Daily photos by Gary Lloyd|
Clarence Harris with a block of scrap copper that will be recycled into billets. Wolverine was delisted Thursday from the New York Stock Exchange. Jed Deason, Wolverine’s vice president of investor relations, is emphatic that the delisting is a non-event in terms of his company’s ongoing viability.
Wolverine faces uncertain future
By Eric Fleischauer
You do not have to stand long in Wolverine Corp.’s Decatur hot metal shop to understand some of the problems overwhelming its balance sheet.
Green flames lick the metal into an iridescent liquid at the Market Street Southeast plant. The copper, at $3.20 per pound, is close to its all-time high. The flames come from natural gas, also close to an all-time high.
The escalating costs of these inescapable ingredients in Wolverine’s copper tubing do not explain all of its financial woes, but they explain a lot.
Wolverine officials insist the productive Decatur plant is solid. The plight of the company that owns it, however, seems precarious.
The most recent news: Beginning Thursday, its stock was delisted from the New York Stock Exchange. It trades on the OTC Bulletin Board.
While the delisting causes problems, it is merely a symptom.
Flames and heat help produce molten copper in the casting unit at Wolverine Corp. plant on Market Street Southeast. Copper, at $3.20 per pound, is close to its all-time high. The flames come from natural gas, also close to an all-time high.
The NYSE delisted the stock because its market capitalization — its value as determined by the market price of its issued and outstanding common stock — remained below $25 million for a month.
No surprise. At its initial offering in 1993, Wolverine shares sold at over $16. They broke $40 in 1996 and again in 1999, but since then it’s been an erratic slide. The slope turned into a cliff in 2005. Wolverine closed Thursday at $1.07, after briefly falling below $1.
Jed Deason, Wolverine’s vice president of investor relations, is emphatic that the delisting is a non-event in terms of his company’s ongoing viability.
Deason: Little impact
“This is going to have very little impact on us. Our stock is still traded, so it won’t have much impact on much of anything,” Deason said last week.
“It’s not going to impact (our ability to get credit) at all. I don’t think it’s
going to be significant even to the shareholders.”
Deason said the company did all that it could to remain listed.
“We talked to a number of people
at the New York Stock Exchange, up to the top decision maker there,” Deason said.
Merely presenting a plan to increase market capitalization was not enough to forestall the delisting, Deason said.
“At the appropriate time,” Deason said, “we’ll look at getting re-listed on another exchange. But this (delisting) should not have much of any impact on Wolverine.”
Dorla Evans, chairman of the accounting and finance department at The University of Alabama in Huntsville, suspects otherwise.
‘It’s like failing a class’
“When you get kicked off (the NYSE), it’s like failing a class,” Evans said. “People know it’s bad.”
Even if there are positives in a company’s business plan that would otherwise attract creditors, the delisting will prevent many from searching for those positives.
“Being delisted gives the signal of all of the associated, underlying problems,” Evans said. “It’s easy for someone to roll all those problems together and say, ‘It must be bad.’ They don’t have to check the details to find why.”
Firms raise money, for the most part, through retained earnings (that profit not distributed as dividends) or bond issues. Retained earnings are not an option for Wolverine because it is not retaining them. It had net losses per share of $1.63 in 2001; $3.31 in 2003; $2.57 in 2005 and, in the first three quarters of 2006, $3.01. It had per-share earnings in 2002 of 45 cents and in 2004 of 3 cents.
To finance operations, therefore, Wolverine may have to look to the bond market.
“By being delisted,” Evans said, “that means borrowing as a source of money is going to be much more expensive, if available at all. ... It puts them is a whole different risk class.”
Delisting also eliminates some mutual funds as prospective shareholders, Evans said.
Caster Greg Stricklin takes a sample of molten copper at the casting unit of the Wolverine plant.
Underlying the delisting are other problems. In November, after Wolverine hinted that it might elect to file a Chapter 11 bankruptcy as part of a deal to borrow money, Standard & Poors reduced Wolverine’s credit rating because of its belief the company would be unable to secure necessary financing because of “very high debt leverage and weak operating results.”
Wolverine said in a November filing with the Securities and Exchange Commission that it thought it could sustain itself, but warned that if confronted with several eventualities, “we could face a default and acceleration of our debt, possibly leading to bankruptcy or insolvency.”
Wolverine’s major challenge has been copper prices. In the third quarter of 2005, copper was already high by historical measures at $1.70 per pound. A year later, it was at $3.54 per pound.
While it can pass most of the increased copper and natural gas cost to the consumer, the money tied up in its product plays havoc with Wolverine’s working capital. The company has taken steps to alleviate this — mainly by reducing inventory and shortening its customers’ payment terms.
The company has no choice but to pass the cost of copper to its customers, but this causes other problems. Faced with the high prices, customers are substituting other products for copper tube whenever possible.
Of most significance locally, of course, is not the share price but the viability of the 525-employee Decatur plant.
Wolverine, located on the riverfront, is a fixture in Decatur. It opened in 1948, the first industrial recruit to the area after World War II. In 1973, boasting more than 1,000 employees in Decatur, it moved its headquarters here from Detroit. In 1994, a year after going public, it moved its headquarters to Huntsville.
On Wednesday, just after the company’s annual maintenance shutdown, workers hustled and copper flowed. Tons of baled copper scrap awaited the trip to the furnace, and forklifts moved hundreds of 520-pound copper billetts after casting. There were signs of recent investment in the plant, and workers were clearing ground for improvements in the plant’s security system.
Deason said Wolverine had no plans to sell the facility.
“We’re going to continue to operate that plant,” he said. “Hopefully, we’ll continue to supply our sister plants from there and supply our other markets.”
Ashley Stout, the plant’s converting manager, smiled with determined optimism behind her safety glasses.
“We expect the Decatur plant to be here for the long haul,” Stout said. “It’s been challenging, but we have excellent employees and strong product demand. We’re not going anywhere.”
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