<PAGE>
FORM 10-Q
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 September 30, 1997
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 October 16, 1997 was 22,868,892 shares.
<PAGE>
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 September 30,
--------------------------------
1997 1996
---------- ----------
(Note 6)
Revenues $349,507 $114,583
Cost of sales 302,318 97,542
-------- --------
Gross profit 47,189 17,041
Selling, general and administrative expenses 17,190 6,211
Amortization expense 2,583 675
-------- --------
Operating income 27,416 10,155
Interest expense, net 7,706 1,529
-------- --------
Income before provision for income taxes 19,710 8,626
Provision for income taxes 7,882 3,390
-------- --------
Net income $ 11,828 $ 5,236
-------- --------
-------- --------
Net income per share:
Primary $ 0.50 $ 0.36
-------- --------
-------- --------
Fully diluted $ 0.50 $ 0.36
-------- --------
-------- --------
Weighted average common and common
equivalent shares outstanding:
Primary 23,513 14,764
-------- --------
-------- --------
Fully diluted 26,096 14,764
-------- --------
-------- --------
The accompanying notes are an integral part
of these condensed consolidated statements.
-2-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Nine Months Ended September 30,
--------------------------------
1997 1996
---------- ----------
(Note 6)
Revenues $801,896 $280,025
Cost of sales 689,566 237,118
-------- --------
Gross profit 112,330 42,907
Selling, general and administrative expenses 38,364 14,294
Amortization expense 5,247 1,525
-------- --------
Operating income 68,719 27,088
Interest expense, net 15,852 4,302
-------- --------
Income before provision for income taxes 52,867 22,786
Provision for income taxes 21,140 9,060
-------- --------
Net income before extraordinary item 31,727 13,726
Extraordinary item - loss on early
extinguishment
of debt, net of income taxes 2,434 -
-------- --------
Net income $ 29,293 $ 13,726
-------- --------
-------- --------
Primary net income per share:
Before extraordinary item $ 1.58 $ 1.07
Extraordintary loss (.12) -
-------- --------
Net income $ 1.46 $ 1.07
-------- --------
-------- --------
Fully diluted net income per share:
Before extraordinary item $ 1.57 $ 1.07
Extraordintary loss (.12) -
-------- --------
Net income $ 1.45 $ 1.07
-------- --------
-------- --------
Weighted average common and common
equivalent shares outstanding:
Primary 20,144 12,924
-------- --------
-------- --------
Fully diluted 21,014 12,924
-------- --------
-------- --------
The accompanying notes are an integral part of
these condensed consolidated statements.
-3-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
Sept. 30, Dec. 31,
Assets 1997 1996
- ------------------------------------------- --------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 10,776 $ 39,596
Accounts receivable 210,282 61,073
Inventories 86,432 21,864
Other current assets 83,869 14,433
-------- ---------
Total current assets 391,359 136,966
Property, plant and equipment, net 708,324 156,248
Restricted cash 7,796 10,833
Goodwill and other assets, net 370,455 94,560
-------- ---------
$1,477,934 $ 398,607
-------- ---------
-------- ---------
Liabilities and Stockholders' Investment
- -------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 722 $ 722
Accounts payable 147,772 32,280
Accrued liabilities 84,484 22,429
-------- ---------
Total current liabilities 232,978 55,431
Long-term debt, net of current maturities 606,092 113,460
Other noncurrent liabilities 141,566 47,839
-------- ---------
Stockholders' investment:
Preferred stock -- --
Common stock 229 143
Warrants to acquire common stock 2,000 2,000
Additional paid-in capital 422,723 136,759
Retained earnings 72,443 43,150
Subscriptions receivable (97) (175)
-------- ---------
Total stockholders' investment 497,298 181,877
-------- ---------
$1,477,934 $ 398,607
-------- ---------
-------- ---------
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
-4-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
Nine Months Ended
September 30,
---------------------
1997 1996
-------- --------
OPERATING ACTIVITIES:
Net income $29,293 $13,726
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization 30,044 9,658
Extraordinary loss on extinguishment of debt 2,434 --
Changes in other operating items (5,189) 2,925
-------- --------
Net cash provided by operating activities 56,582 26,309
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (782,447) (80,170)
Capital expenditures, net (81,742) (9,870)
Change in restricted cash 3,037 3,899
-------- --------
Net cash used in investing activities (861,152) (86,141)
-------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings 602,989 197,813
Repayment of debt (304,429) (152,228)
Net proceeds from issuance of convertible debt 194,150 --
Net proceeds on issuance of common stock 285,862 51,502
Cash portion of extraordinary loss on
extinguishment of debt (3,010) -
Other, net 188 322
-------- --------
Net cash provided by financing activities 775,750 97,409
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (28,820) 37,577
CASH AND CASH EQUIVALENTS:
Beginning of period 39,596 957
-------- --------
End of period $10,776 $38,534
-------- --------
-------- --------
The accompanying notes are an integral part of these
condensed consolidated statements.
-5-
<PAGE>
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 1996 Annual
Report to Stockholders.
Revenues and operating results for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
2. Inventories consisted of the following (in thousands):
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
Raw materials $21,320 $ 9,517
Work in process 47,080 5,949
Finished goods 18,032 6,398
-------- -------
$86,432 $21,864
-------- -------
-------- -------
3. Net income per share is computed by dividing net income applicable to
common stockholders by the weighted average number of common and common
stock equivalent shares outstanding during each period presented. Net
income for purposes of computing primary and fully-diluted net income per
share reflects the elimination of interest expense on the convertible
subordinated notes, net of the related income tax benefit. On a
fully-diluted basis, both net income applicable to common stockholders and
weighted average shares outstanding are adjusted to assume the conversion
of the Notes (see Note 5).
-6-
<PAGE>
During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," which requires the disclosure of basic earnings per share and
diluted earnings per share. The Company will adopt SFAS 128 effective
December 31, 1997. The Company has not yet determined the effect on
earnings per share of adopting SFAS 128.
4. On May 31, 1996, the Company acquired all of the outstanding common stock
of MascoTech Stamping Technologies, Inc. (MSTI), a wholly owned subsidiary
of MascoTech, Inc. (MascoTech). Consideration consisted of $55 million in
cash, 785,000 shares of the Company's Common Stock and warrants to acquire
200,000 shares of the Company's Common Stock at an exercise price of $18
per share. The Company may also make additional payments of up to $30
million to MascoTech if certain operating targets are achieved by the MSTI
facilities in the first three years following the acquisition. The amounts
to be paid to MascoTech are equal to two times the amount by which
operating profit, as defined, of the MSTI facilities exceeds $24 million
each year. Based on results of operations of the MSTI facilities through
September 30, 1997, $4 million in contingent payments are due and have been
accrued and recorded as additional goodwill in the accompanying condensed
consolidated balance sheet. MSTI manufactures metal chassis and suspension
components and assemblies for the North American automotive industry from
facilities in Ohio, Indiana and Michigan.
The acquisition of MSTI has been accounted for using the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed
have been recorded at fair value as of the acquisition date. The final
allocation of the purchase price was not materially different than the
preliminary allocation. The purchase price in excess of the fair value of
the net assets acquired is included in goodwill in the accompanying
condensed consolidated balance sheets. Results of operations from MSTI
have been included in the accompanying condensed consolidated financial
statements from the date of acquisition. Unaudited pro forma results of
consolidated operations for the nine months ended September 30, 1996 as if
the acquisition of MSTI was completed at the beginning of 1996 is included
in Note 6.
5. Long-term debt consisted of the following (in thousands):
Sept. 30, December 31,
1997 1996
--------- ------------
Revolving credit facility $358,396 $ -
Senior Notes - 65,000
Industrial development revenue
bonds 45,923 46,643
5% Convertible Subordinated Notes 200,000 -
Other 2,495 2,539
-------- ---------
606,814 114,182
Less-current maturities (722) (722)
-------- ---------
Total long-term debt $606,092 $113,460
-------- ---------
-------- ---------
-7-
<PAGE>
On April 18, 1997, the Company entered into a new revolving credit facility
that provides for borrowings of up to $750 million on an unsecured basis.
The amount available under the revolving credit facility reduces to $675
million in April 2000, $600 million in April 2001 and $500 million in April
2002. The credit facility has a final maturity of April 2003. Interest on
the credit facility is at the prime rate or LIBOR plus a margin ranging
from 17 to 50 basis points depending upon the ratio of the consolidated
indebtedness of the Company to its total capitalization. The weighted
average interest rate for such borrowings was 6.85% at September 30, 1997.
The new credit facility requires the Company to meet certain financial
covenants, including but not limited to minimum interest coverage, minimum
debt/capital and maximum leverage ratio. The Company was in compliance
with all covenants as of September 30, 1997.
The Company financed the cash portion of the MSTI acquisition through the
issuance of two series of Senior Notes having an aggregate principal amount
of $65 million, with interest rates of 7.65% and 7.82% and final maturities
of 2006 and 2008. The Senior Notes were retired in connection with the
transactions described in Note 6.
On July 29, 1997, the Company completed the sale of $200 million of 5%
Convertible Subordinated Notes (the "Notes") pursuant to a private
placement. This sale was deemed exempt from registration under the
Securities Act pursuant to Section 4(2) thereof as a transaction not
involving a public offering. The Notes are due on August 1, 2004 and are
convertible into Tower Automotive common stock at a conversion price of
$51.75 per share. The Notes are unsecured and may not be redeemed until
August 1, 2000, except in the event of a change in control. Proceeds from
the Notes were used to repay outstanding indebtedness under the revolving
credit facility.
6. On April 18, 1997, the Company completed the following transactions:
(a) Issued 8,500,000 shares of Common Stock in a public offering at an
offering price of $35 per share (the "Offering"). Net proceeds to the
Company, after underwriting discounts and offering expenses, were
approximately $285 million.
(b) Repaid, in full, the outstanding Senior Notes plus accrued interest.
In connection with the repayment, the Company paid prepayment
penalties and wrote off deferred financing costs which resulted in an
extraordinary loss, net of income taxes, of approximately $2.4
million.
(c) Acquired and assumed substantially all of the assets and liabilities
of Automotive Products Company (APC), a division of A.O. Smith
Corporation. The aggregate purchase price consisted of approximately
$725 million in cash and was financed with the proceeds from the
Offering and borrowings under the new credit facility described above.
APC, which has 15 facilities, designs and manufactures frames, frame
components, engine cradles, suspension components and modules for the
North American automotive and heavy truck industries. This
acquisition has been accounted for as a purchase and, accordingly,
APC's assets and liabilities have been recorded at fair value as of
the acquisition date, with the excess purchase price recorded as
goodwill. The assets and liabilities of APC have been recorded based
upon preliminary estimates of fair value as of the date of
acquisition. The Company has engaged an independent
-8-
<PAGE>
appraiser to determine the fair value of the property, plant and
equipment included in the acquisition of APC and is evaluating certain
other assets, including the investment in the China joint venture, and
liabilities assumed in connection with the APC acquisition. As a
result, the final allocation will likely result in adjustments to the
preliminary allocation, which may result in changes to goodwill. The
Company does not expect that such adjustments will have a material
effect on its results of operations.
Following are unaudited pro forma condensed results of operations for the
nine months ended September 30, 1997 as if the following were completed at
the beginning of the period: (i) the acquisition of APC; (ii) the
refinancing of the old credit agreement and the redemption of the Senior
Notes; (iii) the Offering; and (iv) the sale of the Notes, and for the nine
months ended September 30, 1996 as if the following were completed at the
beginning of the period: (i) the acquisition of APC; (ii) the refinancing
of the old credit agreement and the redemption of the Senior Notes; (iii)
the Offering; (iv) the sale of the Notes; (v) the acquisition of MSTI; and
(vi) the June 1996 public offering of 2,232,900 shares of Common Stock at
$24.50 per share (in thousands, except per share data):
Nine Months Ended Sept. 30,
--------------------------
1997 1996
---------- --------
Revenues $1,086,870 $991,356
---------- --------
---------- --------
Operating income $ 72,458 $ 81,285
---------- --------
---------- --------
Net income before extraordinary
item $ 29,520 $ 33,782
---------- --------
---------- --------
Weighted average shares
outstanding -
Primary 23,450 23,436
---------- --------
---------- --------
Fully diluted 27,317 27,301
---------- --------
---------- --------
Net income per share
before extraordinary item -
Primary $ 1.26 $ 1.45
---------- --------
---------- --------
Fully diluted $ 1.26 $ 1.42
---------- --------
---------- --------
The unaudited pro forma financial information does not purport to represent
what the Company's results of operations would actually have been if such
transactions had occurred on such dates.
7. On May 9, 1997, the Company acquired all of the outstanding common stock of
Societ Industria Meccanica e Stampaggio S.p.A. ("SIMES"). SIMES,
headquartered in Turin, Italy, has annual revenues of approximately $70
million. SIMES designs and manufactures structural metal components in two
facilities in Italy, principally for Fiat. The purchase price, which
consisted of $50.7 million in cash, was financed with borrowings under the
Company's revolving credit facility. The Company may pay an additional $3
million in the future based upon the operating performance of SIMES. The
results of operations of SIMES are not significant to the operating results
of the Company as a whole and have therefore been excluded from the pro
forma presentation included in Note 6.
-9-
<PAGE>
8. Effective October 1997, the Company is party to an interest rate swap
contract to hedge against interest rate exposures on certain floating-rate
indebtedness. The contract, which expires in November 2002, has the effect
of converting the floating-rate interest on $300 million of borrowings
outstanding under the revolving credit facility into fixed-rate interest of
approximately 6.75%. This interest rate swap contract was entered into in
order to balance the Company's fixed-rate and floating-rate debt
portfolios. Under the interest rate swaps, the Company agrees with the
other party to exchange, at specified intervals, the difference between
fixed-rate and floating-rate interest amounts calculated by reference to an
agreed notional principal amount. While the Company is exposed to credit
loss on its interest rate swap in the event of nonperformance by the
counterparty to such swap, management believes that such nonperformance is
unlikely to occur given the financial resources of the counterparty.
9. On October 9, 1997, the Company completed an agreement to become a partner
in Metalsa S.A. de C.V. ("Metalsa") with Promotora de Empresas Zano, S.A.
de C.V. ("Proeza"). Metalsa is the largest supplier of vehicle frames and
structures in Mexico. Under the terms of the agreement, the Company
acquired a 40% equity interest in Metalsa. In addition, the parties have
entered into a technology sharing arrangement that will enable both
companies to utilize the latest available product and process technology.
Metalsa is headquartered in Monterrey, Mexico and has manufacturing
facilities in Monterrey and San Luis Potosi, Mexico. Metalsa's customers
include Chrysler, General Motors, Ford, Nissan and Mercedes-Benz. In
connection with this agreement, the Company paid $120 million to Proeza,
with an additional amount of up to $45 million payable based upon the net
earnings of Metalsa in 1998, 1999 and 2000. The acquisition was financed
with proceeds from borrowings under the Company's revolving credit
facility.
10. Supplemental cash flow information (in thousands):
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ -----------------
1997 1996 1997 1996
-------- -------- -------- -------
Cash paid for -
Interest $9,540 $1,460 $15,514 $4,495
Income taxes 2,910 900 9,990 4,125
-10-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996
REVENUES -- Revenues for the three months ended September 30, 1997 increased
by $234.9 million to $349.5 million compared to $114.6 million for the three
months ended September 30, 1996. Approximately $224.5 million of the increase
in revenues over 1996 is attributable to the acquisitions of Automotive Products
Company ("APC") in April 1997 and Societa Industria Meccanica e Stampaggio
S.p.A. ("SIMES") in May 1997. The remaining increase is due to new business
awarded to the Company, including business relating to the Ford Escort,
Econoline and Expedition, Dodge Ram Club Cab pick-up and Toyota Camry offset by
a decline in production of certain models served by the Company.
COST OF SALES -- Cost of sales as a percentage of revenues for the three
months ended September 30, 1997 was 86.5% compared to 85.1% for the three months
ended September 30, 1996. The decrease in gross margin was due to a higher
proportion of components purchased from outside suppliers as a result of the APC
acquisition and launch costs associated with new business. These decreases were
partially offset by operating efficiencies and enhanced productivity.
S, G & A EXPENSES -- Selling, general and administrative expenses increased to
$17.2 million, or 4.9% of revenues, for the three months ended September 30,
1997 compared to $6.2 million, or 5.4% of revenues, for the three months ended
September 30, 1996. The increased expense was due primarily to incremental
costs associated with the Company's acquisitions of APC and SIMES.
AMORTIZATION EXPENSE -- Amortization expense for the three months ended
September 30, 1997 was $2.6 million compared to $675,000 for the three months
ended September 30, 1996. The increase was due to incremental goodwill
amortization related to the acquisitions of APC and SIMES.
INTEREST EXPENSE -- Interest expense for the three month period ended
September 30, 1997 was $7.7 million and $1.5 million for the three months ended
September 30, 1996. Interest expense was affected by increased borrowings
incurred to fund the acquisitions of APC and SIMES, more favorable terms related
to the Company's borrowings under the new credit agreement entered into in April
1997, the proceeds from the April 1997 offering of 8,500,000 shares of Common
Stock at $35 per share, and the proceeds from the July 1997 sale of $200 million
of 5% Convertible Subordinated Notes.
INCOME TAXES -- The effective income tax rate was 40.0% for the three months
ended September 30, 1997 and 39.3% for the three months ended September 30,
1996. The effective rates differed from the statutory rates primarily as a
result of state taxes and non-deductible goodwill amortization.
-11-
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES -- Revenues for the nine months ended September 30, 1997 increased by
$521.9 million to $801.9 million compared to $280.0 million for the nine months
ended September 30, 1996. Approximately $490.4 million of the increase in
revenues over 1996 is attributable to the acquisitions of MascoTech Stamping
Technologies, Inc. ("MSTI") in May 1996, APC and SIMES. The remaining increase
is due to new business awarded to the Company, including business relating to
the Ford Escort, Econoline and Expedition, Dodge Ram Club Cab pick-up and Toyota
Camry.
COST OF SALES -- Cost of sales as a percentage of revenues for the nine months
ended September 30, 1997 was 86.0% compared to 84.7% for the nine months ended
September 30, 1996. The decrease in gross margin was due to a higher proportion
of components purchased from outside suppliers as a result of the MSTI and APC
acquisitions and launch costs associated with new business. These decreases
were partially offset by operating efficiencies and enhanced productivity.
S, G & A EXPENSES -- Selling, general and administrative expenses increased to
$38.4 million, or 4.8% of revenues, for the nine months ended September 30, 1997
compared to $14.3 million, or 5.1% of revenues, for the nine months ended
September 30, 1996. The increased expense was due primarily to incremental
costs associated with the Company's acquisitions of MSTI in 1996 and APC and
SIMES in 1997.
AMORTIZATION EXPENSE -- Amortization expense for the nine months ended September
30, 1997 was $5.2 million compared to $1.5 million for the nine months ended
September 30, 1996. The increase was due to incremental goodwill amortization
related to the acquisitions of MSTI, APC and SIMES.
INTEREST EXPENSE -- Interest expense for the nine month period ended September
30, 1997 was $15.9 million and $4.3 million for the nine month period ended
September 30, 1996. Interest expense was affected by increased borrowings
incurred to fund the acquisitions of MSTI, APC and SIMES, more favorable terms
related to the Company's borrowings under the new credit agreement entered into
in April 1997, the application of the proceeds from the June 1996 offering of
2,232,900 shares of common stock at $24.50 per share, the proceeds from the
April 1997 offering of 8,500,000 shares of Common Stock at $35.00 per share and
the proceeds from the July 1997 offering of $200 million of 5% Convertible
Subordinated Notes.
INCOME TAXES -- The effective income tax rate was 40.0% for the nine months
ended September 30, 1997 and 39.8% for the nine months ended September 30, 1996.
The effective rates differed from the statutory rates primarily as a result of
state taxes and non-deductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
On April 18, 1997, the Company entered into a new revolving credit facility that
provides for borrowings of up to $750 million on an unsecured basis. The amount
available under the revolving credit facility reduces to $675 million in April
2000, $600 million in April 2001 and $500 million in April 2002. The credit
facility has a final maturity of April 2003. Interest on the
-12-
<PAGE>
credit facility is at the prime rate or LIBOR plus a margin ranging from 17 to
50 basis points depending upon the ratio of the consolidated indebtedness of the
Company to its total capitalization. The weighted average interest rate for
such borrowings was 6.85% at September 30, 1997. The new credit facility
requires the Company to meet certain financial covenants, including but not
limited to minimum interest coverage, minimum debt to total capital and maximum
leverage ratio. The Company was in compliance with all covenants as of
September 30, 1997.
On July 29, 1997, the Company completed the sale of $200 million of 5%
Convertible Subordinated Notes (the "Notes") pursuant to a private placement.
This sale was deemed exempt from registration under the Securities Act pursuant
to Section 4(2) thereof as a transaction not involving a public offering. The
Notes are due on August 1, 2004 and are convertible into Tower Automotive common
stock at a conversion price of $51.75 per share. The Notes are unsecured and
may not be redeemed until August 1, 2000, except in the event of a change in
control. Proceeds from the Notes were used to repay outstanding indebtedness
under the revolving credit facility.
Effective October 1997, the Company is party to an interest rate swap contract
to hedge against interest rate exposures on certain floating-rate indebtedness.
The contract, which expires in November 2002, has the effect of converting the
floating-rate interest on $300 million of borrowings outstanding under the
revolving credit facility into fixed-rate interest of approximately 6.75%. This
interest rate swap contract was entered into in order to balance the Company's
fixed-rate and floating-rate debt portfolios. Under the interest rate swaps,
the Company agrees with the other party to exchange, at specified intervals, the
difference between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional principal amount. While the Company is exposed
to credit loss on its interest rate swap in the event of nonperformance by the
counterparty to such swap, management believes that such nonperformance is
unlikely to occur given the financial resources of the counterparty.
As of September 30, 1997, the Company also had approximately $2.2 million in
outstanding indebtedness relating to industrial development revenue bonds issued
in connection with the construction of its Auburn, Indiana plant. The bonds are
collateralized by a letter of credit, certain equipment and a mortgage on the
Company's Auburn, Indiana plant. The bonds are payable in annual installments
of $720,000 through September 2000 and bear interest at a floating rate which is
adjusted weekly as determined by the bond remarketing agent (3.5% at September
30, 1997 and 4.4% at December 31, 1996).
The Company also has $43.8 million of indebtedness outstanding pursuant to
industrial development revenue bonds (IRB's) issued with the City of Bardstown,
Kentucky. Proceeds from the IRB's were used to finance construction of a
240,000 square foot manufacturing facility and the related purchase of
equipment. The bonds, which are due July 1, 2024 and March 1, 2025, are
collateralized by a letter of credit. As of September 30, 1997, approximately
$37.2 million of the proceeds had been expended or committed for the first phase
of the facility and related equipment. The unexpended proceeds from the bonds
of approximately $7.8 million at September 30, 1997, are invested in treasury
securities and will be used to finance the second phase of the facility. The
bonds bear interest at a floating rate which is adjusted weekly as determined by
the bond remarketing agent (5.6% at September 30, 1997 and 5.8% at December 31,
1996).
-13-
<PAGE>
On May 31, 1996, the Company purchased all of the outstanding common stock of
MSTI from MascoTech, Inc. (MascoTech) for an aggregate purchase price of
approximately $79 million, including payment of related fees and expenses.
Pursuant to the terms of the acquisition, the Company is required to make
additional payments to MascoTech if certain operating targets are achieved by
the MSTI facilities in the first three years following the acquisition. If all
such operating targets are met, the total payments will not exceed $30 million.
Based on results of operations of the MSTI facilities through September 30,
1997, $4 million of contingent payments are due and have been accrued and
recorded as additional goodwill.
The Company financed the cash portion of the purchase price of MSTI through the
issuance of two series of Senior Notes having an aggregate principal amount of
$65.0 million, interest rates ranging from 7.65% to 7.82% and final maturities
of 2006 to 2008. The Senior Notes were retired in connection with the
transactions described below.
On April 18, 1997, the Company completed the following transactions:
(a) Issued 8,500,000 shares of Common Stock in a public offering at an
offering price of $35 per share (the "Offering"). Net proceeds to the
Company, after underwriting discounts and offering expenses, were
approximately $285 million.
(b) Repaid, in full, the outstanding Senior Notes plus accrued interest.
In connection with the repayment, the Company paid prepayment
penalties and wrote off deferred financing costs which resulted in an
extraordinary loss, net of income taxes of approximately $2.4 million.
The Company recognized this charge during the second quarter of 1997.
(c) Acquired and assumed substantially all of the assets and liabilities
of Automotive Products Company (APC), a division of A.O. Smith
Corporation. The aggregate purchase price consisted of approximately
$725 million in cash and was financed with the proceeds from the
Offering and borrowings under the new credit facility described above.
APC, which has 15 facilities, designs and manufactures frames, frame
components, engine cradles, suspension components and modules for the
North American automotive and heavy truck industries.
On May 9, 1997, the Company acquired all of the outstanding common stock of
Societa Industria Meccanica e Stampaggio S.p.A. ("SIMES"). SIMES, headquartered
in Turin, Italy, has annual revenues of approximately $70 million. SIMES
designs and manufactures structural metal components in two facilities in Italy,
principally for Fiat. The purchase price, which consisted of approximately
$50.7 million in cash, was financed with borrowings under the Company's
revolving credit facility.
On October 9, 1997, the Company completed an agreement to become a partner in
Metalsa S.A. de C.V. ("Metalsa") with Promotora de Empresas Zano, S.A. de C.V.
("Proeza"). Metalsa is the largest supplier of vehicle frames and structures in
Mexico. Under the terms of the agreement, the Company acquired a 40% equity
interest in Metalsa. In addition, the parties have entered into a technology
sharing arrangement that will enable both companies to utilize the latest
available product and process technology. Metalsa is headquartered in
Monterrey, Mexico and has manufacturing facilities in Monterrey and San Luis
Potosi, Mexico. Metalsa's customers include Chrysler, General Motors, Ford,
Nissan and Mercedes-Benz. In connection with this agreement, the Company paid
$120 million to Proeza, with an additional amount of up to $45
-14-
<PAGE>
million payable based upon the net earnings of Metalsa in 1998, 1999 and 2000.
The acquisition was financed with proceeds from borrowings under the Company's
revolving credit facility.
During the nine months ended September 30, 1997, the Company generated $56.6
million of cash from operations, which was used to partially fund capital
expenditures.
The Company has made substantial investments in manufacturing technology and
product design capability to support its products. The Company made capital
expenditures of approximately $81.7 million during the nine months ended
September 30, 1997, primarily for equipment and dedicated tooling purchases
related to new or replacement programs.
The Company believes the borrowing availability under the new credit agreement,
together with funds generated by operations, should provide the Company with the
liquidity and capital resources to pursue its business strategy through 1997,
with respect to working capital, capital expenditures and other operating needs.
Under present conditions, management does not believe access to funds will
restrict its ability to pursue its acquisition strategy.
NEW ACCOUNTING PRONOUNCEMENT
During March 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share,"
which requires the disclosure of basic earnings per share and diluted earnings
per share. The Company expects to adopt SFAS 128 effective December 31, 1997.
The Company has not yet determined the effect on earnings per share of adopting
SFAS 128.
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
effected 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.
-15-
<PAGE>
PART II. OTHER INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None
Item 2. Change in Securities:
On July 29, 1997, the Company completed the sale of $200 million of 5%
Convertible Subordinated Notes. See Note 5 to Condensed Consolidated
Financial Statements.
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
1.1 Purchase Agreement, dated as of July 23, 1997, by and
between the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, Robert W. Baird & Co. Incorporated, PaineWebber
Incorporated and BT Securities Corporation, incorporated by
reference to Exhibit 1.1 of the Company's Form S-3 Registration
Statement (Registration No. 333-38827) (the "Form S-3") filed
with the Commission on October 27, 1997.
3.1 Certificate of Amendment to Amended and Restated Certificate of
Incorporation, incorporated by reference to Exhibit 4.3 of the
Form S-3.
4.1 Indenture, dated as of July 28, 1997, by and between the Company
and Bank of New York, as trustee (including form of 5%
Convertible Subordinated Note due 2004), incorporated by
reference to Exhibit 4.5 of the Form S-3.
-16-
<PAGE>
4.2 Registration Rights Agreement, dated as of July 28, 1997, by and
between the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, Robert W. Baird & Co. Incorporated, PaineWebber
Incorporated and BT Securities Corporation, incorporated by
reference to Exhibit 4.6 of the Form S-3.
11 Statement of Computation of Earnings Per Share For
the Three and Nine Months Ended September 30,
1997 and 1996.
27 Financial Data Schedule
(b) The Company filed no Form 8-K Current Reports with the Securities and
Exchange Commission during the quarter ended September 30, 1997.
-17-
<PAGE>
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: November 12, 1997 By /s/ Anthony A. Barone
-------------------------------
Anthony A. Barone
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
-18-
<PAGE>
EXHIBIT 11
TOWER AUTOMOTIVE, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended September 30,
-------------------------------
1997 1996
---------- --------
Net income $11,828 $ 5,236
Interest expense on convertible notes 22 25
------- --------
Net income applicable to common
stockholders - primary 11,850 5,261
Interest expense on 5% Convertible
Subordinated Notes 1,128 -
------- --------
Net income applicable to common
stockholders - fully diluted $12,978 $ 5,261
------- --------
------- --------
Weighted average number of common
and common equivalent shares 22,862 14,155
Dilutive effect of outstanding stock
options and warrants after application
of the treasury stock method 247 132
Dilutive effect of convertible notes
assuming conversion 404 477
------- --------
Common and common equivalent
shares outstanding - primary 23,513 14,764
Dilutive effect of 5% Convertible
Subordinated Notes assuming
conversion 2,576 -
Additonal dilution to outstanding
stock options 7 -
------- --------
Common and common equivalent
shares outstanding - fully diluted 26,096 14,764
------- --------
------- --------
Net income per share:
Primary $ 0.50 $ 0.36
------- --------
------- --------
Fully diluted $ 0.50 $ 0.36
------- --------
------- --------
-19-
<PAGE>
EXHIBIT 11
(CONTINUED)
TOWER AUTOMOTIVE, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- --------
Net income $29,293 $13,726
Interest expense on convertible notes 92 107
------- --------
Net income applicable to common
stockholders - primary 29,385 13,833
Interest expense on 5% Convertible
Subordinated Notes 1,128 -
------- --------
Net income applicable to common
stockholders - fully diluted $30,513 $13,833
------- --------
------- --------
Weighted average number of common
and common equivalent shares 19,487 12,156
Dilutive effect of outstanding stock
options and warrants after application
of the treasury stock method 250 109
Dilutive effect of convertible notes
assuming conversion 407 659
------- --------
Common and common equivalent
shares outstanding - primary 20,144 12,924
Additional dilution to outstanding
stock options 11 -
Dilutive effect of 5% Convertible
Subordinated Notes assuming
conversion 859 -
------- --------
Common and common equivalent
shares outstanding - fully diluted 21,014 12,924
------- --------
------- --------
Net income per share:
Primary $ 1.46 $ 1.07
------- --------
------- --------
Fully diluted $ 1.45 $ 1.07
------- --------
------- --------
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000925548
<NAME> TOWER AUTOMOTIVE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,776
<SECURITIES> 0
<RECEIVABLES> 210,282
<ALLOWANCES> 0
<INVENTORY> 86,432
<CURRENT-ASSETS> 391,359
<PP&E> 1,132,102
<DEPRECIATION> (423,778)
<TOTAL-ASSETS> 1,477,934
<CURRENT-LIABILITIES> 232,978
<BONDS> 0
0
0
<COMMON> 229
<OTHER-SE> 497,069
<TOTAL-LIABILITY-AND-EQUITY> 1,477,934
<SALES> 801,896
<TOTAL-REVENUES> 801,896
<CGS> 689,566
<TOTAL-COSTS> 689,566
<OTHER-EXPENSES> 43,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,852
<INCOME-PRETAX> 52,867
<INCOME-TAX> 21,140
<INCOME-CONTINUING> 31,727
<DISCONTINUED> 0
<EXTRAORDINARY> 2,434
<CHANGES> 0
<NET-INCOME> 29,293
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.45
</TABLE>
