1
August 6, 2001
Securities and Exchange Commission
Office of EDGAR Policy
450 Fifth Street, N.W.
Washington, DC 20544
Re: Tower Automotive 10-Q
Gentlemen:
The Form 10-Q for Tower Automotive that was Live Filed on August 3, 2001
(Accession number 0000950137-01-502697) contained the following two errors: a)
in the Notes to Condensed Consolidated Financial Statements, footnote 4 on page
8 was incomplete due to a portion of the last sentence of the footnote being
inadvertantly omitted, and b) in the Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 22, the date in the
"Income Taxes" paragraph was incorrectly stated as the six months ended July 30,
2001, and should have read June 30, 2001.
We are therefore filing the attached Amendment to Form 10-Q to correct those two
errors.
Very truly yours,
/s/ ANTHONY A. BARONE
------------------------------
Anthony A. Barone
2
FORM 10-Q/A
(Amendment No. 1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-12733
TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4508 IDS CENTER 55402
MINNEAPOLIS, MINNESOTA (Zip Code)
(Address of principal executive offices)
(612) 342-2310
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at July 31, 2001 was 44,397,350 shares.
3
TOWER AUTOMOTIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations (unaudited) for
the Three Months Ended June 30, 2001 and 2000
Condensed Consolidated Statements of Operations (unaudited) for
the Six Months Ended June 30, 2001 and 2000
Condensed Consolidated Balance Sheets at June 30, 2001
(unaudited) and December 31, 2000
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Six Months Ended June 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Market Risk" section of Item 2
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
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ITEM 1 - FINANCIAL INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
THREE MONTHS ENDED JUNE 30,
---------------------------
2001 2000
--------- ---------
Revenues $ 642,407 $ 681,020
Cost of sales 557,146 566,649
--------- ---------
Gross profit 85,261 114,371
Selling, general and administrative expenses 35,020 33,431
Amortization expense 6,130 5,118
--------- ---------
Operating income 44,111 75,822
Interest expense, net 20,121 13,534
--------- ---------
Income before provision for income taxes 23,990 62,288
Provision for income taxes 9,444 24,916
--------- ---------
Income before equity in earnings of joint
ventures and minority interest 14,546 37,372
Equity in earnings of joint ventures 4,790 4,540
Minority interest - dividends on trust preferred
securities, net (2,664) (2,619)
--------- ---------
Net income $ 16,672 $ 39,293
========= =========
Basic earnings per share $ 0.38 $ 0.83
========= =========
Diluted earnings per share $ 0.35 $ 0.68
========= =========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS - UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------------
2001 2000
----------- -----------
Revenues $ 1,270,783 $ 1,366,384
Cost of sales 1,106,251 1,140,291
----------- -----------
Gross profit 164,532 226,093
Selling, general and administrative expenses 70,319 68,087
Amortization expense 12,208 10,217
----------- -----------
Operating income 82,005 147,789
Interest expense, net 39,843 26,731
----------- -----------
Income before provision for income taxes 42,162 121,058
Provision for income taxes 16,472 48,424
----------- -----------
Income before equity in earnings of joint
ventures and minority interest 25,690 72,634
Equity in earnings of joint ventures 9,171 9,020
Minority interest - dividends on trust preferred
securities, net (5,328) (5,238)
----------- -----------
Net income $ 29,533 $ 76,416
=========== ===========
Basic earnings per share $ 0.67 $ 1.62
=========== ===========
Diluted earnings per share $ 0.63 $ 1.32
=========== ===========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
JUNE 30, DECEMBER 31,
ASSETS 2001 2000
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 11,185 $ 3,373
Accounts receivable, net 295,892 278,707
Subordinated interest in accounts receivable 28,336 --
Inventories, net 100,392 132,478
Prepaid tooling and other 211,144 222,119
----------- -----------
Total current assets 646,949 636,677
----------- -----------
Property, plant and equipment, net 1,149,877 1,111,780
Investments in joint ventures 306,525 267,217
Goodwill and other assets, net 854,715 877,073
----------- -----------
$ 2,958,066 $ 2,892,747
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt and capital lease $ 152,816 $ 149,066
obligations
Accounts payable 360,896 248,389
Accrued liabilities 267,037 175,219
----------- -----------
Total current liabilities 780,749 572,674
----------- -----------
Long-term debt, net of current maturities 768,891 933,442
Obligations under capital leases, net of current maturities 6,016 8,458
Convertible subordinated notes 200,000 200,000
Deferred income taxes 38,120 33,884
Other noncurrent liabilities 181,940 185,444
----------- -----------
Total noncurrent liabilities 1,194,967 1,361,228
----------- -----------
Mandatorily redeemable trust convertible preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 481 476
Additional paid-in capital 453,440 450,455
Retained earnings 337,489 307,956
Deferred income stock plan (10,219) (8,942)
Accumulated other comprehensive loss (17,413) (9,672)
Treasury stock, at cost (40,178) (40,178)
----------- -----------
Total stockholders' investment 723,600 700,095
----------- -----------
$ 2,958,066 $ 2,892,747
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------------
2001 2000
----------- -----------
OPERATING ACTIVITIES:
Net income $ 29,533 $ 76,416
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 81,025 76,542
Deferred income tax provision 7,463 21,387
Changes in other operating items 182,389 (101,039)
----------- -----------
Net cash provided by operating activities 300,410 73,306
----------- -----------
INVESTING ACTIVITIES:
Acquisitions and investment in joint ventures (13,535) (153,331)
Capital expenditures, net (102,073) (41,648)
----------- -----------
Net cash used in investing activities (115,608) (194,979)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,181,978 1,565,574
Repayment of debt (1,359,880) (1,443,439)
Proceeds from issuance of stock 912 5,307
----------- -----------
Net cash (used in) provided by financing activities (176,990) 127,442
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 7,812 5,769
CASH AND CASH EQUIVALENTS:
Beginning of period 3,373 3,617
----------- -----------
End of period $ 11,185 $ 9,386
=========== ===========
NON-CASH FINANCING ACTIVITIES:
Notes payable converted to common stock $ 800 $ --
=========== ===========
Deferred income stock plan $ 1,277 $ 4,458
=========== ===========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared by Tower Automotive, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished in the condensed consolidated
financial statements includes normal recurring adjustments and reflects
all adjustments which are, in the opinion of management, necessary for
a fair presentation of such financial statements. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
Although the Company believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these
condensed consolidated financial statements be read in conjunction with
the audited financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
2000.
Revenues and operating results for the six months ended June 30, 2001
are not necessarily indicative of the results to be expected for the
full year.
Certain prior year amounts were reclassified to conform to current year
presentation.
2. Inventories consisted of the following (in thousands):
JUNE 30, DECEMBER 31,
2001 2000
--------- -----------
Raw materials $ 43,493 $ 54,958
Work in process 24,834 40,281
Finished goods 32,065 37,239
--------- ---------
$ 100,392 $ 132,478
========= =========
3. Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during the respective
quarters. Diluted earnings per share were determined on the assumptions:
(i) the Edgewood notes were converted at the beginning of the period, (ii)
the Convertible Subordinated Notes were converted at the beginning of the
period, and (iii) the Preferred Securities were converted at the beginning
of the period (in thousands, except for per share data):
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9
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
Net income $16,672 $39,293 $29,533 $76,416
Interest expense on Edgewood notes,
net of tax 3 8 10 16
Interest expense on Convertible
Subordinated Notes, net of tax 1,653 1,626 3,305 3,252
Dividends on Preferred Securities,
net of tax 2,664 2,619 5,328 5,238
------- ------- ------- -------
Net income applicable to common
stockholders -- diluted $20,992 $43,546 $38,176 $84,922
======= ======= ======= =======
Weighted average number of common
shares outstanding 44,416 47,750 44,263 47,480
Dilutive effect of outstanding stock
options and warrants after
application of the treasury
stock method 121 166 126 220
Dilutive effect of Edgewood notes,
assuming conversion 125 289 194 289
Dilutive effect of Convertible
Subordinated Notes, assuming
conversion 7,730 7,730 7,730 7,730
Dilutive effect of Preferred
Securities, assuming conversion 8,424 8,424 8,424 8,424
------- ------- ------- -------
Diluted shares outstanding 60,816 64,359 60,737 64,143
======= ======= ======= =======
Basic earnings per share $ 0.38 $ 0.83 $ 0.67 $ 1.62
======= ======= ======= =======
Diluted earnings per share $ 0.35 $ 0.68 $ 0.63 $ 1.32
======= ======= ======= =======
4. Long-term debt consisted of the following (in thousands):
JUNE 30, DECEMBER 31,
2001 2000
----------- -----------
Revolving credit facility $ 211,778 $ 345,919
Senior Euro notes 127,470 141,330
Term credit facility 325,000 325,000
Industrial development revenue bonds 43,765 43,765
Edgewood notes 78 878
Other foreign subsidiary indebtedness 151,943 151,171
Other 59,046 72,969
----------- -----------
919,080 1,081,032
Less-current maturities (150,189) (147,590)
----------- -----------
Total long-term debt $ 768,891 $ 933,442
=========== ===========
On July 25, 2000, the Company replaced its existing $750 million amortizing
credit agreement with a new six-year $1.15 billion senior unsecured credit
agreement. The new credit agreement includes a non-amortizing revolving
facility of $825 million along with an amortizing term loan of $325
million. The new facility also includes a multi-currency borrowing feature
that allows the Company to borrow up to $500 million in certain freely
tradable offshore currencies, and letter of credit sublimits of $100
million. As of June 30, 2001, approximately $13.5 million of the
outstanding borrowings are denominated in Japanese yen and $52.3 million of
the outstanding borrowings are denominated in Euro. Interest on the new
credit facility is at the financial institutions' reference rate, LIBOR, or
the Eurodollar rate plus a margin ranging from 0 to 200 basis points
depending on the ratio of the consolidated funded debt for restricted
subsidiaries of the Company to its total EBITDA. The
-7-
10
weighted average interest rate for such borrowings was 7.35 percent for six
months ended June 30, 2001. The new credit agreement has a final maturity
of 2006. As a result of the debt replacement, the Company recorded an
extraordinary loss, net of tax, of $3.0 million during the third quarter of
2000.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage and maximum
leverage ratio. As of June 30, 2001, the Company was in compliance with all
debt covenants.
On July 25, 2000, R. J. Tower (the "Issuer"), a wholly-owned subsidiary of
the Company, issued Euro-denominated senior unsecured notes in the amount
of E150 million. The notes bear interest at a rate of 9.25 percent,
payable semi-annually. The notes rank equally with all of the Company's
other unsecured and unsubordinated debt. The net proceeds after issuance
costs were used to repay a portion of the Company's existing
Euro-denominated indebtedness under its existing credit facility. The notes
mature on August 1, 2010.
During September 2000, the Company entered into an interest rate swap
contract to hedge against interest rate exposure on approximately $160
million of its floating rate indebtedness under its $1.15 billion senior
unsecured credit facility. The contracts have the effect of converting the
floating rate interest to a fixed rate of approximately 6.9 percent, plus
any applicable margin required under the revolving credit facility. The
interest rate swap contract was executed to balance the Company's
fixed-rate and floating-rate debt portfolios and expires in September 2005.
5. During the quarter ended June 30, 2001 the Company entered into an
agreement whereby the domestic operating units will sell eligible customer
receivables on an ongoing basis to a newly formed special purpose entity
(the "SPE"). Upon recording the sale, the operating units recognize a loss
representing the difference between the carrying value of the eligible
receivables and the net sales proceeds received. The loss consists of the
effects of yield adjustments and projected credit losses associated with
the receivables pool. The SPE records its ownership in the net receivables
purchased from the operating units. The SPE subsequently sells its interest
in receivables to a third party funding agent in exchange for cash and a
subordinated interest in the unfunded receivables transferred. The Company
acts as an administrative agent in the management and collection of
accounts receivable sold. The Company remits all cash collected from
domestic receivables to the SPE. The SPE records a liability for amounts
due to the funding agent along with any funding costs and applies any
excess collections to reduce its subordinated interest in receivables sold.
Cash collected by the SPE in excess of amounts due the funding agent and
its net subordinated interest in the receivables pool are recorded as
investment income by the SPE. This income represents an offset of the yield
adjustments and credit losses recorded by the operating units upon sale in
adjusting the carrying value of receivables sold. The net impact of the
yield loss and credit loss adjustment is not material.
During the quarter ended June 30, 2001, the Company sold approximately
$180.7 million of net accounts receivable in exchange for $54.0 million of
cash and a retained subordinated interest in the receivables sold of
approximately $126.7 million. The proceeds from the sale were used to pay
down borrowings under the Company's revolving credit facility. As of June
30, 2001, the SPE recorded a liability to the funding agent of $54.0
million and a subordinated interest in receivables sold of $28.3 million.
Settlement of amounts due to the funding agent as well as its funding cost
of approximately 7.6 percent occurs during the month subsequent to the sale
of the receivables. During the period preceding this settlement, the SPE
advances any excess cash from collections to R.J. Tower in the form of a
demand note receivable. The demand note is eliminated on consolidation.
6. On November 30, 2000, the Company completed the acquisition of Strojarne
Malacky, a.s. ("Presskam"), a manufacturer of upper body structural
assemblies for Volkswagen, Porsche and Skoda, located near Bratislava,
Slovakia. The Company paid total consideration of approximately $10 million
for Presskam and intends to use the investment to further support
Volkswagen's Bratislava assembly operation.
On July 6, 2000, the Company acquired the remaining 60 percent equity
interest in Metalurgica Caterina S.A. ("Caterina") for approximately $42
million. The initial 40 percent interest was acquired in March 1998, for
approximately $48 million. Caterina is a supplier of structural stampings
and assemblies to the Brazilian automotive market, including Volkswagen and
Mercedes-Benz. The acquisition was funded with proceeds from the Company's
revolving credit facility.
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On May 3, 2000, the Company acquired all of the outstanding common
stock of Algoods, Inc. ("Algoods") for total consideration of
approximately $33 million. Algoods manufactures aluminum heat shields
and impact discs for the North American automotive industry from
aluminum mini-mill and manufacturing operations located in Toronto,
Canada. Its primary customer is DaimlerChrysler. The acquisition of
Algoods represents a significant investment in processing technology
for lightweight materials which complements the Company's existing heat
shield capabilities and provides opportunities for application in other
lightweight vehicle structural products. The acquisition was funded
with proceeds from the Company's revolving credit facility.
Effective January 1, 2000, the Company acquired all of the outstanding
shares of Dr. Meleghy GmbH & Co. KG Werkzeugbau und Presswerk, Bergisch
Gladbach ("Dr. Meleghy") for approximately $86.4 million. Dr. Meleghy
designs and produces structural stampings, assemblies, exposed surface
panels and modules to the European automotive industry. Dr. Meleghy
also designs and manufactures tools and dies for use in their
production and for the external market. Dr. Meleghy operates three
facilities in Germany and one facility in both Hungary and Poland. Dr.
Meleghy's main customers include DaimlerChrysler, Audi, Volkswagen,
Ford, Opel and BMW. Products offered by Dr. Meleghy include body side
panels, floor pan assemblies and miscellaneous structural stampings.
Based on the purchase contract, the Company anticipates it will pay an
additional $24 million during 2001 for achieving certain operating
earnings targets during the 2000 period. The acquisition was financed
with proceeds from the Company's revolving credit facility.
On October 29, 1999, the Company invested $21 million for new shares
representing a 49 percent equity interest in Seojin Industrial Company
Limited ("Seojin"). Seojin is a supplier of frames, modules and
structural components to the Korean automotive industry. Consideration
for the equity interest was financed under the Company's revolving
credit facility. In addition, the Company advanced $19 million to
Seojin in exchange for variable rate convertible bonds (the "Bonds")
due October 30, 2009. On October 31, 2000, the Company exercised its
right to convert the bonds into 17 percent of the common stock of
Seojin increasing the Company's equity interest to 66 percent. Based
upon the formula conversion of the Seojin bonds, the Company paid an
additional $1.2 million for the 17 percent equity interest.
The acquisitions discussed above have been accounted for using the
purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed have been recorded at the fair value as of the date
of the acquisitions. The assets and liabilities of Caterina and
Presskam have been recorded based on preliminary estimates of fair
value as of the date of acquisition. The excess of the purchase price
over the fair value of the assets acquired and liabilities assumed has
been recorded as goodwill. The Company is further evaluating the fair
value of certain assets acquired and liabilities assumed in connection
with the Caterina and Presskam acquisitions and as a result, will
likely result in adjustments to the preliminary allocation of the
purchase price.
In conjunction with its acquisitions, the Company has established
reserves for certain costs associated with facility shutdown and
consolidation activities and for general and payroll related costs
primarily for planned employee termination activities. As of December
31, 2000, approximately $7.3 million and $3.9 million were recorded for
facility shutdown and payroll related costs, respectively. Costs
incurred and charged to such reserves amounted to $0.8 million for
facility shutdown costs and $1.2 million for payroll related
termination costs for the six months ended June 30, 2001. At June 30,
2001, liabilities of approximately $6.5 million for costs associated
with facility shutdown and consolidation activities and $2.7 million of
costs for planned employee termination activities remained. The timing
of facility shutdown and consolidation activities has been adjusted to
reflect customer concerns with supply interruption. These reserves have
been utilized as originally intended and management believes the
liabilities recorded for shutdown and consolidation activities are
adequate but not excessive as of June 30, 2001.
7. The Company has a 31 percent equity interest in Yorozu Corporation
("Yorozu") acquired from Nissan Motor Co. Ltd. ("Nissan"). The Company
acquired its original 17 percent equity interest in Yorozu for
approximately $38 million in September 2000 payable to Nissan over two
and one-half years. The Company exercised its option to purchase an
additional 13.8 percent equity interest in Yorozu for approximately $30
million in February 2001 payable to Nissan over two and one-half years.
The Company formed a product technology and development joint venture,
DTA Development, with Defiance Testing & Engineering Services, Inc., a
subsidiary of GenTek Inc. through an investment of $2.1 million in
March 2000, which represents a 40 percent equity interest.
8. The Company is a 40 percent partner in Metalsa S. de R.L. ("Metalsa")
with Promotora de Empresas Zano, S.A. de C.V. ("Proeza"). The
partnership agreement provides additional amounts of up to $45
- 9 -
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million payable based upon net earnings of Metalsa during 1998, 1999,
and 2000. Based upon Metalsa's net earnings, the Company paid Proeza
approximately $9.0 million and $7.9 million in additional consideration
during 1999 and 2000, respectively. Based upon Metalsa's 2000 net
earnings, the Company anticipates it will pay Proeza approximately
$8.0 million in additional consideration during 2001.
9. On October 2, 2000, the Company's board of directors approved a
comprehensive operational realignment plan (the "Plan"), which is
intended to improve the Company's long-term competitive position and
lower its cost structure. The Plan includes phasing out the heavy truck
rail manufacturing in Milwaukee, Wisconsin; reducing stamping capacity
by closing the Kalamazoo, Michigan facility; and consolidating related
support activities across the enterprise. The Company recognized a
charge to operations of approximately $141.3 million in the fourth
quarter of 2000, which reflects the estimated qualifying "exit costs"
to be incurred over the next 12 months under the Plan.
The charge includes costs associated with asset impairments, severance
and outplacement costs related to employee terminations, loss contract
provisions and certain other exit costs. These activities are
anticipated to result in a reduction of more than 800 employees.
Through June 30, 2001, the Company had eliminated approximately 850
employees pursuant to the Plan. The estimated realignment charge does
not cover certain aspects of the Plan, including movement of equipment
and employee relocation and training. These costs will be recognized in
future periods as incurred.
The asset impairments consist of long-lived assets, including fixed
assets, manufacturing equipment and land, from the facilities the
Company intends to dispose of or discontinue. For assets that will be
disposed of currently, the Company measured impairment based on
estimated proceeds on the sale of the facilities and equipment. The
carrying value of the long-lived assets held for sale or disposal is
approximately $3.8 million as of June 30, 2001. For assets that will be
held and used in the future, the Company prepared a forecast of
expected undiscounted cash flows to determine whether asset impairment
existed, and used fair values to measure the required write-downs.
These asset impairments have arisen only as a consequence of the
Company making the decision to exit these activities during the fourth
quarter of 2000. The assets will be abandoned or disposed of upon the
exit of the activity, with expected completion during the first nine
months of 2001.
The accrual for operational realignment and other costs is included in
accrued liabilities in the accompanying consolidated balance sheet as
of June 30, 2001. The table below summarizes the accrued operational
realignment and other charges through June 30, 2001 (in millions):
SEVERANCE AND OTHER
ASSET OUTPLACEMENT LOSS EXIT
IMPAIRMENTS COSTS CONTRACTS COSTS TOTAL
----------- ------------- --------- ------- -------
Provision for operational
realignment and other charges $ 103.7 $ 25.2 $ 8.1 $ 4.3 $ 141.3
Cash payments -- (8.7) (2.5) (0.3) (11.5)
Non cash charges (73.1) -- -- -- (73.1)
------- ------- ------- ------- -------
Balance at December 31, 2000 30.6 16.5 5.6 4.0 56.7
Cash payments -- (8.7) (3.4) (0.8) (12.9)
Non cash charges (10.6) -- -- -- (10.6)
------- ------- ------- ------- -------
Balance at June 30, 2001 $ 20.0 $ 7.8 $ 2.2 $ 3.2 $ 33.2
======= ======= ======= ======= =======
10. Supplemental cash flow information (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
2001 2000 2001 2000
-------- ---------- ------- -------
Cash paid for -
Interest $11,975 $14,800 $38,982 $32,273
Income taxes 1,598 9,815 3,281 16,277
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11. The following table presents comprehensive income, defined as changes in
the stockholders' investment of the Company, for the six months ended June
30, 2001 and 2000 (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
-------- --------- -------- --------
Net income $ 16,672 $ 39,293 $ 29,533 $ 76,416
Change in cumulative translation
adjustment 1,428 204 (2,406) (750)
Transition adjustment relating
to loss on qualifying cash flow
hedges -- -- (4,200) --
Unrealized gain(loss) on qualifying
cash flow hedges 1,365 -- (1,135) --
-------- -------- -------- -------
Comprehensive income $ 19,465 $ 39,497 $ 21,792 $ 75,666
======== ======== ======== ========
12. On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," issued by the Financial
Accounting Standards Board (the "FASB") in 1998. SFAS No. 133, as
amended, establishes accounting and reporting standards requiring the
recording of each derivative instrument in the balance sheet as either
an asset or liability measured at fair value. Changes in the derivative
instrument's fair value must be recognized currently in earnings unless
specific hedge accounting criteria is met. For hedges which meet the
criteria, the derivative instrument's gains and losses, to the extent
effective, may be recognized in accumulated other comprehensive income
or loss, rather than in earnings.
The Company has entered into an interest rate swap (see note 4) to
hedge the exposure to interest rate fluctuations on the credit
agreement. This agreement meets the specific hedge accounting criteria
and is designated as a cash flow hedge. The effective portion of the
cumulative gain or loss on the derivative instrument has been reported
as a component of accumulated other comprehensive loss in stockholders'
investment and will be recognized into current earnings in the same
period or periods during which the hedged transactions affect current
earnings.
The adoption of SFAS No. 133 on January 1, 2001 resulted in a pretax
charge to accumulated other comprehensive loss of $6.8 million ($4.2
million net of income tax benefit) for derivative instruments that were
issued, acquired or modified after December 31, 1998. The accumulated
other comprehensive loss was attributable to losses on effective cash
flow hedges. Amounts currently recorded in accumulated other
comprehensive loss ($5.3 million at June 30, 2001) will be reclassified
into current earnings by September 2005, the termination date for the
current agreement.
Derivative liabilities relating to the interest rate swap agreement
totaling $8.6 million have been recorded in accrued liabilities on the
balance sheet as of June 30, 2001. The fair value of the interest rate
swap agreement is based upon the difference between the contractual
rates and the present value of the expected future cash flows on the
hedged interest rate.
13. On June 29, 2001, the FASB approved for issuance, SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Intangible
Assets." Major provisions of these Statements are as follows: all
business combinations initiated after June 30, 2001 must use the
purchase method of accounting; the pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001; intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or
other legal rights or are separable from the acquired entity and can be
sold, transferred, licensed, rented or exchanged, either individually
or as part of a related contract, asset or liability; goodwill and
intangible assets with indefinite lives are not amortized but
- 11 -
14
tested for impairment annually, except in certain circumstances, and
whenever there is an impairment indicator; all acquired goodwill must
be assigned to reporting units for purposes of impairment testing and
segment reporting; effective January 1, 2002, goodwill will no longer
be subject to amortization. Management is currently reviewing the
provisions of these Statements and their impact on the Company's
results of operations.
14. The following consolidating financial information presents balance
sheets, statements of operations and cash flow information related to
the Company's business. Each Guarantor, as defined, is a direct or
indirect wholly-owned subsidiary of the Company and has fully and
unconditionally guaranteed the 9.25 percent senior unsecured notes
issued by R. J. Tower Corporation, on a joint and several basis. Tower
Automotive, Inc. (the parent company) has also fully and
unconditionally guaranteed the note and is reflected as the Parent
Guarantor in the consolidating financial information. The
Non-Guarantors include the Company's foreign subsidiaries. Separate
financial statements and other disclosures concerning the Guarantors
have not been presented because management believes that such
information is not material to investors.
- 12 -
15
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT JUNE 30, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,162 $ -- $ 109 $ 9,914 $ -- $ 11,185
Accounts receivable, net 4,416 -- 184,363 107,113 -- 295,892
Subordinated interest in accounts receivable -- -- -- 28,336 -- 28,336
Inventories, net 1,695 -- 63,586 35,111 -- 100,392
Prepaid tooling and other 24,719 -- 148,686 37,739 -- 211,144
----------- --------- ---------- ------------- ------------ ----------
Total current assets 31,992 -- 396,744 218,213 -- 646,949
----------- --------- ---------- ------------- ------------ ----------
Property, plant and equipment, net 39,051 -- 856,834 253,992 -- 1,149,877
Investments in joint ventures 256,535 45,361 3,496 1,133 -- 306,525
Investment in subsidiaries 682,889 723,600 -- -- (1,406,489) -
Goodwill and other assets, net 21,938 10,355 551,771 270,651 -- 854,715
----------- --------- ---------- ------------- ------------ ----------
$ 1,032,405 $ 779,316 $1,808,845 $ 743,989 $ (1,406,489) $2,958,066
=========== ========= ========== ============= ============ ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Current maturities of long-term debt and
capital lease obligations $ 52,461 $ -- $ 2,627 $ 97,728 $ -- $ 152,816
Accounts payable 16,938 -- 239,701 104,257 -- 360,896
Accrued liabilities 62,622 4,167 93,221 107,027 -- 267,037
----------- --------- ---------- ------------- ------------ ----------
Total current liabilities 132,021 4,167 335,549 309,012 -- 780,749
----------- --------- ---------- ------------- ------------ ----------
Long-term debt, net of current maturities 646,937 -- 44,765 77,189 -- 768,891
Obligations under capital leases,
net of current maturities -- -- 6,016 -- -- 6,016
Convertible subordinated notes -- 200,000 -- -- -- 200,000
Due to/(from) affiliates (527,438) (407,201) 839,744 94,895 -- --
Deferred income taxes 30,747 -- 2,970 4,403 -- 38,120
Other noncurrent liabilities 10,554 -- 135,072 36,314 -- 181,940
----------- --------- ---------- ------------- ------------ ----------
Total noncurrent liabilities 160,800 (207,201) 1,028,567 212,801 -- 1,194,967
----------- --------- ---------- ------------- ------------ ----------
Manditorily redeemable trust convertible
preferred securities -- 258,750 -- -- -- 258,750
Stockholders' investment 745,021 723,600 444,729 234,152 (1,406,489) 741,013
Accumulated other comprehensive loss (5,437) -- -- (11,976) -- (17,413)
----------- --------- ---------- ------------- ------------ ----------
Total stockholders' investment 739,584 723,600 444,729 222,176 (1,406,489) 723,600
----------- --------- ---------- ------------- ------------ ----------
$ 1,032,405 $ 779,316 $1,808,845 $ 743,989 $ (1,406,489) $2,958,066
=========== ========= ========== ============= ============= ==========
- 13 -
16
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
Revenues $ 19,946 $ -- $ 432,190 $ 190,271 $ -- $ 642,407
Cost of sales 3,390 -- 384,329 169,427 -- 557,146
--------- --------- --------- --------- --------- ----------
Gross profit 16,556 -- 47,861 20,844 -- 85,261
Selling, general and administrative expenses 1,172 -- 24,775 9,073 -- 35,020
Amortization expense 481 324 3,633 1,692 -- 6,130
--------- --------- --------- --------- --------- ----------
Operating income 14,903 (324) 19,453 10,079 -- 44,111
Interest expense, net 17,158 1,879 (2,628) 3,712 -- 20,121
--------- --------- --------- --------- --------- ----------
Income before provision for income taxes (2,255) (2,203) 22,081 6,367 -- 23,990
Provision for income taxes (879) (859) 8,611 2,571 -- 9,444
--------- --------- --------- --------- --------- ----------
Income before equity in earnings of
joint ventures and minority interest (1,376) (1,344) 13,470 3,796 -- 14,546
Equity in earnings of joint ventures and
subsidiaries 22,056 20,680 -- -- (37,946) 4,790
Minority interest - dividends on trust
preferred, net -- (2,664) -- -- -- (2,664)
--------- --------- --------- --------- --------- ----------
Net income $ 20,680 $ 16,672 $ 13,470 $ 3,796 $ (37,946) $ 16,672
========= ========= ========= ========= ========= ==========
- 14 -
17
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- --------- ------------ ------------
Revenues $38,569 $ -- $832,066 $400,148 $ -- $1,270,783
Cost of sales 12,843 -- 739,452 353,956 -- 1,106,251
----------- --------- --------- --------- ------------ ------------
Gross profit 25,726 -- 92,614 46,192 -- 164,532
Selling, general and administrative expenses 1,514 -- 50,506 18,299 -- 70,319
Amortization expense 1,014 645 7,250 3,299 -- 12,208
----------- --------- --------- --------- ------------ ------------
Operating income 23,198 (645) 34,858 24,594 -- 82,005
Interest expense, net 35,676 3,551 (6,340) 6,956 -- 39,843
----------- --------- --------- --------- ------------ ------------
Income before provision for income taxes (12,478) (4,196) 41,198 17,638 -- 42,162
Provision for income taxes (4,866) (1,637) 16,067 6,908 -- 16,472
----------- --------- --------- --------- ------------ ------------
Income before equity in earnings of
joint ventures and minority interest (7,612) (2,559) 25,131 10,730 -- 25,690
Equity in earnings of joint ventures and
subsidiaries 45,032 37,420 -- -- (73,281) 9,171
Minority interest - dividends on trust preferred,
net -- (5,328) -- -- -- (5,328)
----------- --------- --------- --------- ------------ ------------
Net income $37,420 $29,533 $25,131 $ 10,730 $(73,281) $ 29,533
========== ========= ========= ========= ============ ============
- 15 -
18
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------- ------------ -----------
OPERATING ACTIVITIES:
Net income $ 37,420 $ 29,533 $ 25,131 $ 10,730 $ (73,281) $ 29,533
Adjustments required to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation and amortization 3,010 645 59,823 17,547 -- 81,025
Deferred income tax provision 4,872 -- 3,601 (1,010) -- 7,463
Changes in other operating items 343,117 381 (8,614) (8,527) (143,968) 182,389
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 388,419 30,559 79,941 18,740 (217,249) 300,410
----------- ----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net (3,802) -- (73,232) (25,039) -- (102,073)
Acquisitions and other, net (192,452) (31,471) (6,861) -- 217,249 (13,535)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (196,254) (31,471) (80,093) (25,039) 217,249 (115,608)
----------- ----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,133,522 -- -- 48,456 -- 1,181,978
Repayments of debt (1,305,753) -- (1,314) (52,813) -- (1,359,880)
Net proceeds from the issuance of common stock -- 912 -- -- -- 912
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used for) financing
activities (172,231) 912 (1,314) (4,357) -- (176,990)
----------- ----------- ----------- ----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 19,934 -- (1,466) (10,656) -- 7,812
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD (18,772) -- 1,575 20,570 -- 3,373
----------- ----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,162 $ -- $ 109 $ 9,914 $ -- $ 11,185
=========== =========== =========== =========== =========== ===========
- 16 -
19
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ (18,772) $ -- $ 1,575 $ 20,570 $ -- $ 3,373
Accounts receivable, net 6,983 381 172,332 99,011 -- 278,707
Inventories, net 2,032 -- 83,479 46,967 -- 132,478
Prepaid tooling and other 24,704 -- 171,107 26,308 -- 222,119
--------- --------- ----------- ---------- ----------- -----------
Total current assets 14,947 381 428,493 192,856 -- 636,677
--------- --------- ----------- ---------- ----------- -----------
Property, plant and equipment, net 37,245 -- 836,175 238,360 -- 1,111,780
Investments in joint ventures 221,165 43,912 2,140 -- -- 267,217
Investment in subsidiaries 541,468 734,624 -- -- (1,276,092) --
Goodwill and other assets, net 21,527 11,001 536,142 308,403 -- 877,073
--------- --------- ----------- ---------- ----------- -----------
$ 836,352 $ 789,918 $ 1,802,950 $ 739,619 $(1,276,092) $ 2,892,747
========= ========= =========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Current maturities of long-term debt
and capital lease obligations $ 56,569 $ -- $ 1,477 $ 91,020 $ -- $ 149,066
Accounts payable (13,260) -- 156,724 104,925 -- 248,389
Accrued liabilities 35,183 4,167 101,001 34,868 -- 175,219
--------- --------- ----------- ---------- ----------- -----------
Total current liabilities 78,492 4,167 259,202 230,813 -- 572,674
--------- --------- ----------- ---------- ----------- -----------
Long-term debt, net of current maturities 800,401 -- 44,787 88,254 -- 933,442
Obligations under capital leases,
net of current maturities -- -- 8,458 -- -- 8,458
Convertible subordinated notes -- 200,000 -- -- -- 200,000
Due to/(from) affiliates (822,981) (373,094) 915,331 280,744 -- --
Deferred income taxes 29,102 -- (631) 5,413 -- 33,884
Other noncurrent liabilities 9,060 -- 132,105 44,279 -- 185,444
--------- --------- ----------- ---------- ----------- -----------
Total noncurrent liabilities 15,582 (173,094) 1,100,050 418,690 -- 1,361,228
--------- --------- ----------- ---------- ----------- -----------
Manditorily redeemable trust convertible
preferred securities -- 258,750 -- -- -- 258,750
Stockholders' investment 744,296 700,095 443,698 97,770 (1,276,092) 709,767
Accumulated other comprehensive income (loss)
- cumulative translation adjustment (2,018) -- -- (7,654) -- (9,672)
--------- --------- ----------- ---------- ----------- -----------
Total stockholders' investment 742,278 700,095 443,698 90,116 (1,276,092) 700,095
--------- --------- ----------- ---------- ----------- -----------
$ 836,352 $ 789,918 $ 1,802,950 $ 739,619 $(1,276,092) $ 2,892,747
========= ========= =========== ========== =========== ===========
- 17 -
20
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
Revenues $ 20,457 $ -- $ 537,883 $ 122,680 $ -- $ 681,020
Cost of sales 16,397 -- 441,699 108,553 -- 566,649
--------- -------- --------- --------- --------- ---------
Gross profit 4,060 -- 96,184 14,127 -- 114,371
Selling, general and administrative expenses 1,886 -- 27,277 4,268 -- 33,431
Amortization expense 1,234 324 2,767 793 -- 5,118
--------- -------- --------- --------- --------- ---------
Operating income 940 (324) 66,140 9,066 -- 75,822
Interest expense, net 12,210 2,119 (2,422) 1,627 -- 13,534
--------- -------- --------- --------- --------- ---------
Income before provision for income taxes (11,270) (2,443) 68,562 7,439 -- 62,288
Provision for income taxes (4,507) (977) 27,424 2,976 -- 24,916
--------- -------- --------- --------- --------- ---------
Income before equity in earnings of
joint ventures and minority interest (6,763) (1,466) 41,138 4,463 -- 37,372
Equity in earnings of joint ventures
and subsidiaries 50,141 43,378 -- -- (88,979) 4,540
Minority interest - dividends on trust
preferred, net -- (2,619) -- -- -- (2,619)
--------- -------- --------- --------- --------- ---------
Net income $ 43,378 $ 39,293 $ 41,138 $ 4,463 $ (88,979) $ 39,293
========= ======== ========= ========= ========= =========
- 18 -
21
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- --------- ------------ ------------
Revenues $ 42,346 $ -- $1,087,076 $236,962 $ -- $1,366,384
Cost of sales 32,057 -- 897,707 210,527 -- 1,140,291
----------- ---------- --------- --------- ------------ ----------
Gross profit 10,289 -- 189,369 26,435 -- 226,093
Selling, general and administrative
expenses 5,340 -- 54,085 8,662 -- 68,087
Amortization expense 1,598 759 6,327 1,533 -- 10,217
----------- --------- --------- --------- ------------ ----------
Operating income 3,351 (759) 128,957 16,240 -- 147,789
Interest expense, net 22,739 4,050 (3,636) 3,598 -- 26,731
----------- --------- --------- --------- ------------ ----------
Income before provision for income taxes (19,388) (4,809) 132,613 12,642 -- 121,058
Provision for income taxes (7,755) (1,923) 53,045 5,057 -- 48,424
----------- --------- --------- --------- ------------ ----------
Income before equity in earnings of
joint ventures and minority interest (11,633) (2,886) 79,568 7,585 -- 72,634
Equity in earnings of joint ventures
and subsidiaries 96,173 84,540 -- -- (171,693) 9,020
Minority interest - dividends on
trust preferred, net -- (5,238) -- -- -- (5,238)
----------- --------- --------- --------- ------------ ----------
Net income $ 84,540 $ 76,416 $ 79,568 $ 7,585 $ (171,693) $76,416
=========== ========= ========= ========= ============ ==========
-19-
22
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- --------- ------------ ------------
OPERATING ACTIVITIES:
Net income $ 84,540 $ 76,416 $ 79,568 $ 7,585 $ (171,693) $ 76,416
Adjustments required to reconcile
net income to net cash provided
by (used in) operating activities
Depreciation and amortization 3,581 759 63,817 8,385 - 76,542
Deferred income tax provision 21,197 - - 190 - 21,387
Changes in other operating items (92,049) (187) (91,356) 82,553 - (101,039)
----------- --------- --------- ---------- ----------- -----------
Net cash provided by (used in)
operating activities 17,269 76,988 52,029 98,713 (171,693) 73,306
----------- --------- --------- ---------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net 329 - (39,362) (2,615) - (41,648)
Acquisitions and other, net (120,366) (82,295) (7,548) (114,815) 171,693 (153,331)
----------- --------- --------- ---------- ----------- -----------
Net cash provided by (used in)
investing activities (120,037) (82,295) (46,910) (117,430) 171,693 (194,979)
----------- --------- --------- ---------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,524,876 - 21 40,677 - 1,565,574
Repayments of debt (1,418,831) - (7,322) (17,286) - (1,443,439)
Net proceeds from the issuance of
common stock - 5,307 - - - 5,307
----------- --------- --------- ---------- ----------- -----------
Net cash provided by (used for)
financing activities 106,045 5,307 (7,301) 23,391 - 127,442
----------- --------- --------- ---------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,277 - (2,182) 4,674 - 5,769
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 2,312 - 484 821 - 3,617
----------- --------- --------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,589 $ - $ (1,698) $ 5,495 $ - $ 9,386
=========== ========= ========= ========== =========== ===========
-20-
23
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 TO THE THREE MONTHS ENDED
JUNE 30, 2000
Revenues -- Revenues for the second quarter of 2001 were $642.4 million, a 5.7
percent decrease, compared to $681.0 million for the prior period. The decrease
in revenues is comprised of volume declines on the Dodge Ram pickup, the
Chrysler LH, and the Ford Ranger, Econoline and the Lincoln LS/Jaguar S-Type.
The volume declines, which primarily affected the U.S. and Canada business
units, accounted for $81.6 million of the revenue decline in the second quarter
of 2001 as compared to the second quarter of 2000. Other declines in revenues
from the second quarter of 2000 are attributable to the decline in General
Motors light truck program sales and heavy truck business and amounted to $46.0
million. These declines were offset by increases in revenue in the second
quarter of 2001 due to the Algoods, Caterina, Presskam and Seojin acquisitions
totaling $89.0 million. The strength of sales volumes for the remainder of 2001
continues to be uncertain.
Cost of Sales -- Cost of sales as a percentage of revenues for the second
quarter of 2001 was 86.7 percent compared to 83.2 percent for the prior period.
The decline in gross profit percentage was primarily due to decreased production
volumes and product mix on light truck, sport utility and other models served by
the Company in North America and increasing sales with lower margins in Europe,
Asia, and South America. Increased costs associated with the launch of the Ford
Explorer, Dodge Ram truck and GM Sigma programs also contributed to the second
quarter of 2001 decline in gross margins from the second quarter of 2000.
S, G & A Expenses -- Selling, general and administrative expenses increased to
$35.0 million, or 5.4 percent of revenues, for the second quarter of 2001
compared to $33.4 million, or 4.9 percent of revenues for the prior period. This
increase was due primarily to incremental costs associated with the Company's
acquisitions of Algoods, Caterina, Presskam and Seojin of $3.3 million. This
increase was offset by $1.7 million in decreased costs due mainly to reductions
in headcount in the consolidation of the Company's support activities.
Amortization Expense -- Amortization expense for the second quarter of 2001 was
$6.1 million compared to $5.1 million for the prior period. The increase was due
to incremental goodwill amortization related to the acquisitions of Algoods,
Caterina, Presskam, and Seojin.
Interest Expense -- Interest expense for the second quarter of 2001 was $20.1
million compared to $13.5 million for the prior period. Interest expense was
affected by increased borrowings incurred to fund the Company's acquisitions of
Algoods, Caterina, and Presskam. Rate increases on the credit facilities entered
into in July 2000 along with the issuance of the senior Euro notes in July 2000
also contributed to the increase in interest expense. These increases were
offset by an increase in capitalized interest of $2.1 million.
Income Taxes -- The effective income tax rate was 39.4 percent and 40.0 percent
for the second quarters of 2001 and 2000, respectively. The decrease in the
effective rate is due primarily as a result of increased income in lower tax
jurisdictions.
Equity in Earnings of Joint Ventures -- Equity in earnings of joint ventures,
net of tax, was $4.8 million and $4.5 million for the second quarters of 2001
and 2000, respectively. These amounts represent the Company's share of the
earnings from its joint venture interests in Metalsa, Caterina, Tower Golden
Ring, Seojin, and Yorozu.
Minority Interest -- Minority interest for the second quarters of 2001 and 2000
represents dividends, net of income tax benefits, on the Preferred Securities.
-21-
24
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 TO THE SIX MONTHS ENDED JUNE
30, 2000
Revenues -- Revenues for the first six months of 2001 were $1,270.8 million, a
7.0 percent decrease, compared to $1,366.4 million for the prior period. The
decrease in revenues is comprised of a volume declines on the Dodge Durango, the
Chrysler LH, the Ford Ranger and the Lincoln LS/Jaguar S-Type. The volume
declines which primarily affected the U.S. and Canada business units, accounted
for $208.4 million of the revenue decline in the first six months of 2001 as
compared to the first six months of 2000. Other declines in revenues from the
first six months of 2000 are attributable to the decline in General Motors light
truck program sales and heavy truck business and amounted to $91.0 million.
These declines were offset by increases in revenue in the first six months of
2001 due to the Algoods, Caterina, Presskam and Seojin acquisitions totaling
$203.8 million. The strength of sales volumes for the remainder of 2001
continues to be uncertain.
Cost of Sales -- Cost of sales as a percentage of revenues for the first six
months of 2001 was 87.1 percent compared to 83.5 percent for the prior period.
The decline in gross profit percentage was primarily due to decreased production
volumes and product mix on light truck, sport utility and other models served by
the Company in North America and increasing sales with lower margins in Europe,
Asia, and South America. Increased costs associated with the launch of the Ford
Explorer, Dodge Ram truck and GM Sigma programs also contributed to the first
six month of 2001 decline in gross margins from the first six months of 2000.
S, G & A Expenses -- Selling, general and administrative expenses increased to
$70.3 million, or 5.5 percent of revenues, for the first six months of 2001
compared to $68.1 million, or 5.0 percent of revenues for the prior period. This
increase was due primarily to incremental costs associated with the Company's
acquisitions of Algoods, Caterina, Presskam and Seojin of $7.6 million. This
increase was offset by $5.4 million in decreased costs due mainly to reductions
in headcount in the consolidation of the Company's support activities.
Amortization Expense -- Amortization expense for the first six months of 2001
was $12.2 million compared to $10.2 million for the prior period. The increase
was due to incremental goodwill amortization related to the acquisitions of
Algoods, Caterina, Presskam, and Seojin.
Interest Expense -- Interest expense for the first six months of 2001 was $39.8
million compared to $26.7 million for the prior period. Interest expense was
affected by increased borrowings incurred to fund the Company's acquisitions of
Algoods, Caterina, and Presskam. Rate increases on the credit facilities entered
into in July 2000 along with the issuance of the senior Euro notes in July 2000
also contributed to the increase in interest expense. These increases were
offset by an increase in capitalized interest of $2.9 million.
Income Taxes -- The effective income tax rate was 39.1 percent and 40.0 percent
for the six months ended June 30, 2001 and 2000, respectively. The decrease in
the effective rate is due primarily as a result of increased income in lower tax
jurisdictions.
Equity in Earnings of Joint Ventures -- Equity in earnings of joint ventures,
net of tax, was $9.2 million and $9.0 million for the first six months of 2001
and 2000, respectively. These amounts represent the Company's share of the
earnings from its joint venture interests in Metalsa, Caterina, Tower Golden
Ring, Seojin, and Yorozu.
Minority Interest -- Minority interest for the six months ended June 30, 2001
and 2000 represents dividends, net of income tax benefits, on the Preferred
Securities.
-22-
25
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
On October 2, 2000, the Company's board of directors approved a comprehensive
operational realignment plan (the "Plan"), which is intended to improve the
Company's long-term competitive position and lower its cost structure. The Plan
includes phasing out the heavy truck rail manufacturing in Milwaukee, Wisconsin;
reducing stamping capacity by closing the Kalamazoo, Michigan facility; and
consolidating related support activities across the enterprise. The Company
recognized a charge to operations of approximately $141.3 million in the fourth
quarter of 2000, which reflects the estimated qualifying "exit costs" to be
incurred over the next 12 months under the Plan.
The charge includes costs associated with asset impairments, severance and
outplacement costs related to employee terminations, loss contract provisions
and certain other exit costs. These activities are anticipated to result in a
reduction of more than 800 employees. Through June 30, 2001, the Company had
eliminated approximately 850 employees pursuant to the Plan. The estimated
realignment charge does not cover certain aspects of the Plan, including
movement of equipment and employee relocation and training. These costs will be
recognized in future periods as incurred.
The asset impairments consist of long-lived assets, including fixed assets,
manufacturing equipment and land, from the facilities the Company intends to
dispose of or discontinue. For assets that will be disposed of currently, the
Company measured impairment based on estimated proceeds on the sale of the
facilities and equipment. The carrying value of the long-lived assets held for
sale or disposal is approximately $3.8 million as of June 30, 2001. For assets
that will be held and used in the future, the Company prepared a forecast of
expected undiscounted cash flows to determine whether asset impairment existed,
and used fair values to measure the required write-downs. These asset
impairments have arisen only as a consequence of the Company making the decision
to exit these activities during the fourth quarter of 2000. The assets will be
abandoned or disposed of upon the exit of the activity, with expected completion
during the first nine months of 2001.
The accrual for operational realignment and other costs is included in accrued
liabilities in the accompanying consolidated balance sheet as of June 30, 2001.
The table below summarizes the accrued operational realignment and other charges
through June 30, 2001 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT LOSS OTHER EXIT
IMPAIRMENTS COSTS CONTRACTS COSTS TOTAL
----------- ------------- --------- ---------- --------
Provision for operational
realignment and other charges $ 103.7 $ 25.2 $ 8.1 $ 4.3 $ 141.3
Cash payments -- (8.7) (2.5) (0.3) (11.5)
Non cash charges (73.1) -- -- -- (73.1)
-------- ------- ------ ------ --------
Balance at December 31, 2000 30.6 16.5 5.6 4.0 56.7
Cash payments -- (8.7) (3.4) (0.8) (12.9)
Non cash charges (10.6) -- -- -- (10.6)
-------- ------- ------ ------ --------
Balance at June 30, 2001 $ 20.0 $ 7.8 $ 2.2 $ 3.2 $ 33.2
======== ======= ====== ====== ========
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LIQUIDITY AND CAPITAL RESOURCES
In July 2000, the Company replaced its existing $750 million amortizing credit
agreement with a new six-year $1.15 billion senior unsecured credit agreement.
The new credit agreement includes a non-amortizing revolving facility of $825
million along with an amortizing term loan of $325 million. The new facility
also includes a multi-currency borrowing feature that allows the Company to
borrow up to $500 million in certain freely tradable offshore currencies, and
letter of credit sublimits of $100 million. As of June 30, 2001, approximately
$13.5 million of the outstanding borrowings are denominated in Japanese yen and
$52.3 million of the outstanding borrowings are denominated in Euro. Interest on
the new credit facility is at the financial institutions' reference rate, LIBOR,
or the Eurodollar rate plus a margin ranging from 0 to 200 basis points
depending on the ratio of the consolidated funded debt for restricted
subsidiaries of the Company to its total EBITDA. The weighted average interest
rate for such borrowings was 7.35 percent for the six months ended June 30,
2001. The new credit agreement has a final maturity of 2006. As a result of the
debt replacement, the Company recorded an extraordinary loss, net of tax, of
$3.0 million during the third quarter of 2000.
In July 2000, R. J. Tower (the "Issuer"), a wholly-owned subsidiary of the
Company, issued Euro-denominated senior unsecured notes in the amount of
E150 million (approximately $127.5 million at June 30, 2001). The notes bear
interest at a rate of 9.25 percent, payable semi-annually. The notes rank
equally with all of the Company's other unsecured and unsubordinated debt. The
net proceeds after issuance costs were used to repay a portion of the Company's
existing Euro-denominated indebtedness under its existing credit facility. The
notes mature on August 1, 2010.
In September 2000, the Company entered into an interest rate swap contract to
hedge against interest rate exposure on approximately $160 million of its
floating rate indebtedness under its $1.15 billion senior unsecured credit
facility. The contracts have the effect of converting the floating rate interest
to a fixed rate of approximately 6.9 percent, plus any applicable margin
required under the revolving credit facility. The interest rate swap contract
was executed to balance the Company's fixed-rate and floating-rate debt
portfolios and it expires in September 2005.
Effective January 1, 2001, unrealized gains and losses on interest rate swap
agreements used to hedge the Company's exposure to interest rate fluctuations
are recognized currently for financial reporting purposes. The swap agreement is
marked to market on a quarterly basis. The effect of this change as of January
1, 2001, was a pretax charge to accumulated other comprehensive loss of $6.8
million ($4.2 million net of income tax benefit). During the six months ended
June 30, 2001, pretax other comprehensive loss increased by $1.8 million ($1.1
million net of income tax benefit) to reflect an unrealized loss on the swap
agreement from January 1, 2001 to June 30, 2001.
As discussed in note 5, the Company sold all of its eligible domestic
receivables pursuant to a revolving securitization agreement with an independent
third party funding agent. The domestic subsidiaries of the Company sell
receivables to a special purpose bankruptcy-remote subsidiary, which then
receives proceeds for receivables sold. The Company received $54 million from
the sale of receivables during the quarter ended June 30, 2001. This amount is
repaid monthly as the underlying accounts receivable are collected, along with
funding costs of approximately 7.6 percent.
During the first six months of 2001, the Company generated $300.4 million of
cash from operations compared with generating $73.3 million in the 2000 period.
Cash provided by net income, depreciation, amortization, and deferred income tax
provision was $118.0 million in 2001 and $174.3 million in 2000. Other operating
items and working capital requirements increased operating cash flow by $182.4
million during the first six months of 2001 and decreased operating cash flow by
$101.0 million during the comparable 2000 period.
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Net cash used in investing activities was $115.6 million during the first six
months of 2001 as compared to $195.0 million in the prior period. Net capital
expenditures totaled $102.1 million in the first six months of 2001 for
equipment and dedicated tooling purchases related to new or replacement
programs. This compares with net capital expenditures of $41.6 million for the
prior period.
Net cash used in financing activities totaled $177.0 million for the first six
month of 2001 compared with net cash provided by financing activities of $127.4
million in 2000. Net reduction of debt totaled $160.8 million (inclusive of debt
associated with interests in joint ventures) during the first six months of 2001
due in large part to the Company's aggressive working capital management.
At June 30, 2001, the Company had borrowed approximately $212 million under its
revolving credit facility of $825 million. Based on the most restrictive debt
covenant, availability under the revolving credit facility was limited to
approximately $93.0 million. The Company believes the borrowing availability
under its credit agreement, together with funds generated by operations, should
provide liquidity and capital resources to pursue its business strategy for the
foreseeable future, with respect to working capital, capital expenditures, and
other operating needs. The Company estimates its 2001 net capital expenditures
will approximate between $150 million and $175 million. Under present
conditions, management does not believe access to funds will restrict its
ability to pursue its business strategy.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating-rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Management believes that inflation has not significantly affected
the Company's business over the past 12 months. However, because selling prices
generally cannot be increased until a model changeover, the effects of inflation
must be offset by productivity improvements and volume from new business awards.
MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company's policy is not to enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company enters into financial instruments to manage and reduce the impact of
changes in interest rates.
Interest rate swaps are entered into as a hedge of underlying debt instruments
to effectively change the characteristics of the interest rate without actually
changing the debt instrument. Therefore, these interest rate swap agreements
convert outstanding floating rate debt to fixed rate debt for a period of time.
For fixed rate debt, interest rate changes affect the fair market value but do
not impact earnings and cash flows. Conversely for floating rate debt, interest
rate changes generally do not affect the fair market value but do impact future
earnings and cash flows, assuming other factors are held constant.
At June 30, 2001, the Company had total debt and obligations under capital
leases of $1.1 billion. The debt is comprised of fixed rate debt of $487.5
million and floating rate debt of $640.2 million. The pre-tax earnings and cash
flows impact for the next year resulting from a one percentage point increase in
interest rates on variable rate debt would be approximately $6.4 million,
holding other variables constant. A one-percentage point increase in interest
rates would not materially impact the fair value of the fixed rate debt.
A portion of Tower Automotive's revenue was derived from manufacturing
operations in Europe, Asia, and South America. The results of operations and
financial position of the Company's foreign operations are principally measured
in its respective currency and translated into U. S. dollars. The effects of
foreign currency fluctuations in Europe, Asia, and South America are somewhat
mitigated by the fact that expenses are generally incurred in the same currency
in which revenues are generated. The reported income of these subsidiaries will
be higher or lower depending on a weakening or strengthening of the U. S. dollar
against the respective foreign currency.
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A portion of Tower Automotive's assets is based in its foreign operations and is
translated into U. S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected as a
separate component of stockholders' investment. Accordingly, the Company's
consolidated stockholders' investment will fluctuate depending upon the
weakening or strengthening of the U. S. dollar against the respective foreign
currency.
The Company's strategy for management of currency risk relies primarily upon
conducting its operations in a country's respective currency and may, from time
to time, engage in hedging programs intended to reduce the Company's exposure to
currency fluctuations. As of June 30, 2001, the Company held no foreign currency
hedge positions. Management believes the effect of a one percent appreciation or
depreciation in foreign currency rates would not materially affect the Company's
financial position or results of operations for the periods presented.
To maximize its operational efficiencies, the Company continually reviews the
utilization of its facilities and equipment, and where appropriate, makes
corresponding adjustments. As a part of that objective, the Company has entered
into decision based bargaining with one of its unions to address the possible
transfer or relocation of certain of the Milwaukee press operations. This or
similar actions may result in near term restructuring costs, with the objective
of achieving long-term benefits.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended on January 1, 2001 (see note 11). The effect of
this change as of January 1, 2001, was a pretax charge to accumulated other
comprehensive loss of $6.8 million ($4.2 million net of income tax benefit).
During the first six months of 2001, pretax other comprehensive loss increased
by $1.8 million ($1.1 million net of income tax benefit) to reflect an
unrealized loss on the swap agreement from January 1, 2001 through June 30,
2001.
On June 29, 2001, the FASB approved for issuance, SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Intangible Assets." Major
provisions of these Statements are as follows: all business combinations
initiated after June 30, 2001 must use the purchase method of accounting; the
pooling of interest method of accounting is prohibited except for transactions
initiated before July 1, 2001; intangible assets acquired in a business
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity and
can be sold, transferred, licensed, rented or exchanged, either individually or
as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting; effective January 1, 2002,
goodwill will no longer be subject to amortization. Management is currently
reviewing the provisions of these Statements and their impact on the Company's
results of operations.
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Form 10-Q, the words "anticipate," "believe,"
"estimate," "expect," "intends," and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements. Such
forward-looking statements are based on the beliefs of the Company's management
as well as on assumptions made by and information currently available to the
Company at the time such statements were made. Various economic and competitive
factors could cause actual results to differ materially from those discussed in
such forward-looking statements, including factors which are outside the control
of the
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Company, such as risks relating to: (i) the degree to which the Company is
leveraged; (ii) the Company's reliance on major customers and selected models;
(iii) the cyclicality and seasonality of the automotive market; (iv) the failure
to realize the benefits of recent acquisitions and joint ventures; (v) obtaining
new business on new and redesigned models; (vi) the Company's ability to
continue to implement its acquisition strategy; and (vii) the highly competitive
nature of the automotive supply industry. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by such
cautionary statements.
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PART II. OTHER INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None
Item 2. Change in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
The registrant held its Annual Meeting of Stockholders on May 24, 2001.
Proxies for the meeting were solicited pursuant to Regulation 14. There
was no solicitation in opposition to management's nominees for
directors as listed in the Proxy Statement and all such nominees (S. A.
Johnson, Dugald K. Campbell, Kim B. Clark, Jurgen M. Geissinger, Ali
Jenab, F. J. Loughrey, James R. Lozelle, Scott D. Rued and Enrique
Zambrano) were elected. Of the 39,909,353 shares voted, 39,690,349
shares granted authority to vote for these directors and 219,004
abstaining votes were cast.
The amendment to the Tower Automotive, Inc. Colleague Stock Discount
Purchase Plan was approved by the stockholders. A total of 39,389,879
affirmative votes, 452,573 negative votes and 66,901 abstaining votes
were cast on this proposal.
The retention of Arthur Andersen LLP as independent public accountants
for the Company was approved by stockholders. A total of 39,414,986
affirmative votes, 462,293 negative votes and 32,074 abstaining votes
were cast on this proposal.
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(b) During the quarter for which this report is filed, the Company
filed the following Form 8-K Current Reports with the
Securities and Exchange Commission:
1. The Company's current report on Form 8-K dated April
11, 2001, under Item 9 (Commission File No. 1-12733).
2. The Company's current report on Form 8-K dated April
19, 2001, Under Item 5 (Commission File No. 1-12733).
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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, thereunto duly authorized.
TOWER AUTOMOTIVE, INC.
Date: August 3, 2001 By /s/ Anthony A. Barone
---------------------------------------------
Anthony A. Barone
Vice President, Chief Financial Officer
(principal accounting and financial officer)
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