<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 18, 1997
TOWER AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
1-12733 41-1746238
(Commission File Number) (I.R.S. Employer Identification No.)
4508 IDS CENTER, MINNEAPOLIS, MINNESOTA 55402
(Address of Principal Executive Officers) (Zip Code)
(612) 342-2310
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. OTHER EVENTS
On April 18, 1997, Tower Automotive, Inc. (the "Company") completed the
acquisition (the "APC Acquisition") of Automotive Products Company ("APC") ,
a division of A.O. Smith Corporation. APC is a leading designer and producer
of structural and suspension components for the automotive, light truck and
heavy truck markets. APC's products include light truck frames, automotive
engine cradles, suspension and other components and heavy truck frame rails.
APC's customers include the three major North American original equipment
manufacturers as well as certain foreign manufacturers with operations in the
United States, including Toyota, Nissan, Isuzu and Honda. The Company
believes APC is the largest supplier in its market segment, with a market
share of approximately 51% in 1996. APC conducts its operations through 15
facilities which, when added to the Company's existing 19 facilities, will
result in a total of over seven million square feet of manufacturing floor
space.
The aggregate purchase price in the APC Acquisition was approximately $625
million, plus an additional $25 million for related fees and expenses and
management's estimate of certain post-closing adjustments. The purchase price
was financed in part using the proceeds from the April 18, 1997 sale by the
Company of 8,500,000 shares of its common stock (the "1997 Offering"), which
were approximately $286.3 million. The remainder was financed through
borrowings under the Company's revolving credit facility.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS. See attached balance sheets of APC as of
December 31, 1995 and 1996, and the related combined statements
of operations and cash flows for each of the three years in the
period ended December 31, 1996.
(b) PRO FORMA FINANCIAL INFORMATION. See the attached pro forma
financial information relating to the APC Acquisition and certain
other transactions completed in the year ended December 31, 1996.
(c) EXHIBITS
2.1 Asset Purchase Agreement, dated January 27, 1997 by and
among A.O. Smith Corporation, A.O. Smith Enterprises Ltd.,
Tower Automotive Acquisition, Inc., Tower Automotive, Inc.
and R.J. Tower Corporation (incorporated by reference to
Exhibit 2.1 of the Company's Form S-3 Registration Statement
(Registration No. 333-21943)).
23.1 Consent of Arthur Andersen LLP.
* * * *
<PAGE>
SIGNATURES
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: APRIL 18, 1997 BY: /s/ Anthony A. Barone
------------------------------------
NAME: ANTHONY A. BARONE
TITLE: VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER (PRINCIPAL
ACCOUNTING AND FINANCIAL
OFFICER)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To A.O. Smith Corporation:
We have audited the accompanying combined balance sheets of the Automotive
Products Company (a division of A.O. Smith Corporation--a Delaware corporation)
as of December 31, 1995 and 1996, and the related combined statements of
operations and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Automotive Products
Company as of December 31, 1995 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 31, 1997
F-1
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
<S> <C> <C>
Current assets:
Accounts receivable, net of reserves of $1,700 and $1,200............................. $ 83,758 $ 68,827
Inventories........................................................................... 28,458 32,883
Other current assets.................................................................. 36,725 61,832
Deferred income tax benefit........................................................... 7,600 7,600
----------- -----------
Total current assets................................................................ 156,541 171,142
----------- -----------
Property, plant and equipment, at cost:
Land.................................................................................. 2,854 2,854
Buildings and improvements............................................................ 103,013 104,479
Machinery and equipment............................................................... 499,591 556,717
Construction in progress.............................................................. 22,135 104,439
----------- -----------
627,593 768,489
Less-Accumulated depreciation......................................................... (320,738) (360,940)
----------- -----------
Net property, plant and equipment................................................... 306,855 407,549
Other assets, net....................................................................... 5,646 22,620
----------- -----------
$ 469,042 $ 601,311
----------- -----------
----------- -----------
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable...................................................................... $ 49,620 $ 69,485
Accrued compensation costs............................................................ 25,137 27,336
Other accrued liabilities............................................................. 15,007 10,499
----------- -----------
Total current liabilities........................................................... 89,764 107,320
Postretirement benefit obligation....................................................... 63,566 65,677
Deferred income taxes................................................................... 22,100 29,500
Other noncurrent liabilities............................................................ 14,300 15,500
----------- -----------
Commitments and contingencies (Note 7)
Parent company investment............................................................... 279,312 383,314
----------- -----------
$ 469,042 $ 601,311
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-2
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
<S> <C> <C> <C>
Revenues..................................................................... $ 722,718 $ 845,305 $ 862,977
Cost of sales................................................................ 623,766 754,331 771,295
---------- ---------- ----------
Gross profit............................................................... 98,952 90,974 91,682
Selling, general and administrative expenses................................. 34,021 37,433 37,233
---------- ---------- ----------
Operating income........................................................... 64,931 53,541 54,449
Interest expense............................................................. 4,051 5,357 6,829
---------- ---------- ----------
Income before provision for income taxes................................... 60,880 48,184 47,620
Provision for income taxes................................................... 24,800 19,700 19,500
---------- ---------- ----------
Net income................................................................. $ 36,080 $ 28,484 $ 28,120
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-3
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
<S> <C> <C> <C>
Operating activities:
Net income.................................................................. $ 36,080 $ 28,484 $ 28,120
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 34,100 41,821 50,768
Deferred income tax provision (benefit)................................... (500) 2,200 7,400
Changes in other operating items--
Accounts receivable..................................................... (4,483) (24,770) 14,931
Inventories............................................................. (17,850) 4,492 (4,425)
Other current assets.................................................... (5,919) (8,950) (25,107)
Accounts payable, accrued liabilities and other......................... 1,082 (7,388) 19,667
Other noncurrent liabilities............................................ (1,000) 4,200 1,200
---------- ---------- ----------
Net cash provided by operating activities............................. 41,510 40,089 92,554
---------- ---------- ----------
Investing activities:
Capital expenditures, net................................................... (59,023) (78,908) (151,534)
Investments in unconsolidated subsidiary.................................... -- (3,750) (16,902)
---------- ---------- ----------
Net cash used in investing activities................................. (59,023) (82,658) (168,436)
Financing activities:
Advances from Parent........................................................ 17,513 42,569 75,882
---------- ---------- ----------
Net change in cash............................................................ -- -- --
Cash:
Beginning of period......................................................... -- -- --
---------- ---------- ----------
End of period............................................................... $ -- $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-4
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
During the periods presented, Automotive Products Company (APC) was a
division of A.O. Smith Corporation (A.O. Smith or Parent). On January 27, 1997,
a wholly owned subsidiary of R.J. Tower Corporation (R.J. Tower) agreed to
acquire and assume substantially all of the assets and liabilities of APC (the
Acquisition--see Note 8). R.J. Tower is a wholly owned subsidiary of Tower
Automotive, Inc. (Tower). The accompanying financial statements reflect the
financial position, operations and cash flows of the operations conducted by APC
to be acquired by R.J. Tower. The operations included in the accompanying
financial statements are referred to herein as APC or the Company. The
accompanying financial statements have not been adjusted to reflect the effects
of the Acquisition.
The Company designs, engineers and manufactures stamped structural and
suspension components and assemblies for the automotive and heavy truck
industries and has fifteen facilities in the United States, Canada, South
America, Japan and China.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION:
The combined financial statements of APC include the accounts of APC, a
division of A.O. Smith, as well as the following operations:
- The automotive products division of A.O. Smith Enterprises Ltd., a
Canadian corporation and a wholly owned subsidiary of the Parent.
- A.O. Smith do Brasil Industria E Comerico Ltda., a Brazilian limited
liability company.
All significant intercompany accounts and transactions have been eliminated
in combination.
INVENTORIES:
Inventories are valued at the lower of last-in, first-out (LIFO) cost or
market and include materials, labor and overhead costs. Inventories consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
<S> <C> <C>
Raw materials......................................................... $ 4,805 $ 7,858
Work in process....................................................... 24,473 23,393
Finished goods........................................................ 14,872 17,395
LIFO reserve.......................................................... (15,692) (15,763)
---------- ----------
$ 28,458 $ 32,883
---------- ----------
---------- ----------
</TABLE>
During 1996, the Company purchased stamped components from Tower totaling
approximately $13.6 million for use in the manufacture of certain of its
products.
F-5
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
OTHER CURRENT ASSETS:
Other current assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
<S> <C> <C>
Prepaid customer tooling................................................ $ 31,104 $ 54,368
Prepaid expenses........................................................ 5,621 7,464
--------- ---------
$ 36,725 $ 61,832
--------- ---------
--------- ---------
</TABLE>
Prepaid customer tooling represents costs incurred by the Company in the
development of new tooling used in the manufacture of the Company's products
over the amount of such costs billed to the Company's customers. The Company
receives specific purchase orders for this tooling and is reimbursed by its
customers. Costs incurred are deferred until reimbursed by the customer.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation and amortization are provided using the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
10 to 40
Buildings and improvements................................... years
Machinery and equipment...................................... 5 to 17 years
</TABLE>
Accelerated depreciation methods are used for tax reporting purposes.
Interest of $0.7 million, $0.4 million and $1.7 million was capitalized to
fixed assets under construction during 1994, 1995 and 1996.
Maintenance and repairs are charged to expense as incurred. Major
improvements which extend the useful life of the related item are capitalized
and depreciated. The cost and accumulated depreciation of property, plant and
equipment retired or otherwise disposed of are removed from the related
accounts, and any residual values are charged or credited to income.
CAPITALIZED SOFTWARE COSTS:
Incremental direct costs associated with the customization and
implementation of purchased software are expensed until the Company is
reasonably certain that the specific new system (or substantial revision) will
be completed and will fulfill its intended use. Such costs are then capitalized
and amortized over their estimated useful lives--generally 3 to 10 years.
Training and nonincremental costs incurred in these activities are expensed as
incurred. Unamortized computer software costs were $6.9 million and $16.0
million as of December 31, 1995 and 1996. Amortization of these costs which was
charged to expense amounted to $1.6 million, $0.6 million and $0.7 million
during 1994, 1995 and 1996.
F-6
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCRUED COMPENSATION COSTS:
Accrued compensation costs consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
<S> <C> <C>
Payroll................................................................. $ 16,572 $ 17,982
Workers' compensation................................................... 5,904 5,980
Other................................................................... 2,661 3,374
--------- ---------
$ 25,137 $ 27,336
--------- ---------
--------- ---------
</TABLE>
OTHER NONCURRENT LIABILITIES:
Other noncurrent liabilities consist of estimated losses to be incurred,
determined on an item-by-item basis, on the sale of products which have costs in
excess of selling prices.
REVENUE RECOGNITION AND SALES COMMITMENTS:
The Company recognizes revenue as its products are shipped to its customers.
The Company enters into agreements with its customers at the beginning of a
given product's life to produce products. Once such agreements are entered into
by the Company, fulfillment of the customers' purchasing requirements is
generally the obligation of the Company for the entire production life of the
product, generally with terms of three to ten years. In certain instances, the
Company may be committed under existing agreements to supply product to its
customers at selling prices which are not sufficient to cover the direct cost to
produce such product. In such situations, the Company records a liability for
the estimated future amount of such losses. Such losses are recognized at the
time that the loss is probable and reasonably estimable. Losses are discounted
at 4% and are estimated based upon information available at the time of the
estimate, including future production estimates, length of the program and
selling price and production cost information.
FOREIGN CURRENCY TRANSLATION:
For all subsidiaries outside the United States, the Company uses the local
currency as the functional currency. For these operations, assets and
liabilities are translated to U.S. dollars at year-end exchange rates and
weighted average exchange rates are used for revenues and expenses. The
resulting translation adjustments are reflected as a change in the Parent's
investment in the Company. Gains and losses from foreign currency transactions
are included in results of operations.
DERIVATIVES:
As a result of having various foreign operations, the Parent and Company are
exposed to the effect of foreign currency rate fluctuations on the U.S. dollar
value of their foreign operations. Further, the Parent and Company conduct
business in various foreign currencies. To minimize the effect of fluctuating
foreign currencies on its operating results, the Parent has historically entered
into foreign currency forward contracts. The contracts were used to hedge known
foreign currency transactions for both the Parent and
F-7
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the Company on a continuing basis for periods consistent with the Parent's
exposures. The effect of such transactions as they related to the Company was
not material.
INCOME TAXES:
The accompanying financial statements reflect income taxes accounted for
under the liability method, whereby deferred income taxes are recognized at
currently enacted income tax rates to reflect the tax effect of temporary
differences between the financial reporting and tax bases of certain assets and
liabilities.
CHARGES FROM A.O. SMITH:
The Parent has historically provided various services to APC and its other
operating units, including income tax, internal audit, benefits, corporate
technology, legal, strategic and treasury related services. Specific
determination of the costs associated with these services that relate directly
to the Company is not practicable; accordingly, the amounts presented in the
accompanying financial statements related to these services reflect estimates,
which management believes were reasonable and appropriate in the circumstances.
Management does not believe that such estimates differ materially from actual
amounts had it been practicable to specifically identify such actual amounts.
The estimated amount of corporate expenses included in the accompanying combined
statements of operations for the years ended December 31, 1994, 1995 and 1996
was $6 million, $6.5 million and $5 million.
In addition to the above expense reimbursement charges, the accompanying
financial statements reflect charges for the Company's proportionate share of
the Parent's interest expense, allocated based on the relationship of the
Company's net assets to the Parent's total consolidated net assets.
NEW ACCOUNTING PRONOUNCEMENT:
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement provides
guidance for determining whether the value of certain long-lived assets,
identifiable intangibles and goodwill has been impaired. The adoption of this
statement had no impact on the Company's financial position or results of
operations.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates relate primarily to the carrying amounts of
inventories and customer tooling balances and to the determination of charges
for services provided by the Parent. The ultimate results could differ from
those estimates.
F-8
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. MAJOR CUSTOMERS:
The Company sells its products directly to automobile manufacturers.
Following is a summary of customers that accounted for a significant portion of
the Company's revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Ford................................................................... 45% 48% 46%
Chrysler............................................................... 25% 21% 20%
General Motors......................................................... 19% 19% 23%
</TABLE>
Receivables from these customers represented 68% and 76% of net accounts
receivable at December 31, 1995 and 1996.
4. SALES TO METALSA:
APC sells certain automotive frame components to Metalsa S.A. de C.V., a
Mexican joint venture in which the Parent is an investor. Sales were $11.0
million in 1994, $11.6 million in 1995 and $15.7 million in 1996. Receivables
related to the transaction activity were $.8 million, and $1.0 million as of
December 31, 1995 and 1996. Such transactions were priced to approximate fair
market value.
5. INVESTMENT IN JOINT VENTURE:
In 1995, APC entered into a joint venture to produce certain of its parts in
China. This investment, equal to 60% of the joint venture equity, is accounted
for using the equity method of accounting as a result of the Company's voting
rights and general business restrictions within China. At December 31, 1995 and
1996, the carrying amount of the investment was $3.8 million and $20.6 million
and is included in other assets in the accompanying combined balance sheets. The
carrying amounts of the investment have not exceeded the Company's equity in the
underlying net assets. No income or distributions were recognized or paid out by
the joint venture in 1995 or 1996. Facility operations are scheduled to begin in
early 1997.
6. INCOME TAXES:
The Company's results of operations have been historically included in the
consolidated federal income tax returns of A.O. Smith. As a result, all tax
payments were made by A.O. Smith. The provisions for income taxes in the
accompanying combined statements of operations for the years ended December 31,
1994, 1995 and 1996 were computed as if the Company had filed separate tax
returns.
The income tax provision consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Currently payable............................................ $ 25,300 $ 17,500 $ 12,100
Deferred income tax provision (benefit)...................... (500) 2,200 7,400
--------- --------- ---------
$ 24,800 $ 19,700 $ 19,500
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-9
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
The deferred income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Depreciation lives and methods............................... $ 2,300 $ 2,300 $ 8,000
Reserves and accruals not currently deductible............... (2,900) (600) (900)
Other, net................................................... 100 500 300
--------- --------- ---------
Deferred income tax provision (benefit)...................... $ (500) $ 2,200 $ 7,400
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of income taxes computed at the statutory rate to the
reported income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Taxes at federal statutory rates............................. $ 21,300 $ 16,900 $ 16,700
State income taxes, net of federal benefit................... 3,300 2,600 2,600
Effect of permanent differences.............................. 200 200 200
--------- --------- ---------
Provision for income taxes................................... $ 24,800 $ 19,700 $ 19,500
--------- --------- ---------
--------- --------- ---------
</TABLE>
A summary of the net deferred income tax benefit and liability is as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
<S> <C> <C>
Reserves and accruals not currently deductible........................ $ 7,300 $ 7,200
Other................................................................. 300 400
---------- ----------
Net current deferred tax benefit...................................... $ 7,600 $ 7,600
---------- ----------
---------- ----------
Depreciation lives and methods........................................ $ 51,100 $ 59,400
Reserves and accruals not currently deductible........................ (29,400) (30,400)
Other................................................................. 400 500
---------- ----------
Net long-term deferred tax liability.................................. $ 22,100 $ 29,500
---------- ----------
---------- ----------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
RETIREMENT AND BENEFIT PLANS:
Employees of the Company may be eligible to participate in a variety of
retirement and benefit plans that are sponsored by the Company and the Parent.
Participation in these plans is subject to certain eligibility conditions.
The Parent sponsors a qualified noncontributory defined benefit plan which
was established on December 31, 1995 through the merger of its various defined
benefit plans in the United States into one plan. Benefits for salaried
employees are based on the employee's years of service and compensation.
Benefits for hourly employees are generally based on years of service. The
Parent's policy is to contribute
F-10
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
amounts which are actuarially determined to provide sufficient assets to meet
future benefit payment requirements consistent with the funding requirements of
federal law and regulations. Plan assets consist primarily of marketable
equities and debt securities. The Company recognized pension expense of $3.0
million, $5.4 million and $3.3 million during 1994, 1995 and 1996 related to its
contributions to this plan. As of December 31, 1996, net plan assets exceeded
the projected benefit obligation under the plan.
The Parent sponsors several defined contribution employee benefit plans for
hourly and salaried personnel in the United States and Canada. Under the plans,
the Company matches employee contributions based upon formulas established in
the plans. Company contributions under these plans for the benefit of Company
employees were $1.4 million during each of 1994, 1995 and 1996.
POSTRETIREMENT HEALTHCARE:
The Company participates in a defined benefit postretirement plan sponsored
by the Parent which provides medical and life insurance benefits to certain
hourly and salaried employees from retirement to age 65. Salaried employees
retiring after January 1, 1995, are covered by an unfunded defined contribution
plan with benefits based on years of service. Certain hourly employees retiring
after January 1, 1996, will be subject to a maximum annual benefit limit.
Salaried employees hired after December 31, 1993, are not eligible for
postretirement medical benefits.
Net periodic postretirement benefit costs associated with those employees of
the Company that participate in this plan included the following components for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Service cost--benefits attributed to employee service during the
year........................................................... $ 1,354 $ 1,067 $ 1,168
Interest cost on accumulated postretirement benefit obligation... 5,925 5,613 5,758
Amortization of prior service cost............................... -- -- 156
Amortization of unrecognized net (gain) loss..................... 294 (28) 546
--------- --------- ---------
$ 7,573 $ 6,652 $ 7,628
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The following table summarizes the components of the postretirement benefit
obligation related to the employees of the Company that participate in this plan
(in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees............................................................ $ 33,416 $ 27,389
Fully eligible active plan participants............................. 15,778 19,870
Other active plan participants...................................... 26,857 30,692
---------- ----------
76,051 77,951
Unrecognized prior service cost....................................... (1,100) (946)
Unrecognized net loss................................................. (11,385) (11,328)
---------- ----------
Accrued postretirement benefit obligation............................. $ 63,566 $ 65,677
---------- ----------
---------- ----------
</TABLE>
The assumed healthcare cost trend rate used in measuring the APBO is 6
percent. The weighted average discount rate used in determining the APBO was 7.5
and 8.0 percent at December 31, 1995 and 1996. If the healthcare cost trend rate
were increased by 1 percent, the APBO at December 31, 1996 would increase by
$1.8 million and net periodic postretirement benefit cost for 1996 would
increase $.2 million.
ENVIRONMENTAL AND LEGAL MATTERS:
Due to the nature of its business, the Company has, from time to time, been
exposed to potential liabilities to clean up environmental contaminants. In
addition, the Company is periodically involved in legal proceedings during the
ordinary course of business. In the opinion of management, such matters are not
expected to have a material impact on the Company's future operating results or
financial position.
OPERATING LEASE COMMITMENTS:
The Company leases manufacturing facilities and equipment under operating
lease agreements which require it to pay maintenance, insurance, taxes and other
expenses in addition to rentals. Future annual rental commitments at December
31, 1996 under these operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
1997............................................................... $ 22,268
<S> <C>
1998............................................................... 21,283
1999............................................................... 19,229
2000............................................................... 9,003
2001............................................................... 5,206
Thereafter......................................................... 17,856
---------
$ 94,845
---------
---------
</TABLE>
Rent expense, including payments under operating lease commitments, totaled
$21.3 million, $21.2 million and $24.1 million during 1994, 1995 and 1996.
F-12
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. ACQUISITION BY TOWER AUTOMOTIVE, INC.:
On January 27, 1997, a wholly owned subsidiary of R.J. Tower agreed to
acquire and assume substantially all of the assets and liabilities of the
Company. Terms of the agreement provided for the payment of cash consideration
of approximately $625 million, subject to certain adjustments. The Acquisition
is expected to be completed during the second quarter of 1997. Subsequent to the
Acquisition, the operations of the Company will be continued by R.J. Tower on a
basis substantially consistent with that which existed prior to the Acquisition.
The Acquisition will be accounted for as a purchase and, accordingly, the
Company's assets and liabilities will be recorded at fair value as of the
acquisition date.
F-13
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Statement of Operations for the year
ended December 31, 1996 gives effect to (i) the Company's acquisition of
MascoTech Stamping Technologies, Inc. ("MSTI") (including related financing
transactions); (ii) the Company's June 1996 sale of 2,232,900 shares of its
common stock (the "1996 Offering") and the application of the net proceeds
therefrom; (iii) the APC Acquisition; (iv) the refinancing of the Company's
existing credit Agreement and redemption of its senior subordinated notes; and
(v) the 1997 Offering and the application of the net proceeds therefrom, as if
such transactions had occurred on January 1, 1996.
The information set forth under the heading Pro Forma As Adjusted included
in the Unaudited Pro Forma Balance Sheet as of December 31, 1996 reflects:
(i) the APC Acquisition; (ii) the refinancing of the Company's existing credit
agreement and redemption of its senior subordinated notes; and (iii) the 1997
Offering and the application of the net proceeds therefrom to the Company, as if
such transactions had occurred on such date. The historical balance sheet of
the Company as of December 31, 1996 already reflects the Company's acquisition
of MSTI and the 1996 Offering.
The unaudited pro forma financial data presented herein are based on the
assumptions and adjustments described in the accompanying notes. The Unaudited
Pro Forma Statement of Operations does not purport to represent what the
Company's results of operations actually would have been if the events described
above had occurred as of the dates indicated or what such results will be for
any future periods. The Unaudited Pro Forma Financial Statements are based upon
assumptions and adjustments that the Company believes are reasonable. The
Unaudited Pro Forma Financial Statements and the accompanying notes should be
read in conjunction with the historical financial statements of the Company and
of APC, including the notes thereto. The updated financial information
contained in the Company's Amendment No. 1 to Current Report on Form 8-K/A,
dated April 11, 1997, has not been reflected in the accompanying Unaudited Pro
Forma Financial Statements as the effect would not be material.
Each of the acquisitions referred to in these Unaudited Pro Forma Financial
Statements have been or will be accounted for using the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed have
been or will be recorded at their fair values as of the dates of their
respective acquisitions. These amounts have been recorded based upon
preliminary estimates as of the dates of the acquisitions. The Company does not
believe that any changes to these estimates that may occur will have a material
impact on the pro forma financial information included herein.
PF-1
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------- PRO FORMA PRO FORMA
COMPANY(1) MSTI(2) APC(3) ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 399,925 $ 73,803 $ 862,977 $ (13,600)(4) $ 1,323,105
Cost of sales................................. 338,290 64,224 771,295 (31,462)(5) 1,142,347
----------- --------- ---------- --------------- ------------
Gross profit.................................. 61,635 9,579 91,682 17,862 180,758
Selling, general and administrative
expenses.................................... 20,004 3,404 37,233 -- 60,641
Amortization expense.......................... 2,191 683 -- 4,365(6) 7,239
----------- --------- ---------- --------------- ------------
Operating income.............................. 39,440 5,492 54,449 13,497 112,878
Interest expense, net......................... 5,103 37 6,829 17,138(7) 29,107
----------- --------- ---------- --------------- ------------
Income before provision for income taxes...... 34,337 5,455 47,620 (3,641) 83,771
Provision for income taxes.................... 13,700 1,640 19,500 (1,332)(8) 33,508
----------- --------- ---------- --------------- ------------
Income before extraordinary item.............. 20,637 3,815 28,120 (2,309) 50,263
Extraordinary loss on early extinguishment of
debt, net of income taxes................... -- -- -- (3,000)(9) (3,000)
----------- --------- ---------- --------------- ------------
Net income.................................. $ 20,637 $ 3,815 $ 28,120 $ (5,309) $ 47,263
----------- --------- ---------- --------------- ------------
----------- --------- ---------- --------------- ------------
Income applicable to common stockholders:
Before extraordinary item................. $ 20,765 $ 50,391
----------- ------------
----------- ------------
Net income................................ $ 20,765 $ 47,391
----------- ------------
----------- ------------
Income per common and common equivalent
share:
Before extraordinary item................. $ 1.55 $ 2.15(11)
----------- ------------
----------- ------------
Net income................................ $ 1.55 $ 2.02
----------- ------------
----------- ------------
Weighted average common and common
equivalent shares outstanding............. 13,423 10,009(10) 23,432
</TABLE>
See accompanying Notes to Unaudited Pro Forma Statement of Operations.
PF-2
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Represents the results of operations of the Company for the year ended
December 31, 1996 and the results of operations of Trylon and MSTI from the
dates of their respective acquisitions.
(2) Represents the results of operations for MSTI from January 1, 1996 through
the date of acquisition, May 31, 1996.
(3) Represents the results of operations for APC for the year ended December
31, 1996.
(4) To eliminate sales of stampings from the Company to APC during 1996.
(5) To eliminate purchases made by APC from the Company during 1996 of $13,600
(See Note 4) and to reflect the change in depreciation expense resulting
from adjustments to the depreciable lives of property, plant and equipment
of MSTI and APC to their estimated useful lives at the time of their
acquisition and from adjustments to value such property, plant and equipment
at fair value as of the dates of acquisition ($17,862).
(6) Represents the amortization of goodwill arising from the acquisition of
MSTI ($415) and APC ($4,633), net of amortization of goodwill previously
recorded by MSTI ($683) which has been eliminated. Goodwill will
be amortized on a straight-line basis over a forty-year period.
(7) Represents incremental interest expense arising from indebtedness incurred
in connection with the acquisitions of MSTI ($2,314) and APC ($40,069), net
of the reduction in interest expense which results from the application of
the proceeds from the 1996 Offering ($993) and the Offering ($24,252).
Adjustments to interest expense have been calculated based on an assumed
weighted average borrowing rate of 6.75% during the pro forma period. If the
assumed interest rate were to change by 1/8 of 1%, interest expense would
change by approximately $490 and net income would change by approximately
$300.
(8) To adjust the provision for income taxes on a pro forma basis to reflect
the Company's incremental tax rate of 40%.
(9) Represents the payment of a prepayment penalty of $3,900 on the redemption
of the Senior Notes and the write-off of $1,100 of related deferred
financing costs, net of the related income tax effect of $2,000.
(10) Represents the pro forma effect from the shares issued to MascoTech in
connection with the MSTI Acquisition, the 2,232,900 shares issued in the
1996 Offering, including shares issued upon the exercise of the
underwriters' over-allotment option, and the issuance of 8,500,000 shares of
the Common Stock in the Offering.
(11) The following is a reconciliation between (i) pro forma net income per
common and common equivalent share, excluding the effect of the Offering and
the APC Acquisition (See "Notes to Consolidated Financial Statements" on
page F-11), (ii) pro forma EPS as adjusted, excluding the effect of the APC
Acquisition, (iii) pro forma EPS, before extraordinary item, and (iv) pro
forma EPS as adjusted:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES
AMOUNT EPS OUTSTANDING
--------- --------- -------------
<S> <C> <C> <C>
Pro forma income applicable to common stockholders, excluding the effect
of the Offering and the APC Acquisition................................. $ 23,982 $ 1.61 14,932
---------
---------
Elimination of interest expense as a result of the application of the
proceeds of the Offering, net of tax.................................... 3,500 8,500
--------- ------
Pro forma income applicable to common stockholders, excluding the effect
of the APC Acquisition.................................................. 27,482 $ 1.17 23,432
---------
---------
Net income of APC......................................................... 28,120 --
Pro forma adjustments associated with the APC Acquisition................. 7,778 --
Incremental interest expense arising from the APC Acquisition, net of
tax..................................................................... (24,041) --
Additional elimination of interest expense as a result of the application
of the proceeds of the Offering, net of tax............................. 11,052 --
--------- ------
Pro forma income applicable to common stockholders........................ 50,391 $ 2.15 23,432
---------
---------
Extraordinary loss on early extinguishment of debt........................ 3,000 --
--------- ------
$ 47,391 $ 2.02 23,432
--------- --------- ------
--------- --------- ------
</TABLE>
PF-3
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA AS
COMPANY APC ADJUSTMENTS(1) ADJUSTED
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 39,596 $ -- $ (39,596)(6) $ --
Accounts receivable...................................... 61,073 68,827 -- 129,900
Inventories.............................................. 21,864 32,883 15,763(2) 70,510
Prepaid tooling and other................................ 14,433 69,432 (7,600)(3) 76,265
---------- ---------- -------------- ------------
Total current assets................................... 136,966 171,142 (31,433) 276,675
Property, plant and equipment, net......................... 156,248 407,549 48,197(4) 611,994
Restricted cash............................................ 10,833 -- -- 10,833
Goodwill and other intangible assets, net.................. 85,638 -- 185,326(5) 270,964
Other assets............................................... 8,922 22,620 (1,131)(6) 30,411
---------- ---------- -------------- ------------
$ 398,607 $ 601,311 $ 200,959 $ 1,200,877
---------- ---------- -------------- ------------
---------- ---------- -------------- ------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable......................................... $ 32,280 $ 69,485 $ -- $ 101,765
Accrued liabilities...................................... 22,429 37,835 (2,031)(6) 58,233
Current maturities of long-term debt..................... 722 -- -- 722
---------- ---------- -------------- ------------
Total current liabilities.............................. 55,431 107,320 (2,031) 160,720
Long-term debt, net of current maturities.................. 113,460 -- 329,304(6) 442,764
Other noncurrent liabilities............................... 47,839 110,677 (25,000)(7) 133,516
---------- ---------- -------------- ------------
Stockholders' investment:
Preferred stock.......................................... -- -- -- --
Common stock............................................. 143 -- 85(6) 228
Additional paid-in capital............................... 136,759 -- 284,915(6) 421,674
Warrants................................................. 2,000 -- -- 2,000
Retained earnings........................................ 43,150 -- (3,000)(6) 40,150
Parent company investment................................ -- 383,314 (383,314)(8) --
Subscriptions receivable................................. (175) -- -- (175)
---------- ---------- -------------- ------------
Total stockholders' investment......................... 181,877 383,314 (101,314) 463,877
---------- ---------- -------------- ------------
$ 398,607 $ 601,311 $ 200,959 $ 1,200,877
---------- ---------- -------------- ------------
---------- ---------- -------------- ------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Balance Sheet.
PF-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) The following table sets forth the components of the aggregate purchase
price of the APC Acquisition and the allocation of such purchase price:
<TABLE>
<S> <C>
APC purchase price........................................................ $ 625,000
Fees and expenses and estimated post-closing adjustments.................. 25,000
---------
Total purchase price to be allocated.................................... $ 650,000
---------
---------
Historical net book value of assets acquired.............................. $ 383,314
Elimination of LIFO reserve (Note 2)...................................... 15,763
Adjustment of property, plant and equipment to fair value (Note 4)........ 48,197
Elimination of historical deferred tax assets (Note 3).................... (7,600)
Elimination of historical deferred tax liability (Note 7)................. 29,500
Reserves established in connection with the APC Acquisition (Note 7)...... (4,500)
Excess purchase price over net assets acquired allocated to goodwill...... 185,326
---------
Total purchase price allocated.......................................... $ 650,000
---------
---------
</TABLE>
(2) To record inventories at estimated fair value, including the elimination of
APC's historical LIFO reserve.
(3) To write off APC's historical deferred tax benefit.
(4) To state property, plant and equipment acquired in the APC Acquisition at
estimated fair value and eliminate historical accumulated depreciation.
(5) To adjust goodwill to the amount recognized in connection with the APC
Acquisition. The goodwill will be amortized on a straight-line basis over a
forty-year period.
(6) To reflect the financing transactions related to the APC Acquisition and the
application of the net proceeds to the Company of the Offering. Upon the
consummation of the APC Acquisition, the Company intends to refinance the
Existing Credit Agreement and retire certain other indebtedness with
borrowings under the New Credit Agreement. See "Description of New Credit
Agreement" for a detailed description of the terms of the New Credit
Agreement. In connection with the retirement of certain indebtedness, the
Company will write-off $1,100 of previously capitalized deferred financing
costs and expects to pay a prepayment penalty of $3,900 on the redemption of
the Senior Notes. This will result in a reduction in current income taxes
payable of $2,000 and an extraordinary loss, net of income taxes, of $3,000.
The following table sets forth the sources and uses of funds in the APC
Acquisition:
<TABLE>
<S> <C>
SOURCES:
Revolving Credit Facility............................................... $ 394,304
Proceeds from the Offering.............................................. 285,000
Cash on hand............................................................ 39,596
---------
Total sources......................................................... $ 718,900
---------
---------
USES:
Cash consideration for the APC Acquisition.............................. $ 625,000
Redemption of Senior Notes, including prepayment costs.................. 68,900
Fees and expenses and estimated post-closing adjustments................ 25,000
---------
Total uses............................................................ $ 718,900
---------
---------
</TABLE>
(7) To write off historical deferred taxes of $29,500 and to record management's
preliminary estimate of reserves to be established in connection with the
APC Acquisition of $4,500 to exit a leased facility of APC incidental to the
relocation of the operations currently performed in that facility to sites
that are owned by the Company. Estimated costs to be incurred to exit the
leased facility consist primarily of lease abandonment costs. Such estimates
are subject to upward and downward adjustment depending on the actual time
required to complete and the outcome of major actions incidental to
relocating operations including the Company's ability, timing and cost to
break the underlying lease, abandon the facilities and the actual costs to
be incurred after operations cease associated with the closing of the
facility. The Company expects to complete the relocation and abandonment of
the facility by the end of calendar 1997. Future adjustments to management's
preliminary estimates will be recorded as an adjustment to goodwill in
future periods.
(8) To eliminate APC's historical parent company investment.
PF-5
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 8-K of our report dated January 31, 1997 on the financial
statements of Automotive Products Company (a division of A.O. Smith Corporation)
included in Registration Statement File No. 333-21943. It should be noted that
we have not audited any financial statements of the company subsequent to the
date of our report.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
May 1, 1997
