COMEX prices on accounts receivables and
inventories, partly offset by higher payables due to the same cause. During
the first half of 2004, the average COMEX copper price was approximately 1.23
per pound as compared to $0.75 per pound in the first half of 2003, a 64%
increase. We participate in a seasonal business which typically produces greater sales
and requires a greater use of cash for working capital purposes in the first
and second quarters of the year compared to the second half of the year where
we generate cash by liquidating working capital. On June 23, 2004 we completed a private placement of 2.45 million shares of our
Common Stock that resulted in approximately $22.9 million of net proceeds. In
the second quarter of 2004, we used $4.5 million of the proceeds to purchase
$4.1 million of our 10.5% Senior Notes. Early in the third quarter of 2004, we
purchased an additional $14.5 million of the notes for $16.0 million. The
remaining $2.4 million of net proceeds from the equity offering will be used
for general corporate purposes. Capital expenditures were $4.2 million in the first six months of 2004 as
compared to $2.7 million in the first six months of 2003. We currently expect
to spend between $10.5 million and $12.0 million for capital items in the year
2004. Our capital expenditures include asset replacement, environmental
compliance and cost reduction and productivity improvement items. The ratio of current assets to current liabilities was 3.4 at July 4, 2004 and
4.6 at June 29, 2003. Our cash and cash equivalent balances as of July 4, 2004
and December 31, 2003 were $42.6 million and $46.1 million, respectively, of
which $25.0 million and $37.6 million, respectively were held by our
subsidiaries located outside of the United States. We believe we would have to
pay the differential between foreign taxes and United States taxes on funds
located outside of the United States upon repatriating these funds to the
United States. However, we do not anticipate repatriating these funds in the
foreseeable future and accordingly have not accrued the differential tax
liability. We believe with the continuing borrowing availability anticipated under our
secured revolving credit facility, our cash balances and anticipated cash flow
from our continuing operations, we 26




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will be able to satisfy our existing working
capital needs, interest obligations and capital expenditure requirements. Environmental Matters Our facilities and operations are subject to extensive environmental laws and
regulations. During the six months ended July 4, 2004, we spent approximately
$0.1 million on environmental matters, which included remediation, monitoring,
legal and other costs. We have a reserve of $1.1 million for undiscounted
environmental remediation costs which is reflected in our Condensed
Consolidated Balance Sheet. Based on currently available information, we
believe that the ultimate costs of the environmental matters described below
are not reasonably likely to have a material adverse effect on our business,
financial condition or results of operations. However, actual costs related to
environmental matters could differ materially from the amounts we estimated and
accrued at July 4, 2004 and could result in additional exposure if these
environmental matters are not resolved as anticipated. Decatur, Alabama In 1999, the Company entered into a Consent Order under Section 3008(h) of the
Resource Conservation and Recovery Act. This order incorporated the Corrective
Measures Study, commonly referred to as the CMS, submitted to the Environmental
Protection Agency (the EPA) regarding a waste burial site at the Decatur,
Alabama facility. The order also included an upgrade to an existing chrome
ground water remediation system. Part of the ground water contamination plume had previously been detected
underneath a section of property not owned by us. In December 2002, we took a
sample from the adjoining property that indicated there were no longer
detectable levels of chrome beyond our property boundary. We believe, due to
our remediation efforts, this plume has retracted due to treatment and will
continue to do so. In July of 2000, we notified the EPA and the Alabama Department of
Environmental Management that we detected low levels of volatile organic
compounds and petroleum hydrocarbons in the ground water at the Decatur,
Alabama facility detected during the expansion of the facility. On June 13,
2001, we received a letter from the Alabama Department of Environmental
Management stating that a preliminary assessment would be forthcoming, but no
further action has occurred to date. When the assessment is conducted, we
will, if appropriate and necessary, increase the reserve for any additional
costs once the extent of the actions needed to be taken are defined. The estimated remaining assessment, monitoring, remedial, legal, and other
costs related to the environmental matters at our Decatur, Alabama facility are
$0.2 million as of July 4, 2004. Ardmore, Tennessee On December 28, 1995, we entered into a Consent Order and Agreement with the
Tennessee Division of Superfund, or Tennessee Division, relating to the
Ardmore, Tennessee facility, under which we agreed to conduct an assessment on
whether volatile organic compounds detected in and near the municipal drinking
water supply are related to the Ardmore facility and, if 27




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necessary, to
undertake an appropriate response. That site assessment revealed
contamination, including elevated concentrations of volatile organic compounds,
in the soil in areas of the Ardmore facility and also revealed elevated levels
of certain volatile organic compounds in the shallow residuum ground water zone
at the Ardmore facility. The water currently delivered to residents by the municipality is treated prior
to human consumption, and thus does not contain volatile organic compounds
above acceptable drinking water standards. We do not know whether the
municipality may have delivered untreated water to its water consumers prior to
the installation of the water treatment process; however, due to dilution with
non-contaminated water, which we believe occurs in the operation of the
municipal well system, we believe that it is unlikely that any consumer was
exposed in the past to volatile organic compounds above acceptable drinking
water standards. We have not received or been threatened by any claim from the
municipality or its residents with respect to the drinking water. We have proposed to the Tennessee Division that an interim corrective measure
be implemented at the facility. The interim measure will consist of a system
to extract water and vapors from the areas of highest concentration. The
system can be expanded to conduct additional remediation if required. Based on
recent testing efforts at the facility and the available information, we
preliminarily estimate that it will cost between $0.8 million and $2.0 million
to complete the investigation and develop the remediation plans for this site. Altoona, Pennsylvania We have entered our Altoona, Pennsylvania facility into the State of
Pennsylvania Department of Environmental Protection Act II Program. The
program addresses contamination issues related to closed hazardous waste
lagoons and oil contamination of soil at this facility. The previous owner
closed the hazardous waste lagoons in 1982. The Remedial
Investigation/Feasibility Study (RIFS) was submitted to the Pennsylvania
Department of Environmental Protection on April 20, 2004. Remaining costs to
complete the investigation phase of the program are estimated to be $30,000.
No active remediation is anticipated at this site, however, we still await a
response from the Pennsylvania Department of Environmental Protection to our
RIFS.. Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995 Certain of the statements contained in this report are made pursuant to the
Safe Harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include statements regarding our goals,
beliefs, plans or current expectations, taking into account the information
currently available to our management. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For
example, when we use such words as anticipate, intend, expect, believe,
plan, may, should, would or other words that convey uncertainty of
future events or outcome, we are making forward-looking statements. All
statements which address operating performance, events or developments that we
expect or anticipate will occur in the future, including statements relating to
future sales, earnings, operating performance, restructuring strategies,
property, plant and equipment expenditures and sources and uses of cash, are
forward-looking statements. These forward-looking statements are subject to
various risks and uncertainties that could cause actual results to differ
materially from those stated or implied by such forward-looking statements. We
undertake no obligation to publicly release any revision of any forward-looking
statements contained herein 28




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to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events. With respect to expectations of future sales, earnings, operating performance,
restructuring strategies, property, plant and equipment expenditures and
sources and uses of cash, factors that could affect actual results include,
without limitation:  
    
    our significant amount of debt and the restrictive covenants
contained in our debt agreements;  
    
    our ability to service our debt and incur additional debt;
    
    our ability to dispose of our properties held for sale and realize their carrying values;  
    
    our ability to achieve growth rates and profit projections assumed
in the valuation of our goodwill;  
    
    the impact of interest rates on the valuations of our pension liabilities and goodwill;
    
    cyclicality, seasonality and weather conditions, which affect the sales of our products;
    
    the length and magnitude of recovery from the recent economic downturn;
    
    costs and cost savings related to the closing of our Booneville, Mississippi facility;
    
    the extent of recovery in United States commercial construction activity;  
    
    the impact of competitive factors in our industry, including the
effect of pricing, product lines and other actions taken by our
competitors;  
    
    our ability to maintain our relationships with our major customers;
    
    demand for our products;  
    
    our ability to achieve, and the timeliness with which we achieve,
anticipated results from our capital improvement plans, cost reduction
initiatives, product and process development activities, productivity
and efficiency initiatives, global expansion activities, market share
penetration efforts and working capital management programs;  
    
    our potential exposure to environmental liabilities;
    
    economic, political and currency risks relating to our international operations;  
    
    our ability and the ability of our customers to maintain
satisfactory relations with employees;  
    
    costs for labor and benefits including healthcare and pension
costs;  
    
    extraordinary fluctuations in price and availability in the markets
for raw materials and our ability to hedge the cost of raw materials
effectively; 29




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
    
    extraordinary fluctuations in the cost and availability of fuel and
energy resources and our ability to hedge these costs;  
    
    risks to our competitive position from changing technology or the
loss of our intellectual property;  
    
    business and economic risks relating to government regulations that
impact our industry;  
    
    the mix of our geographic and product revenues; and various other factors, many of which are beyond our ability to control or
predict. 30




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including changes in interest rates,
commodity prices and foreign currency rates. Market risk is the potential loss
arising from adverse changes in market rates and prices. We do not enter into
derivatives or other financial instruments for trading or speculative purposes.
In the ordinary course of business, we enter into various types of
transactions involving financial instruments to manage and reduce the impact of
changes in commodity prices and foreign exchange rates. Interest Rate Risk The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates rise.
The estimated fair value of our total long-term fixed interest rate debt as of
July 4, 2004 was $258.7 million, versus a carrying value of $249.6 million.
The estimated fair market value of our debt is based upon the indicative bid
price for our Senior Notes which approximates their trade value. The yield
implicit in the value of the 7.375% Senior Notes is 7.96% and 7.44% for the
10.5% Senior Notes. A 1% increase from prevailing interest rates would result
in a decrease in fair value of this debt by approximately $8.0 million as of
July 4, 2004. We have in place an interest rate swap on $50 million notional amount of our
7.375% Senior Notes. The terms of the interest rate swap are semi-annual
payment dates of February 1 and August 1, a floating rate option of the
six-month LIBOR rate plus a spread of 3.76% and a termination date of August 1,
2008. As of July 4, 2004, we recorded the fair market value of the interest
rate swap of $1.0 million as other liabilities with a corresponding decrease to
the hedged debt, with equal and offsetting unrealized gains and losses included
in other income expense. For the three and six month periods ended July 4,
2004, the interest rate swap effectively converted $50 million of fixed rate
7.375% Senior Notes to a variable rate of 6.1% and 5.7%, respectively. Commodity Price Risk In connection with the sale of some finished products, we have entered into
commodity forward contracts to buy metal to reduce the risk of price increases
with respect to both firm-price sale commitments and anticipated sales. As of
July 4, 2004, we had entered into contracts hedging the raw material
requirements for committed and anticipated future sales through July 2005
having a notional value of $10.8 million. The estimated fair value of these
outstanding contracts based upon forward rates at July 4, 2004 was an asset of
approximately $2.4 million as of July 4, 2004. A 10.0% decline in commodity
prices would decrease the estimated fair value of these outstanding contracts
by $1.3 million as of July 4, 2004. We also have entered into commodity forward contracts to sell metal as we have
deemed appropriate to reduce the risk of price decreases with respect to
firm-price purchase 31




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commitments. As of July 4, 2004, we have entered into
contracts hedging the raw material requirements for committed future purchases
through October 2004 having a notional value of $6.5 million. The estimated
fair value of these outstanding contracts based upon forward rates at July 4,
2004 was a liability of approximately $0.1 million as of July 4, 2004. A 10.0%
increase in commodity prices would decrease the estimated fair value of these
outstanding contracts by $0.7 million at July 4, 2004. We have entered into commodity forward contracts to buy copper on the LME and
to sell copper on the COMEX in order to mitigate the unfavorable difference in
pricing copper based on COMEX in the U.S. market versus pricing copper based on
LME in the international market. As of July 4, 2004, we had entered into
contracts on COMEX to sell copper hedging the raw material requirements for
committed future purchases through September 2004 having a notional value of
$3.7 million. The estimated fair value of these outstanding contracts based
upon forward rates at July 4, 2004 was a liability of approximately $4,000 as
of July 4, 2004. A 10.0% increase in commodity prices would decrease the
estimated fair value of these outstanding contracts by $0.4 million at July 4,
2004. Related to these forward contracts, we have entered into commodity
forward contracts to buy copper on LME through September 2004 with an
offsetting notional value of $3.8 million. The estimated fair value of these
outstanding contracts based upon forward rates at July 4, 2004 was an asset of
approximately $86,400 as of July 4, 2004. A 10.0% decrease in commodity prices
would decrease the estimated fair value of these outstanding contracts by $0.4
million at July 4, 2004. We have entered into commodity forward contracts to sell copper with a notional
value of $45.4 million in September 2004. We entered into these forward
contracts in order to mitigate the impact of fluctuating copper prices with
regard to the valuation of our inventory balances. These forward contracts
were not designated as effective hedges and therefore they are marked to market
each month with gains and losses recorded in cost of goods sold. The estimated
fair value of these outstanding contracts based upon forward rates at July 4,
2004 was a loss of approximately $0.5 million as of July 4, 2004. A 10.0%
increase in commodity prices would increase the estimated loss on these
outstanding contracts by $4.6 million as of July 4, 2004. In connection with the purchase of natural gas, we have entered into commodity
futures contracts for natural gas to reduce our risk of future price increases.
As of July 4, 2004, we had commodity futures contracts to purchase natural gas
for the period August 2004 through December 2004 with a notional amount of $2.4
million and an unrealized gain of $0.8 million, based on futures prices as of
July 4, 2004. The effect of a 10.0% decline in commodity prices as of July 4,
2004 for these futures contracts would result in a potential loss in fair value
of approximately $0.3 million. Foreign Currency Risk Some of our operations use foreign exchange forwards to hedge fixed purchase
and sales commitments denominated in a foreign currency. These foreign
currency exposures relate primarily to nonfunctional currency assets and
liabilities denominated in Euros and British Pound
Sterling. We do not enter into forward exchange contracts for trading
purposes. These forward contracts and the underlying hedged receivables and
payables are carried at their fair values with any associated gains and losses
recognized in current period earnings. As of July 4, 2004, we had forward
exchange contracts outstanding to purchase foreign currency with a notional
amount of $8.7 million and to sell foreign currency with a notional amount of
$0.7 32




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million. As of July 4, 2004, we had an insignificant unrealized loss
associated with these forward contracts. The potential loss in fair value for
these forward contracts from a 10.0% adverse change in quoted foreign currency
exchange rates would be approximately $0.9 million. We use foreign exchange forward contracts to hedge our inventory currency risk
in Canada. These contracts are denominated in U.S. and Canadian dollars. As of
July 4, 2004, we had forward contracts outstanding through December 2004 to
purchase foreign currency with a notional amount of $7.4 million. As of July 4,
2004, we had an unrealized loss of $0.1 million associated with these forward
contracts. The potential loss in fair value from a 10% adverse change in
exchange rates would be approximately $0.7 million. 
 ITEM 4. CONTROLS AND PROCEDURES Under the supervision and with the participation of management, including our
Chief Executive Officer, Dennis J. Horowitz, and our Chief Financial Officer,
James E. Deason, we carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as
of the end of the period covered by this report. Based upon that evaluation,
Messrs. Horowitz and Deason have concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures have been
designed and are effective to provide reasonable assurance that information we
are required to disclose in the reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
These disclosure controls and procedures include, without limitation, controls
and procedures designed to provide reasonable assurance that information we are
required to disclose in such reports is accumulated and communicated to our
management, including Messrs. Horowitz and Deason, as appropriate to allow
timely decisions regarding required disclosure. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events. There can be no assurance that any design will succeed in
achieving its stated goal under all potential future conditions, regardless of
how remote. Based upon the evaluation of our management, which was conducted with the
participation of Messrs. Horowitz and Deason, there has been no change in our
internal control over financial reporting during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. 33




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PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS  There were no material legal proceeding developments during the three-month
period ended July 4, 2004. 
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES On June 23, 2004, the Company completed a private placement of 2.45
million shares of its Common Stock at a price of $10.00 per share raising $24.5
million. The shares of Common Stock were offered and sold to accredited
institutional investors pursuant to exemptions from registration under
Regulation D, Rule 506 under the Securities Act of 1933. After paying selling
commissions and other expenses of $1.6 million, the Company received net
proceeds of approximately $22.9 million from the transaction, $21.0 million of
which was used to repurchase $18.6 million principal amount of our 2009 Senior
Notes and to pay premiums and accrued interest. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  On May 20, 2004, the Company held its Annual Meeting of Stockholders. The
matters voted on at the meeting and the results of those votes are as
follows:  1.
    
    Election of Directors. Votes For
    
    Votes WithheldJohn L. Duncan
    
    
    10,917,717
    
    
    
    286,319Jan K. Ver Hagen
    
    
    10,969,937
    
    
    
    234,099
 Other Directors whose term of office continued after the meeting were
Dennis J. Horowitz, James E. Deason, W. Barnes Hauptfuhrer, Thomas P. Evans,
Chris A. Davis and Gail O. Neuman.  2.
    
    Appointment of Ernst & Young LLP as Independent Auditors. Votes For
    
    Votes Against
    
    Votes Abstained11,090,484
    
    
    
    87,436
    
    
    
    26,116
 34




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits  31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief 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 Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.  (b)
    
    Reports on Form 8-KA current report on Form 8-K related to the Company having extended its
$37.5 million Secured Revolving Credit Facility for two years maturing on
March 31, 2007 including amendments to certain financial covenants was
furnished to the SEC on April 6, 2004.A current report on Form 8-K related to the reporting of the Companys
results of operations and financial condition for the quarter ended April
4, 2004, was furnished to the SEC on April 27, 2004.A current report on Form 8-K related to the completion of a private
placement of 2.45 million shares of the Companys common stock to
accredited investors at a price of $10.00 per share was furnished to the
SEC on June 24, 2004. 35




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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized. WOLVERINE TUBE, INC.By:
    
    /s/ James E. DeasonName:
    
    
    
    James E. DeasonTitle:
    
    
    
    Executive Vice President, Chief Financial Officer,Secretary and Director
 Dated: August 12, 2004 36