<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER
31, 1996
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, MINNEAPOLIS, MINNESOTA 55402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 342-2310
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Not applicable.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 24, 1997, 14,340,800 shares of Common Stock of the Registrant
were outstanding and the aggregate market value of the Common Stock of the
Registrant (based upon the last reported sale price of the Common Stock at that
date by the New York Stock Exchange), excluding shares owned beneficially by
affiliates, was approximately $467,988,000.
Information required by Items 5, 6 and 7of Part II of this Annual Report on
Form 10-K incorporates by reference information (to the extent specific sections
are referred to herein) from the Registrant's Annual Report to Stockholders for
the year ended December 31, 1996 (the "1996 Annual Report"). Information
required by Items 10, 11, 12 and 13 of Part III of this Annual Report on
Form 10-K incorporates by reference information (to the extent specific sections
are referred to herein) from the Registrant's Proxy Statement for its annual
meeting to be held on May 20, 1997 (the "1997 Proxy Statement").
- --------------------------------------------------------------------------------
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<PAGE>
TOWER AUTOMOTIVE, INC.
INDEX TO AMENDMENT NO. 1 TO
ANNUAL REPORT ON FORM 10-K
PAGE NO.
PART I
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . -1-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . -1-
<PAGE>
PART I
Items 8 and 14 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (the "Form 10-K"), as filed with the Securities and
Exchange Commission on March 27, 1997, hereby are amended by deleting each item
in its entirety and replacing each as follows:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is incorporated herein by reference to
the consolidated financial statements, notes thereto and Report of Independent
Public Accountants thereon set forth on pages F-2 through F-22, which are
attached hereto as Exhibit 99.1.
Management of the Company is responsible for the financial information and
representations contained in the consolidated financial statements and the
sections of the 1996 Annual Report. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
therefore include certain amounts based on management's best estimates and
judgments. The financial information contained in the 1996 Annual Report is
consistent with that in the consolidated financial statements.
The Company maintains internal accounting control systems which management
believes provide reasonable assurance that the Company's assets are properly
safeguarded and accounted for, that the Company's books and records properly
reflect all transactions, and that the Company's policies are implemented by
qualified personnel. Reasonable assurance is based upon the recognition that
the cost of an internal control system should not exceed the related benefits.
The Audit Committee of the Board of Directors meets with representatives of
management and Arthur Andersen LLP, the Company's independent public
accountants, on financial reporting matters and the evaluation of internal
accounting controls. The independent public accountants have free access to
meet with the Audit Committee, without the presence of management, to discuss
any appropriate matters.
Arthur Andersen LLP is engaged to express an opinion as to whether the
consolidated financial statements present fairly, in all material respects and
in accordance with generally accepted accounting principles, the financial
position, results of operations and cash flows of the Company. Solely for
purposes of planning and performing their audit of the Company's 1996 financial
statements, Arthur Andersen LLP obtained an understanding of, and selectively
tested, certain aspects of the Company's system of internal controls.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS:
The following are incorporated herein by reference to
pages F-2 through F-22, attached hereto as Exhibit 99.1:
-1-
<PAGE>
- Report of Independent Public Accounts
- Consolidated Balance Sheets as of December 31, 1995 and
1996
- Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996
- Consolidated Statements of Stockholders' Investment for
the Years Ended
December 31, 1994, 1995 and 1996
- Consolidated Statement of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996
- Notes to Consolidated Financial Statements
(2) EXHIBITS: See "Exhibit Index" beginning on page 4.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1996.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
TOWER AUTOMOTIVE, INC.
By /s/ S.A. Johnson
---------------------------------
S.A. Johnson, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 to Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant in the capacities indicated on
this 10th day of April, 1997.
SIGNATURE TITLE
/s/ S.A. Johnson Chairman and Director
- -----------------------------------
S.A. Johnson
/s/ Adrian Vander Starre Vice Chairman and Director
- -----------------------------------
Adrian Vander Starre
/s/ Dugald K. Campbell President, Chief Executive
- ----------------------------------- Officer (Principal Executive
Dugald K. Campbell Officer) and Director
/s/ James R. Lozelle Executive Vice President and
- ----------------------------------- Director
James R. Lozelle
/s/ Scott D. Rued Vice President, Corporate
- ----------------------------------- Development and Director
Scott D. Rued
/s/ W.H. Clement Director
- -----------------------------------
W.H. Clement
/s/ Eric J. Rosen Director
- -----------------------------------
Eric J. Rosen
/s/ Matthew O. Diggs, Jr. Director
- -----------------------------------
Matthew O. Diggs, Jr.
/s/ F.J. Loughrey Director
- -----------------------------------
F.J. Loughrey
/s/ K.B. Clark Director
- -----------------------------------
K.B. Clark
/s/ Anthony A. Barone Vice President and Chief
- ----------------------------------- Financial Officer (Principal
Anthony A. Barone Accounting Officer)
-3-
<PAGE>
TOWER AUTOMOTIVE, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Page Number in Sequential
Numbering of all Form
Exhibit 10-K and Exhibit Pages
- ------- -------------------------
3.1 Amended and Restated Certificate of *
Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1
of the Registrant's Form S-1, Registration
No. 33-80320 filed under the Securities Act
of 1933 (the S-1").
3.2 Amended and Restated By-laws of the *
Registrant, incorporated by reference to
Exhibit 3.2 of the S-1.
4.1 Form of Common Stock Certificate, *
incorporated by reference to Exhibit 4.1 of
the S-1.
10.1 Form of Stock Subscription Agreement between *
the Company and certain management employees,
incorporated by reference to Exhibit 10.3 of
the S-1.
10.2 Registration Agreement dated as of April 15, *
1993 between the Registrant and certain
investors; and First Amendment to
Registration Agreement dated as of May 4,
1994 by and among the Registrant and certain
investors, incorporated by reference to
Exhibit 10.4 of the S-1.
10.3 Stock Option and Indemnification Agreement *
dated as of April 15, 1993 by and between
the Registrant and Onex U.S. Investments,
Inc., incorporated by reference to
Exhibit 10.7 of the S-1.
10.4** Employment and Consulting Agreement dated as *
of April 15, 1993 between R.J. Tower
Corporation and Adrian Vander Starre,
incorporated by reference to Exhibit 10.9 of
the S-1.
10.5 Form of Management Stock Pledge Agreement, *
incorporated by reference to Exhibit 10.10
of the S-1.
10.6 Form of Convertible Promissory Note dated as *
of May 4, 1994 of the Registrant,
incorporated by reference to Exhibit 10.12
of the S-1.
10.7** Employment Agreement dated as of May 4, 1994 *
among Edgewood Manufacturing Corp. and
James R. Lozelle, incorporated by reference
to Exhibit 10.13 of the S-1.
10.8** Stock Option Agreement dated May 4, 1994 by *
and between the Registrant and James R.
Lozelle, incorporated by reference to
Exhibit 10.14 of the S-1.
-4-
<PAGE>
Page Number in Sequential
Numbering of all Form
Exhibit 10-K and Exhibit Pages
- ------- -------------------------
10.9 Lease Agreement dated March 1, 1988 between *
8900 Inkster Associates and Edgewood Tool
and Manufacturing Company; and Amendment to
Lease dated as of March 1, 1994 between 8900
Inkster Associates and Edgewood Tool and
Manufacturing Company, incorporated by
reference to Exhibit 10.16 of the S-1.
10.10 Amended and Restated Credit Agreement dated *
as of May 4, 1994 by and between R.J. Tower
Corporation and Comerica Bank, incorporated
by reference to Exhibit 10.17 of the S-1.
10.11** 1994 Key Employee Stock Option Plan, *
incorporated by reference to Exhibit 10.18
of the S-1.
10.12** Form of Salary Continuation Agreement *
between the Registrant and certain
employees, incorporated by reference to
Exhibit 10.19 of the S-1.
10.13 Form of Subscription Agreement between the *
Registrant and certain stockholders,
incorporated by reference to Exhibit 10.20
of the S-1.
10.14 Stock Purchase Agreement by and among the *
Registrant and certain other parties, dated
June 10, 1994, incorporated by reference to
Exhibit 10.21 of the S-1.
10.15 Second Amended and Restated Credit Agreement *
dated as of June 29, 1994 by and between
R.J. Tower Corporation and Comerica Bank,
incorporated by reference to Exhibit 10.22
of the S-1.
10.16 Amended and Restated Investor Stockholders *
Agreement dated as of August 18, 1994 by and
among the Registrant, Onex U.S. Investments,
Inc., J2R Partners and certain investors,
incorporated by reference to Exhibit 10.1
of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 1994, filed under the
Securities Exchange Act of 1934, as amended
(the "September 10-Q").
10.17 Second Amended and Restated Management *
Stockholders Agreement dated as of
August 18, 1994 among the Registrant,
Onex U.S. Investments, Inc. and certain
management stockholders, incorporated by
reference to Exhibit 10.2 of the
September 10-Q.
10.18 Stock Purchase Agreement by and among *
MascoTech, Inc. and R.J. Tower Corporation
dated as of January 16, 1996, incorporated
by reference to Exhibit 7.1 of the
Registrant's Form 8-K dated January 16,
1996, filed under the Securities Exchange
Act of 1934.
-5-
<PAGE>
Page Number in Sequential
Numbering of all Form
Exhibit 10-K and Exhibit Pages
- ------- -------------------------
10.19 Third Amended and Restated Credit Agreement *
dated as of January 16, 1996 by and between
R.J. Tower Corporation and Comerica Bank,
incorporated by reference to Exhibit 10.24
of the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995, filed under the Securities Exchange
Act of 1934, as amended.
10.20 Stock Purchase Agreement dated as of *
May 31, 1996 among Tower Automotive, Inc.,
R.J. Tower Corporation and MascoTech, Inc.,
incorporated by reference to Exhibit 2.1 of
the Registrant's Form 8-K dated May 31,
1996, filed under the Securities Exchange
Act of 1934 (the "May 8-K").
10.21 First Amendment to Third Amended and *
Restated Credit Agreement, dated as of
May 31, 1996, by and among R.J. Tower
Corporation, the financial institutions
parties thereto and Comerica Bank, as agent,
incorporated by reference to Exhibit 4.1 of
the May 8-K.
10.22 $39,000,000 Revolving Credit Note, dated as *
of May 31, 1996, issued by R.J. Tower
Corporation, a Michigan corporation, to
Comerica Bank, incorporated by reference to
Exhibit 4.2 of the May 8-K.
10.23 $18,000,000 Revolving Credit Note, dated as *
of May 31, 1996, issued by R.J. Tower
Corporation, a Michigan corporation, to Bank
of America Illinois, incorporated by
reference to Exhibit 4.3 of the May 8-K.
10.24 $18,000,000 Revolving Credit Note, dated as *
of May 31, 1996, issued by R.J. Tower
Corporation, a Michigan corporation, to
First Bank National Association, incorporated
by reference to Exhibit 4.4 of the May 8-K.
10.25 Joinder Agreement to Amended and Restated *
Guaranty (Tower Indiana Debt) made by
MascoTech Stamping Technologies, Inc., a
Delaware corporation, in favor of Comerica
Bank, as agent, incorporated by reference to
Exhibit 4.6 of the May 8-K.
10.26 Joinder Agreement to Amended and Restated *
Guaranty (Tower Kentucky Debt) made by
MascoTech Stamping Technologies, Inc., a
Delaware corporation, in favor of Comerica
Bank, as agent, incorporated by reference
to Exhibit 4.7 of the May 8-K.
-6-
<PAGE>
Page Number in Sequential
Numbering of all Form
Exhibit 10-K and Exhibit Pages
- ------- -------------------------
10.27 Form of Second Amended and Restated Security *
Agreement, dated as of May 31, 1996, made by
each of R.J. Tower Corporation, a Michigan
corporation, R.J. Tower Corporation, a
Kentucky corporation, R.J. Tower
Corporation, an Indiana corporation,
Kalamazoo Stamping and Die Company, a
Michigan corporation, Edgewood Manufacturing
Corp., a Delaware corporation, in favor of
Comerica Bank, as agent, incorporated by
reference to Exhibit 4.8 of the May 8-K.
10.28 Amended and Restated Security Agreement, *
dated as of May 31, 1996, made by Trylon
Corporation, a Michigan corporation, in favor
of Comerica Bank, as agent, incorporated by
reference to Exhibit 4.9 of the May 8-K.
10.29 Form of Second Amended and Restated *
Mortgage, dated as of May 31, 1996, made by
each of R.J. Tower Corporation, a Michigan
corporation, R.J. Tower Corporation, an
Indiana corporation, Kalamazoo Stamping and
Die Company, a Michigan corporation,
Edgewood Manufacturing Corp., a Delaware
corporation, in favor of Comerica Bank, as
agent, incorporated by reference to
Exhibit 4.10 of the May 8-K.
10.30 Second Amended and Restated Security *
Agreement (Third Party Pledge), dated as of
May 31, 1996, made by Tower Automotive,
Inc., a Delaware corporation, in favor of
Comerica Bank, as agent, incorporated by
reference to Exhibit 4.11 of the May 8-K.
10.31 Intercreditor and Collateral Agency *
Agreement, dated as of May 31, 1996, among
Comerica Bank, Bank of America Illinois,
First Bank National Association, Teachers
Insurance and Annuity Association of
America, Northern Life Insurance Company,
Northwestern National Life Insurance
Company, Bankers Security Life Insurance
Society, Jefferson-Pilot Life Insurance
Company and Alexander Hamilton Life
Insurance Company of America, incorporated
by reference to Exhibit 4.12 of the May 8-K.
10.32 Form of R.J. Tower Corporation Note *
Agreement, dated as of May 31, 1996, between
R.J. Tower Corporation and each of Teachers
Insurance and Annuity Association of
America, Northern Life Insurance Company,
Northwestern National Life Insurance
Company, Bankers Security Life Insurance
Society, Jefferson-Pilot Life Insurance
Company and Alexander Hamilton Life
Insurance Company of America, incorporated
by reference to Exhibit 4.13 of the May 8-K.
-7-
<PAGE>
Page Number in Sequential
Numbering of all Form
Exhibit 10-K and Exhibit Pages
- ------- -------------------------
10.33 Form of 7.65% Senior Secured Notes, *
Series A, due June 1, 2006, issued by R.J.
Tower Corporation to (i) Teachers Insurance
and Annuity Association of America in the
principal amount of $10 million, (ii)
Northern Life Insurance Company in the
principal amount of $8.5 million, (iii)
Northwestern National Life Insurance Company
in the principal amount of $4.0 million,
(iv) Bankers Security Life Insurance Society
in the principal amount of $2.5 million, (v)
Jefferson-Pilot Life Insurance Company in
the principal amount of $7.5 million and
(vi) Alexander Hamilton Life Insurance
Company of America in the principal amount
of $7.5 million, incorporated by reference
to Exhibit 4.14 of the May 8-K.
10.34 7.82% Senior Secured Note, Series B, due *
June 1, 2008, issued by R.J. Tower
Corporation to Teachers Insurance and
Annuity Association of America in the
principal amount of $25 million,
incorporated by reference to Exhibit 4.15
of the May 8-K.
10.35 Subsidiaries Guaranty, dated as of May 31, *
1996, made by Trylon Corporation, a Michigan
corporation, R.J. Tower Corporation, a
Kentucky corporation, R.J. Tower Corporation,
an Indiana corporation, Kalamazoo Stamping
and Die Company, a Michigan corporation,
Edgewood Manufacturing Corp., a Delaware
corporation and MascoTech Stamping
Technologies, Inc., a Delaware corporation,
in favor of Teachers Insurance and Annuity
Association of America, Northern Life
Insurance Company, Northwestern National
Life Insurance Company, Bankers Security
Life Insurance Society, Jefferson-Pilot Life
Insurance Company and Alexander Hamilton
Life Insurance Company of America,
incorporated by reference to Exhibit 4.16 of
the May 8-K.
10.36 Registration Rights and Voting Agreement *
dated as of May 31, 1996, between Tower
Automotive, Inc. and MascoTech, Inc.,
incorporated by reference to Exhibit 4.17 of
the May 8-K.
10.37 $5 million Promissory Note, dated as of *
May 31, 1996, issued by R.J. Tower
Corporation to MascoTech, Inc., incorporated
by reference to Exhibit 4.18 of the May 8-K.
10.38 Stock Purchase Warrant, dated as of *
May 31, 1996, issued by Tower Automotive,
Inc. to MascoTech, Inc., incorporated by
reference to Exhibit 4.19 of the May 8-K.
-8-
<PAGE>
Page Number in Sequential
Numbering of all Form
Exhibit 10-K and Exhibit Pages
- ------- -------------------------
10.39 Second Amended and Restated Guaranty (Tower- *
Michigan Debt), dated as of May 30, 1996,
made by R.J. Tower Corporation, an Indiana
corporation, Edgewood Manufacturing Corp., a
Delaware corporation, R.J. Tower
Corporation, a Kentucky corporation,
Kalamazoo Stamping and Die Company, a
Michigan corporation, Trylon Corporation, a
Michigan corporation and MascoTech Stamping
Technologies, Inc., a Delaware corporation,
in favor of Comerica Bank, as agent,
incorporated by reference to Exhibit 4.5
of the Registrant's Form 8-K/A No. 1 dated
June 4, 1996, filed under the Securities
Exchange Act of 1934.
10.40 Fourth Amended and Restated Credit Agreement *
dated as of September 6, 1996 by and between
R.J. Tower Corporation and Comerica Bank,
incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 1996, filed under the
Securities Exchange Act of 1934, as
amended.
11 Statement of Computation of Earnings Per ***
Share for the Year Ended December 31, 1996.
13.1 Annual Report to Stockholders for the year ***
ended December 31, 1996.
21.1 List of Subsidiaries. ***
23.1 Consent of Independent Public Accountants --
filed herewith.
25.1 Financial Data Schedule. ***
99.1 Consolidated Financial Statements, notes --
thereto and Report of Independent Public
Accountants thereon filed herewith.
- ---------------------
* Incorporated by reference.
** Indicates compensatory arrangement.
*** Incorporated by reference to original Annual Report on Form 10-K for the
year ended December 31, 1996, as filed with the Commission on March 27,
1997.
-9-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K/A of our report dated February 18, 1997 included
in Registration Statement File No. 333-21943 and into the Company's
previously filed Registration Statements File Nos. 33-91578, 333-13589 and
333-17355. It should be noted that we have not audited any financial
statements of the Company subsequent to December 31, 1996 or performed any
audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 10, 1997
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tower Automotive, Inc.:
We have audited the accompanying consolidated balance sheets of Tower
Automotive, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' investment 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 Tower Automotive, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their 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,
February 18, 1997
F-2
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 957 $ 39,596
Accounts receivable..................................................................... 39,133 61,073
Inventories............................................................................. 11,398 21,864
Prepaid tooling and other............................................................... 10,338 14,433
---------- ----------
Total current assets.................................................................. 61,826 136,966
---------- ----------
Property, plant and equipment, at cost:
Land.................................................................................... 984 1,989
Buildings and improvements.............................................................. 22,934 34,417
Machinery and equipment................................................................. 56,826 118,567
Construction in progress................................................................ 17,034 21,839
---------- ----------
97,778 176,812
Less-Accumulated depreciation........................................................... (10,191) (20,564)
---------- ----------
Net property, plant and equipment..................................................... 87,587 156,248
Restricted cash........................................................................... 14,385 10,833
Other assets:
Goodwill................................................................................ 40,027 89,429
Other................................................................................... 7,836 9,507
Less-Accumulated amortization........................................................... (2,185) (4,376)
---------- ----------
Net other assets...................................................................... 45,678 94,560
---------- ----------
$ 209,476 $ 398,607
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt.................................................... $ 779 $ 722
Accounts payable........................................................................ 19,022 32,280
Accrued liabilities..................................................................... 9,780 22,429
---------- ----------
Total current liabilities............................................................. 29,581 55,431
---------- ----------
Long-term debt, net of current maturities................................................. 70,300 113,460
Deferred income taxes..................................................................... 1,305 12,302
Other noncurrent liabilities.............................................................. 22,705 35,537
---------- ----------
Commitments and contingencies (Notes 3, 4 and 8)
Stockholders' investment:
Preferred stock, par value $1; 5,000,000 shares authorized; no shares issued or
outstanding........................................................................... -- --
Common stock, par value $.01; 30,000,000 shares authorized; 10,830,389 and 14,283,793
issued and outstanding................................................................ 108 143
Warrants to acquire common stock........................................................ -- 2,000
Additional paid-in capital.............................................................. 63,461 136,759
Retained earnings....................................................................... 22,513 43,150
Common stock subscriptions receivable................................................... (497) (175)
---------- ----------
Total stockholders' investment........................................................ 85,585 181,877
---------- ----------
$ 209,476 $ 398,607
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
<S> <C> <C> <C>
Revenues..................................................................... $ 165,526 $ 222,801 $ 399,925
Cost of sales................................................................ 142,986 185,388 338,290
---------- ---------- ----------
Gross profit............................................................... 22,540 37,413 61,635
Selling, general and administrative expenses................................. 7,435 14,308 20,004
Amortization expense......................................................... 803 1,185 2,191
---------- ---------- ----------
Operating income........................................................... 14,302 21,920 39,440
Interest expense............................................................. 1,956 2,027 7,636
Interest income.............................................................. (57) (228) (2,533)
---------- ---------- ----------
Income before provision for income taxes................................... 12,403 20,121 34,337
Provision for income taxes................................................... 5,042 8,050 13,700
---------- ---------- ----------
Net income................................................................... $ 7,361 $ 12,071 $ 20,637
---------- ---------- ----------
---------- ---------- ----------
Net income applicable to common stockholders................................. $ 7,476 $ 12,247 $ 20,765
---------- ---------- ----------
---------- ---------- ----------
Net income per common and common equivalent share............................ $ 0.86 $ 1.05 $ 1.55
---------- ---------- ----------
---------- ---------- ----------
Weighted average common and common equivalent shares outstanding............. 8,720 11,697 13,423
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON STOCK WARRANTS TO
------------------------- PAID-IN RETAINED SUBSCRIPTIONS ACQUIRE COMMON
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE STOCK
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993............. 4,358,708 $ 44 $ 8,137 $ 3,081 $ (439) $ --
Retirement of common stock............. (5,327) -- (14) -- 5 --
Private placement of common stock...... 1,585,365 15 4,081 -- (404) --
Initial public offering of common
stock, net........................... 4,887,500 49 51,223 -- -- --
Net income............................. -- -- -- 7,361 -- --
------------ ----- ---------- --------- ----- ------
Balance, December 31, 1994............. 10,826,246 108 63,427 10,442 (838) --
Sales of stock under Employee Stock
Discount Purchase Plan............... 4,143 -- 34 -- -- --
Collection of common stock
subscriptions receivable............. -- -- -- -- 341 --
Net income............................. -- -- -- 12,071 -- --
------------ ----- ---------- --------- ----- ------
Balance, December 31, 1995............. 10,830,389 108 63,461 22,513 (497) --
Conversion of subordinated notes....... 410,529 4 2,488 -- -- --
Exercise of options.................... 6,625 -- 48 -- -- --
Sales of stock under Employee Stock
Discount Purchase Plan............... 18,350 1 262 -- -- --
Collection of common stock
subscriptions receivable............. -- -- -- -- 322 --
Public offering of common stock, net... 2,232,900 22 51,275 -- -- --
Issuance of shares and warrants in
acquisition of MSTI.................. 785,000 8 19,225 -- -- 2,000
Net income............................. -- -- -- 20,637 -- --
------------ ----- ---------- --------- ----- ------
Balance, December 31, 1996............. 14,283,793 $ 143 $ 136,759 $ 43,150 $ (175) $ 2,000
------------ ----- ---------- --------- ----- ------
------------ ----- ---------- --------- ----- ------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Operating activities:
Net income............................................................. $ 7,361 $ 12,071 $ 20,637
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization........................................ 4,138 6,549 12,754
Deferred income tax provision........................................ 2,149 5,659 6,326
Changes in other operating items--
Accounts receivable................................................ (9,923) (4,124) 5,967
Inventories........................................................ (551) 468 (693)
Prepaid tooling and other.......................................... (4,248) (922) (1,091)
Accounts payable and accrued liabilities........................... (6,411) 2,323 (3,354)
Other assets and liabilities....................................... (2,890) (8,119) (10,497)
----------- ------------ ------------
Net cash provided by (used for) operating activities............. (10,375) 13,905 30,049
----------- ------------ ------------
Investing activities:
Capital expenditures, net.............................................. (28,524) (26,148) (16,253)
Acquisitions, net of cash acquired..................................... (38,263) -- (76,223)
Change in restricted cash.............................................. (6,479) (7,906) 3,552
----------- ------------ ------------
Net cash used for investing activities........................... (73,266) (34,054) (88,924)
----------- ------------ ------------
Financing activities:
Proceeds from issuance of debt......................................... 51,313 183,103 197,813
Repayments of debt..................................................... (23,420) (162,427) (152,229)
Proceeds from sale of stock, net....................................... 54,964 -- 51,297
Proceeds from sales of stock under Employee Stock Discount Purchase
Plan................................................................. -- 34 263
Other, net............................................................. (9) 341 370
----------- ------------ ------------
Net cash provided by financing activities........................ 82,848 21,051 97,514
----------- ------------ ------------
Net change in cash and cash equivalents.................................. (793) 902 38,639
Cash and cash equivalents:
Beginning of period.................................................... 848 55 957
----------- ------------ ------------
End of period.......................................................... $ 55 $ 957 $ 39,596
----------- ------------ ------------
----------- ------------ ------------
Supplemental cash flow information:
Cash paid for--
Interest, net of amounts capitalized................................. $ 1,914 $ 2,993 $ 7,372
----------- ------------ ------------
----------- ------------ ------------
Income taxes......................................................... $ 2,338 $ 1,702 $ 6,091
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Tower Automotive, Inc. (the Company) designs and manufactures structural
metal stampings and assemblies for use by original equipment manufacturers in
the North American automotive industry and has manufacturing facilities located
in Michigan, Indiana, Kentucky and Ohio.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Tower Automotive, Inc. and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
CASH EQUIVALENTS:
Cash equivalents consist of highly liquid investments with an original
maturity of three months or less. Cash equivalents are stated at cost which
approximates fair value.
INVENTORIES:
Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
<S> <C> <C>
Raw materials........................................................... $ 4,836 $ 9,517
Work in process......................................................... 3,431 5,949
Finished goods.......................................................... 3,131 6,398
--------- ---------
$ 11,398 $ 21,864
--------- ---------
--------- ---------
</TABLE>
CUSTOMER TOOLING AND OTHER DESIGN COSTS:
Customer tooling represents costs incurred by the Company in the development
of new tooling used in the manufacture of the Company's products. Once customer
approval is obtained for the manufacture of a new product, the Company is
reimbursed by its customers for the cost of certain of the tooling, at which
time the tooling becomes the property of the customers.
In addition, the Company has certain other tooling and design costs related
to previously proven product designs which are reimbursed by the Company's
customers as the related product is sold through an incremental increase in each
product's unit selling price. Such costs are capitalized and amortized using the
unit of production method over the life of the related tool. Amounts capitalized
and included in other assets were $3.8 million at December 31, 1995 and $3.7
million at December 31, 1996. If the Company forecasts that the amount of
capitalized tooling and design costs exceeds the amount to be realized through
the sale of product, a loss is recognized currently.
F-7
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment acquired in the acquisitions discussed in Note
3 was recorded at its fair value, determined based on appraisals, as of the
respective acquisition dates. Additions to property, plant and equipment
following the acquisitions 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>
15 to 30
Buildings and improvements................................... years
Machinery and equipment...................................... 3 to 20 years
</TABLE>
Accelerated depreciation methods are used for tax reporting purposes.
Start-up costs related to major facilities and new platforms are capitalized
and amortized over the life of the related platform, generally five years. The
unamortized start-up cost balance was $876,000 at December 31, 1995 and
$1,011,000 at December 31, 1996.
Interest is capitalized during the construction of major facilities and is
amortized over the related estimated useful lives. Interest costs of $1,157,000
were capitalized during the year ended December 31, 1995. No interest was
capitalized during the year ended December 31, 1996.
Maintenance and repairs are charged to expense as incurred. Major
betterments and 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.
OTHER ASSETS:
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired and is being amortized on a straight-line basis over 40
years. Debt issue costs are amortized on a straight-line basis over the term of
the related obligations.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its goodwill and other long-lived assets. If such events or
circumstances were to indicate that the carrying amount of these assets were not
recoverable, the Company would estimate the future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) were less
than the carrying amount of goodwill, the Company would recognize an impairment
loss.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of the Company's borrowings under the outstanding
industrial development revenue bonds approximates fair value as the floating
rates applicable to these financial instruments reflect changes in the overall
market interest rates. The carrying amount of the Company's outstanding series A
and series B senior notes also approximate fair value as interest rates have not
changed materially since their issuance in May 1996.
F-8
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION AND SALES COMMITMENTS:
The Company recognizes revenue as its products are shipped to its customers.
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 that may arise
during the normal course of business, the Company records a liability for the
estimated future amount of such losses.
INCOME TAXES:
The Company accounts for income taxes 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 assets and liabilities.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Net income per common and common equivalent 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. Common stock issued and common stock options granted within one year
immediately preceding the initial public offering of common stock (Common Stock)
discussed in Note 4 at prices below the public offering price have been
reflected in the net income per share calculation as if they had been
outstanding for all periods presented. Net income for purposes of computing net
income per common and common equivalent share reflects the elimination of
interest expense on the convertible subordinated notes, net of the related
income tax benefit.
STOCK OPTIONS:
The Company accounts for stock options under the provisions of APB No. 25,
under which no compensation expense is recognized when the stock options are
granted. The pro forma effects had the Company followed the provisions of SFAS
No. 123 are included in Note 4.
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. The ultimate results could differ from those estimates.
3. ACQUISITIONS:
On May 4, 1994, the Company acquired the operating assets and assumed
certain operating liabilities and indebtedness of Edgewood Tool and
Manufacturing Company (Edgewood), a manufacturer of hood and deck lid hinges and
structural metal components for the automotive industry, for total consideration
of $24.6 million in cash and assumed indebtedness and the issuance of $5.0
million of Convertible Subordinated Notes. In addition, the Company entered into
a five year employment agreement with Edgewood's former president and issued an
option to acquire 102,984 shares of Common Stock at an exercise price of $6.55
per share.
F-9
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS: (CONTINUED)
On June 29, 1994, the Company acquired the capital stock of Kalamazoo
Stamping and Die Company (Kalamazoo), a supplier of structural metal stampings
and assemblies for the automotive industry, for net consideration of
approximately $12.3 million in cash.
On January 16, 1996, the Company acquired all of the outstanding common
stock of Trylon Corporation (Trylon) for total consideration of approximately
$25 million. The acquisition was financed with the proceeds of a $25 million
term loan. Trylon manufactures metal stampings and assemblies for the North
American automotive industry from four facilities in Traverse City, Michigan.
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 December 31, 1996, no contingent payments are due.
Contingent consideration paid in future periods, if any, will be recorded as
additional goodwill. MSTI manufactures metal chassis and suspension components
and assemblies for the North American automotive industry from facilities in
Ohio, Indiana and Michigan.
These acquisitions have 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 dates of the acquisitions. The assets and
liabilities of Trylon and MSTI have been recorded based upon preliminary
estimates of fair value as of the dates of acquisition. The Company does not
believe the final allocations of the purchase price will be materially different
than the preliminary allocations. The excess of the purchase price over the fair
value of the assets acquired and liabilities assumed has been recorded as
goodwill. Results of operations for these acquisitions have been included in the
accompanying consolidated financial statements since the dates of acquisition.
The accompanying unaudited consolidated pro forma results of operations for the
years ended December 31, 1995 and 1996 give effect to the 1996 Offering (as
defined in Note 4) and the acquisitions of Trylon and MSTI as if they were
completed at the beginning of the respective periods. 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 in fact had occurred
at such date or to project the Company's results of future operations (in
thousands, except per share data):
<TABLE>
<CAPTION>
PRO FORMA YEARS ENDED
DECEMBER 31,
----------------------
1995 1996
<S> <C> <C>
Revenues.............................................................. $ 423,607 $ 473,728
---------- ----------
---------- ----------
Net income applicable to common stockholders.......................... $ 17,249 $ 23,982
---------- ----------
---------- ----------
Weighted average common and common equivalent shares outstanding...... 14,482 14,932
---------- ----------
---------- ----------
Net income per common and common equivalent share..................... $ 1.19 $ 1.61
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' INVESTMENT:
PUBLIC OFFERINGS OF COMMON STOCK:
In August 1994, the Company completed an initial public offering, including
shares issued pursuant to the underwriters' over-allotment option, of 4,887,500
shares of its Common Stock at $11.50 per share resulting in net proceeds to the
Company of approximately $51.3 million.
During 1996, the Company completed an offering of 2,232,900 shares of its
Common Stock at an offering price of $24.50 per share (the 1996 Offering)
resulting in net proceeds of approximately $51.3 million. Proceeds from the 1996
Offering were used by the Company to retire borrowings under its secured credit
agreement and for general corporate purposes.
PRIVATE PLACEMENTS:
During 1993, the Company sold 522,640 shares of its Common Stock to certain
employees for aggregate proceeds of approximately $981,000. Approximately
$434,000 of this amount was financed through notes to the Company which bear
interest at prime plus 1% (9.5% at December 31, 1995 and 9.25% at December 31,
1996) and are due in 1998. These notes are reflected as a reduction of
stockholders' investment in the accompanying consolidated financial statements.
Approximately $248,000 and $330,000 of these notes had been collected as of
December 31, 1995 and 1996.
As a component of the financing for the acquisition of Edgewood in May 1994
(See Note 3), the existing stockholders and members of the Company's management
participated in a $4.1 million private placement of 1,585,365 shares of Common
Stock, resulting in net cash proceeds to the Company of $3.7 million.
Approximately $404,000 of this amount was financed through notes to the Company
which bear interest at prime plus 1% and are due in 1999. These notes are
reflected as a reduction of stockholders' investment in the accompanying
consolidated financial statements. Approximately $93,000 and $333,000 of these
notes had been collected as of December 31, 1995 and 1996.
STOCK OPTION PLAN:
The Company sponsors the 1994 Key Employee Stock Option Plan (the Stock
Option Plan), under which any person who is a full-time, salaried employee of
the Company (excluding non-management directors) is eligible to participate in
the Stock Option Plan (an Employee Participant). A committee of the board of
directors selects the Employee Participants and determines the terms and
conditions of the options. The Stock Option Plan provides for the issuance of
options up to 500,000 shares of Common Stock at exercise prices equal to the
stock market price on the date of grant to Employee Participants,
F-11
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' INVESTMENT: (CONTINUED)
subject to certain adjustments reflecting changes in the Company's
capitalization. Information regarding the Stock Option Plan is as follows:
<TABLE>
<CAPTION>
1995 1996
----------------------------------------- -----------------------------------------
WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE EXERCISE UNDER EXERCISE EXERCISE
OPTION PRICES PRICE OPTION PRICES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of $ -- $8.00-10.00
year.......................... -- $ -- 120,750 $ 8.182
Granted....................... 133,750 8.00-10.00 8.164 139,000 15.125 15.125
Exercised..................... -- -- -- (6,625) 8.00 8.00
Forfeited..................... (13,000) 8.00 8.00 (4,875) 8.00-15.125 10.192
---------- -------------- ------ ---------- -------------- -------------
Outstanding at end of year...... 120,750 $8.00-10.00 8.182 248,250 $8.00-15.125 $ 12.035
---------- -------------- ------ ---------- -------------- -------------
Exercisable at end of year...... -- $ -- $ -- 27,625 $8.00-10.00 $ 8.182
---------- -------------- ------ ---------- -------------- -------------
Weighted average fair value of
options granted............... $ 4.23 $ 9.51
---------- ----------
</TABLE>
As of December 31, 1996, the outstanding stock options granted in 1995 have
a remaining contractual life of approximately 8.5 years and the outstanding
stock options granted in 1996 have a remaining contractual life of approximately
9.5 years.
INDEPENDENT DIRECTOR STOCK OPTION PLAN:
In February 1996, the Company's board of directors approved the Tower
Automotive, Inc. Independent Director Stock Option Plan (the Director Option
Plan) that provides for the issuance of options to Independent Directors, as
defined, to acquire up to 100,000 shares of the Company's Common Stock, subject
to certain adjustments reflecting changes in the Company's capitalization. The
option exercise price must be at least equal to the fair value of the Common
Stock at the time the option is issued. Vesting is determined by the Board of
Directors at the date of grant and in no event can be less than six months from
the date of grant. As of December 31, 1996, the Company had granted stock
options under this plan to acquire 22,500 shares of Common Stock at an exercise
price of $15.125 per share. None of these director options were exercisable or
vested at December 31, 1996.
EMPLOYEE STOCK PURCHASE PLAN:
The Company also sponsors an employee stock discount purchase plan which
provides for the sale of up to 500,000 shares of the Company's Common Stock at
discounted purchase prices, subject to certain limitations. The cost per share
under this plan is 85% of the market value of the Company's Common Stock at the
date of purchase, as defined. During the year ended December 31, 1995, 4,143
shares of Common Stock were issued to employees pursuant to this plan and during
the year ended December 31, 1996, 18,350 shares of Common Stock were issued. The
weighted average fair value of shares sold in 1995 and 1996 were $8.11 and
$14.32, respectively.
STOCK-BASED COMPENSATION PLANS:
As discussed above, the Company has two stock option plans, the Stock Option
Plan and the Independent Director Stock Option Plan, and an Employee Stock
Purchase Plan. The Company accounts
F-12
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' INVESTMENT: (CONTINUED)
for these plans under APB Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for these plans been determined
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," (SFAS No. 123), the Company's pro forma net
income and pro forma earnings per share would have been as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1995 1996
<S> <C> <C> <C>
Net income applicable to common stockholders........... As Reported $ 12,247 $ 20,765
Pro Forma $ 12,213 $ 20,611
Net income per common and common equivalent share...... As Reported $ 1.05 $ 1.55
Pro Forma $ 1.04 $ 1.54
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
effect of the stock offered under the Employee Stock Purchase Plan was not
material for 1995 and 1996.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rates of 6.5%, 6.9% and 6.93% in 1995 and 5.57%
in 1996; expected life of seven years for 1995 and 1996; expected volatility of
35%, 37% and 41% in 1995 and 56% in 1996.
OTHER COMMON STOCK EQUIVALENTS:
In connection with the acquisition of Edgewood in May 1994, the Company
issued an option to acquire 102,984 shares of Common Stock at an exercise price
of $6.55 per share. The options expire in 2004. As of December 31, 1996, 34,328
options were vested and exercisable.
In connection with the acquisition of MSTI in May 1996, the Company issued
warrants to MascoTech to acquire 200,000 shares of Common Stock at an exercise
price of $18 per share. The warrants expire in 2006.
DIVIDENDS:
The Company has not declared or paid any cash dividends in the past, as
discussed in Note 5, the Company's debt agreements restrict the amount of
dividends the Company can declare or pay. As of December 31, 1996, under the
most restrictive debt covenants, the Company could not have paid any cash
dividends.
F-13
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
<S> <C> <C>
Revolving credit facility, due January 2001, interest at prime or LIBOR
plus .75% (8.5% at December 31, 1995)................................ $ 18,631 $ --
Series A senior notes, due June 1, 2006, interest at 7.65% payable
semi-annually........................................................ -- 40,000
Series B senior notes, due June 1, 2008, interest at 7.82% payable
semi-annually........................................................ -- 25,000
Industrial development revenue bonds, due June 1, 2024, interest
payable monthly at a rate adjusted weekly by the bond remarketing
agent (5.85% at December 31, 1995 and 5.82% at December 31, 1996).... 23,765 23,765
Industrial development revenue bonds, due March 1, 2025, interest
payable monthly at a rate adjusted weekly by the bond remarketing
agent (5.85% at December 31, 1995 and 5.82% at December 31, 1996).... 20,000 20,000
Industrial development revenue bonds, due in annual installments of
$720 through September 2000, interest payable monthly at a rate
adjusted weekly as determined by the bond remarketing agent (4.65% at
December 31, 1995 and 4.4% at December 31, 1996)..................... 3,600 2,878
Convertible subordinated notes, due May 2003, interest at 5.75% payable
quarterly............................................................ 5,000 2,508
Other.................................................................. 83 31
--------- ----------
71,079 114,182
Less-Current maturities................................................ (779) (722)
--------- ----------
$ 70,300 $ 113,460
--------- ----------
--------- ----------
</TABLE>
Future maturities of long-term debt as of December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 722
1998.............................................................. 720
1999.............................................................. 720
2000.............................................................. 6,434
2001.............................................................. 5,714
Thereafter........................................................ 99,872
---------
$ 114,182
---------
---------
</TABLE>
Included in the Company's credit agreement, as amended (the Credit
Agreement), is a revolving credit facility which provides for borrowings of up
to $75 million. The Credit Agreement also provides for the issuance of up to $50
million in letters of credit to collateralize the outstanding industrial
development
F-14
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT: (CONTINUED)
revenue bonds. Available credit under this agreement is limited to eligible
accounts receivable and inventories, as defined, which exceeded $75 million at
December 31, 1996. The weighted average interest rate for borrowings under the
revolving credit facility was 7.4% for the year ended December 31, 1995 and 6.1%
for the year ended December 31, 1996. In connection with the transaction
described in Note 10, the Company obtained a commitment from a bank to refinance
the existing Credit Agreement.
The Company financed the cash portion of the MSTI acquisition through the
issuance in two series of Senior Notes having an aggregate principal amount of
$65 million. The Senior Notes require the Company to make semi-annual interest
payments commencing December 1, 1996, while principal is payable in varying
annual installments beginning in 2000. Net proceeds from the sale of the Senior
Notes in excess of the amounts used to finance the cash portion of the MSTI
acquisition, together with borrowings under the revolving credit facility, were
used to repay in full the remaining balance outstanding on a $25 million term
loan incurred by the Company in connection with the acquisition of Trylon.
In connection with the acquisition of Edgewood in May 1994, the Company
issued the $5.0 million Convertible Subordinated Notes, which generally are
convertible at any time into 823,874 shares of Common Stock. The Convertible
Subordinated Notes are subject to prepayment in the event of, and become
convertible upon, a sale of the Company and are subordinated to all other debt
of the Company which is not expressly subordinated to the Convertible
Subordinated Notes. As of December 31, 1996, approximately $2.5 million of these
notes had been converted into 410,529 shares of Common Stock.
In June 1994 and March 1995, the Company issued $25.0 million and $20.0
million, respectively, of industrial development revenue bonds related to the
construction and equipping of a manufacturing facility in Bardstown, Kentucky.
The bonds are collateralized by letters of credit. The facility will be
completed in two phases. The undispersed proceeds from these bonds are invested
in treasury securities and reflected as restricted cash in the accompanying
consolidated balance sheets. The Company also has approximately $2.9 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 this
plant.
The debt agreements described above contain various restrictive covenants
which, among other matters, require the Company to maintain certain financial
ratios. The agreements also limit additional indebtedness, capital expenditures
and cash dividends. The Company was in compliance with all debt covenants as of
December 31, 1995 and 1996.
6. INCOME TAXES:
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............................................... $ 2,893 $ 2,391 $ 7,374
Deferred income tax provision................................... 2,149 5,659 6,326
--------- --------- ---------
$ 5,042 $ 8,050 $ 13,700
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
The deferred income tax provision consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Depreciation lives and methods................................... $ 542 $ 2,624 $ 3,348
Accrued compensation costs....................................... 316 1,064 (915)
Other reserves and accruals...................................... 1,291 1,971 3,893
--------- --------- ---------
Net deferred income tax provision................................ $ 2,149 $ 5,659 $ 6,326
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of income taxes computed at the statutory rates to the
reported income tax provision is as follows for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Taxes at federal statutory rates................................ $ 4,341 $ 7,042 $ 12,018
State income taxes, net of federal benefit...................... 496 829 1,199
Effect of permanent differences, primarily goodwill
amortization.................................................. 205 179 483
--------- --------- ---------
Provision for income taxes...................................... $ 5,042 $ 8,050 $ 13,700
--------- --------- ---------
--------- --------- ---------
</TABLE>
Current deferred income taxes as of December 31, 1995 and 1996 are not
material and accordingly are included in the deferred income tax liability. A
summary of deferred income tax liabilities (assets) is as follows as of December
31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Depreciation lives and methods........................................... $ 8,485 $ 28,770
Postretirement benefit obligations....................................... (4,084) (5,486)
Accrued compensation costs............................................... (947) (2,453)
Other reserves and accruals not currently deductible for tax purposes.... (4,494) (8,529)
Valuation allowance...................................................... 2,345 --
--------- ---------
Net deferred income tax liability........................................ $ 1,305 $ 12,302
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1995, the Company had provided a valuation allowance for
certain deferred tax assets as their realization was not reasonably assured.
During 1996, the Company determined it was more likely than not that the
deferred tax assets would be realized. Accordingly, the valuation allowance was
eliminated as a reduction to goodwill.
F-16
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. MAJOR CUSTOMERS:
The Company sells its products directly to automobile manufacturers.
Following is a summary of customers that accounted for more than 10% of
consolidated revenues for the three years in the period ended December 31, 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Ford..................................................................... 68% 68% 67%
Honda.................................................................... 11% 15% 9%
Chrysler................................................................. 9% 10% 10%
</TABLE>
Receivables from these customers represented 85% of total accounts
receivable at December 31, 1995 and 70% of total accounts receivable at December
31, 1996.
8. COMMITMENTS:
RETIREMENT PLANS:
The Company contributes to a union sponsored multi-employer pension plan
providing defined benefits to certain Michigan hourly employees. Contributions
to the pension plan are based on rates set forth in the Company's union
contracts. The expense related to this plan was $680,000 for the year ended
December 31, 1994, $788,000 for the year ended December 31, 1995 and $852,000
for the year ended December 31, 1996. The plan was substantially fully funded as
of the latest valuation date.
The Company also has a qualified profit sharing retirement plan and 401(k)
employee savings plan covering certain salaried and hourly employees. The
expense related to these plans was $1,137,000 during 1994, $1,157,000 during
1995 and $2,803,000 during 1996.
The Company sponsors a 401(k) employee savings plans covering certain union
employees. The Company matches a portion of the employee contributions made to
these plans. The expense under this plan in each of the three years in the
period ended December 31, 1996 was not material.
The Company's UAW Retirement Income Plan covers substantially all union
employees at its Kalamazoo and Bluffton facilities. Benefits under the plan are
based on years of service. Contributions by the Company are intended to provide
not only for benefits attributed to service to date, but also for those benefits
expected to be earned in the future. The Company's funding policy is to
contribute annually the amounts sufficient to meet the higher of the minimum
funding requirements set forth in the Employee Retirement Income Security Act of
1974 or the minimum funding requirements under the Company's UAW contract. Net
pension expense for the years ended December 31, 1994, 1995 and 1996 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Service cost-benefits earned during the period...................... $ 51 $ 117 $ 219
Interest cost on projected benefit obligation....................... 77 170 219
Return on plan assets............................................... 83 (504) (337)
Net amortization and deferral....................................... (192) 282 136
--------- --------- ---------
Net pension expense................................................. $ 19 $ 65 $ 237
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS: (CONTINUED)
The following table sets forth the UAW plan's funded status as of December
31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................................ $ 2,509 $ 2,464
--------- ---------
--------- ---------
Accumulated and projected benefit obligation............................. $ 3,113 $ 3,031
Plan assets at fair value.................................................. 2,838 3,146
--------- ---------
Projected benefit obligation (greater) less than plan assets............. (275) 115
Unrecognized net transition asset.......................................... (254) (223)
Unrecognized prior service cost............................................ 706 770
Additional minimum liability............................................... (694) (70)
Unrecognized net loss (gain)............................................... 242 (350)
--------- ---------
Prepaid (accrued) pension costs............................................ $ (275) $ 242
--------- ---------
--------- ---------
</TABLE>
The discount rate used in determining the actual present value of the
projected benefit obligation was 7% in 1995 and 7.5% 1996. The expected
long-term rate of return on plan assets was 8% for December 31, 1995 and 1996.
Plan assets consist principally of mutual funds invested in bonds and equity
securities.
DEFERRED COMPENSATION PLAN:
The Company had salary continuation agreements with three employees which
provided for certain payments beginning with the later of retirement or
attainment of age 62, or in the event of death or disability. During 1995 two of
these employees received payments totaling $529,000 as a result of their
retirement. The expense under this plan has not historically been significant.
The Company's total obligation under these agreements was $318,000 as of
December 31, 1995 and $334,000 as of December 31, 1996 and was included in
noncurrent liabilities in the accompanying consolidated balance sheets.
POSTRETIREMENT PLANS:
The Company provides certain medical insurance benefits for retired
employees. Certain employees of the Company are eligible for these benefits if
they remain employed until age 55 or 59 and fulfill other eligibility
requirements specified by the plans. Certain retirees between the ages of 55 and
62 must contribute 100% of the group rate for active employees. No contributions
are required for retirees 62 or older. Benefits are continued for dependents of
eligible retiree participants after the death of the retiree.
Net periodic postretirement benefit cost consisted of the following for the
periods ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Service cost-benefits earned during the period........................ $ 175 $ 276 $ 174
Interest cost on accumulated postretirement benefit obligation........ 463 636 707
--------- --------- ---------
Net periodic postretirement benefit cost.............................. $ 638 $ 912 $ 881
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS: (CONTINUED)
The Company funds benefits under the plan as they are incurred. A summary of
the accumulated present value of the postretirement benefit obligation included
in other noncurrent liabilities as of December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Retirees................................................................ $ 4,613 $ 5,920
Active employees eligible to retire..................................... 1,523 1,752
Active employees not eligible to retire................................. 4,020 6,341
--------- ---------
Accrued postretirement benefit costs.................................. $ 10,156 $ 14,013
--------- ---------
--------- ---------
</TABLE>
The projected postretirement benefit obligation is calculated using a 7.5%
annual rate of increase in per capita claims cost in 1995 and 7.0% in 1996. This
rate is assumed to decrease by one half of one percent per year through 1997. In
1998, the rate is assumed to be 6.5% and remain at that level for all years
thereafter.
If the health care cost trend rate were increased one percentage point, the
accumulated postretirement benefit obligation and the aggregate of the service
and interest cost discussed above would have increased by 12%.
LEASES:
The Company leases office and manufacturing space, including the lease
described in Note 9, and certain equipment under operating lease agreements
which require it to pay maintenance, insurance, taxes and other expenses in
addition to annual rentals. Future annual rental commitments at December 31,
1996 under these operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1997....................................................................... $ 1,799
1998....................................................................... 1,450
1999....................................................................... 1,969
2000....................................................................... 107
2001....................................................................... 24
Thereafter................................................................. 52
---------
$ 5,401
---------
---------
</TABLE>
Rent commitments associated with acquired facilities which will not be
utilized by the Company have been excluded from the above amounts and will be
provided for in the recording of the related acquisition, as discussed in Note
3.
9. RELATED PARTY TRANSACTIONS:
The Company leases a manufacturing facility from a partnership whose major
partners are former stockholders of Edgewood and are current employees of the
Company. The lease expires February 28, 1999. Expense under this lease was
$298,000 for the period from the acquisition of Edgewood through December 31,
1994, $454,000 for the year ended December 31, 1995 and $475,000 for the year
ended December 31, 1996.
F-19
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS: (CONTINUED)
The Company has made payments to Hidden Creek Industries, an affiliate of
the Company, for certain acquisition related and other management services
totaling $833,000 during 1994 and $750,000 during 1996.
10. AGREEMENT TO ACQUIRE AUTOMOTIVE PRODUCTS COMPANY:
On January 27, 1997, the Company entered into an agreement to acquire and
assume substantially all of the assets and liabilities of the Automotive
Products Company (APC), a division of A.O. Smith Corporation, for $625 million
in cash, subject to certain adjustments. APC, which had revenues of
approximately $860 million for the year ended December 31, 1996, designs and
manufactures frames, frame components, engine cradles, suspension components and
modules for the North American automotive and heavy truck industries. This
acquisition is expected to close during the second quarter of 1997. This
acquisition will be accounted for as a purchase and, accordingly, APC's assets
and liabilities will be recorded at fair value as of the acquisition date, with
any excess purchase price recorded as goodwill.
In connection with this acquisition, the Company agreed to enter into a new
credit facility with a bank, which will provide a total financing availability
of up to $865 million. The specific terms of the new credit facility are
currently being negotiated with the bank. The new credit facility will also
include certain restrictive covenants, which the Company expects will be similar
in nature to those in its existing credit agreement. This facility will become
effective contemporaneously with the completion of the acquisition discussed
above.
As part of this refinancing, the Company expects a portion of the proceeds
from the new credit facility will be used to retire the Senior Notes discussed
in Note 5. If the Senior Notes are retired, the Company will record an
extraordinary loss of approximately $3 million, net of income taxes, related to
prepayment penalties and the write-off of previously capitalized deferred
financing costs.
On February 18, 1997, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission related to the proposed sale of up
to 8,500,000 shares of the Company's Common Stock to the public. The Company
expects this offering will be completed early in the second quarter of 1997.
Proceeds from this offering will be used to fund a portion of the purchase price
related to the acquisition discussed above.
The acquisition of APC will be accounted for as a purchase and, accordingly,
APC's assets and liabilities will be recorded at fair values as of the
acquisition date. Following is an unaudited pro forma balance sheet of the
Company, based on preliminary estimates of the allocation of the purchase price,
as if
F-20
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. AGREEMENT TO ACQUIRE AUTOMOTIVE PRODUCTS COMPANY: (CONTINUED)
the acquisition of APC and the offering described above had been completed as of
December 31, 1996 (in thousands):
<TABLE>
<S> <C>
ASSETS
Current Assets.................................................. $ 276,675
Property, Plant and Equipment, net.............................. 611,994
Restricted Cash................................................. 10,833
Other Assets, net............................................... 301,375
---------
$1,200,877
---------
---------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities............................................. $ 160,720
Long-Term Debt, net of current maturities....................... 417,014
Other Noncurrent Liabilities.................................... 133,516
Stockholders' Investment........................................ 489,627
---------
$1,200,877
---------
---------
</TABLE>
Following are unaudited pro forma results of operations for the year ended
December 31, 1996 as if the acquisitions of APC and MSTI, the offering described
above and the 1996 Offering had been completed at the beginning of the year (in
thousands, except per share data):
<TABLE>
<S> <C>
Revenues........................................................ $1,323,105
---------
---------
Operating Income................................................ $ 112,878
---------
---------
Net Income...................................................... $ 51,434
---------
---------
Net Income per Common and Common Equivalent Share............... $ 2.20
---------
---------
</TABLE>
The unaudited pro forma financial information does not purport to represent
what the Company's financial position or results of operations would actually
have been if these transactions had occurred at such dates or to project the
Company's future results of operations.
F-21
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a condensed summary of quarterly results of operations for
1995 and 1996 (in thousands except per share amounts):
<TABLE>
<CAPTION>
NET INCOME PER
COMMON AND
COMMON
GROSS OPERATING EQUIVALENT
REVENUES PROFIT INCOME NET INCOME SHARE
<S> <C> <C> <C> <C> <C>
1995:
First................. $ 58,423 $ 9,696 $ 5,810 $ 3,296 $ 0.29
Second................ 55,175 9,689 5,658 3,060 0.27
Third................. 51,166 8,012 4,126 2,250 0.20
Fourth................ 58,037 10,016 6,326 3,465 0.30
--------- --------- ----------- ----------- -----
$ 222,801 $ 37,413 $ 21,920 $ 12,071 $ 1.05
--------- --------- ----------- ----------- -----
--------- --------- ----------- ----------- -----
1996:
First................. $ 68,921 $ 10,515 $ 6,626 $ 3,188 $ 0.28
Second................ 96,521 15,351 10,307 5,302 0.44
Third................. 114,583 17,041 10,155 5,236 0.36
Fourth................ 119,900 18,728 12,352 6,911 0.47
--------- --------- ----------- ----------- -----
$ 399,925 $ 61,635 $ 39,440 $ 20,637 $ 1.55
--------- --------- ----------- ----------- -----
--------- --------- ----------- ----------- -----
</TABLE>
The sum of the per share amounts for the year ended December 31, 1995 does
not equal the total for the year due to the effects of rounding.
F-22
