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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
December 31, 1996 1-12733
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TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State of Incorporation) (I.R.S. Employer Identification No.)
4508 IDS CENTER
MINNEAPOLIS, MINNESOTA 55402
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (612) 342-2310
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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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 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 5,6,7 and 8 of 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 May 20, 1997 (the "1997 Proxy Statement").
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
BACKGROUND OF COMPANY
Tower Automotive, Inc. and its Subsidiaries (collectively referred to as
the "Company") is a leading designer and producer of high-quality body structure
components and assemblies used by the major North American automotive original
equipment manufacturers ("OEMs"), Ford, Chrysler and General Motors, and certain
foreign OEMs with manufacturing operations in North America ("Transplants"),
including Honda, Toyota, Nissan and Mazda. The Company's current products range
from large structural stampings and assemblies, such as body pillars, chassis,
suspension and floor pan components and major housing assemblies, to engineered
mechanical parts, such as hood and deck lid hinges and brake components. Since
its inception in April 1993, the Company's revenues have grown rapidly through a
focused strategy of internal growth and a highly disciplined acquisition
program. During the last three years, the Company has successfully completed
and fully integrated four acquisitions. As a result of such acquisitions and
internal growth, revenues have increased from approximately $86 million in 1993
to approximately $400 million in 1996, representing a compound annual growth
rate of approximately 71%. The Company's North American content per vehicle has
increased from $6.23 in 1993 to $26.74 in 1996.
The Company operates in the large and highly fragmented structural
segment of the automotive supply industry, which has recently begun to
undergo significant consolidation. To lower costs and improve quality, OEMs
are reducing their supplier base by awarding sole-source contracts to
full-service suppliers who are able to supply larger portions of a vehicle on
a global basis. OEM's criteria for supplier selection include not only cost,
quality and responsiveness, but also full-service design, engineering and
program management capabilities. OEMs are increasingly seeking suppliers
capable of providing complete systems or modules rather than suppliers who
only provide separate component parts. In addition, OEMs are increasingly
requiring their suppliers to have the capability to design and manufacture
their products in multiple geographic markets. As a full-service supplier
with strong OEM relationships, the Company expects to continue to benefit
from these trends within the structural segment of the automotive supply
industry.
The Company was formed to acquire R.J. Tower Corporation (the
"Predecessor" or "R.J. Tower"), the acquisition of which was completed in
April 1993 for an aggregate cost of approximately $26 million. Since April
1993, the Company has successfully completed or announced five strategic
acquisitions including:
MSTI. In May 1996, the Company acquired MascoTech Stamping Technologies,
Inc. ("MSTI") from MascoTech, Inc. ("MascoTech") for approximately $79
million (including the payment of related fees and expenses), plus additional
earn-out payments if certain operating targets are achieved by the MSTI
facilities in the first three years following the acquisition. The MSTI
acquisition: (i) expanded the Company's product capabilities into chassis
and suspension components; (ii) provided chassis and suspension technology as
well as value-added processing technologies including assembling, painting
and welding; and (iii) increased the Company's content per vehicle on key
light truck and sport utility vehicles such as the Ford F-Series,
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Explorer and Windstar and the Chrysler Ram and Dakota as well as on high
volume passenger cars such as the Ford Taurus/Sable.
TRYLON. In January 1996, the Company acquired Trylon Corporation
("Trylon") from MascoTech for approximately $25 million in cash, including
transaction costs. The Trylon acquisition: (i) broadened the Company's
product offerings to include small, precision metal stampings and assemblies,
which were previously outsourced to third parties; (ii) established a
relationship between the Company and General Motors; and (iii) increased
content on Ford models, primarily the Villager.
KALAMAZOO. In June 1994, the Company acquired Kalamazoo Stamping and Die
Company ("Kalamazoo"), a supplier of structural stampings and assemblies, for
approximately $12 million in cash. The acquisition of Kalamazoo added
additional structural components to the Company's product offerings and
increased model penetration with Ford.
EDGEWOOD. In May 1994, the Company acquired Edgewood Tool and
Manufacturing Company and its affiliate, Ann Arbor Assembly Corporation
(collectively, "Edgewood") for approximately $30 million in aggregate
consideration. Edgewood is a leading supplier of hood and deck lid hinges as
well as structural stampings and assemblies. The acquisition of Edgewood:
(i) added engineered mechanical stampings, primarily hood and deck lid
hinges, and additional structural components to the Company's product
offerings; (ii) increased model penetration with the Company's existing
customers; and (iii) provided the Company with a significant new customer,
Mazda.
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.
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 and conditions of
this 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.
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 by the Company 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 Company completed an initial public offering (the "IPO") of its
Common Stock in August 1994 and the sale of an additional 2,232,900 shares in
June 1996. The Company's principal executive offices are located at 4508 IDS
Center, Minneapolis, Minnesota 55402, and its telephone number is (612)
342-2310.
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BUSINESS STRATEGY
The Company's business objective is to capitalize upon the
consolidation, globalization and system/modular sourcing trends in the
automotive supply industry in order to enhance its position to be the leading
provider of structural and suspension components to OEMs on a worldwide
basis. Key elements of the Company's operating and growth strategies are
outlined below:
OPERATING STRATEGY:
FULL-SERVICE TECHNICAL DESIGN, ENGINEERING AND PROGRAM MANAGEMENT
CAPABILITIES. The Company strives to maintain a competitive advantage
through investment in research and product development, advanced engineering
and program management. The Company works with OEMs throughout the product
development process from concept vehicle and prototype development through
the design and implementation of manufacturing processes to provide
full-service capabilities to its customers. In some cases, the Company
places design engineers at customer facilities to coordinate its product
design efforts with those of its OEM customers.
EFFICIENT MANUFACTURING/CONTINUOUS IMPROVEMENT PROGRAMS. In response to
OEMs' increasingly stringent demands, the Company has implemented
manufacturing practices designed to maximize product quality and timeliness
of delivery and eliminate waste and inefficiency. The Company has continued
to upgrade its manufacturing equipment and processes through substantial
investment in new equipment, maintenance of existing equipment and
utilization of manufacturing engineering personnel.
GLOBAL PRESENCE. The Company strives to offer manufacturing and support
services to its customers on a global basis through a combination of
international wholly owned facilities and by entering into joint ventures and
partnerships with foreign suppliers. Since 1993, in furtherance of its
global expansion strategy, the Company has opened a European sales and
engineering office to service U.K. and German OEM customers and has
established an industrial partnership with The Kirchhoff Group ("Kirchhoff")
in Germany. The Company also has relocated certain technical personnel
resources to locations where OEMs are developing "world cars."
DECENTRALIZED, PARTICIPATIVE CULTURE. The Company's decentralized
approach to managing its manufacturing facilities encourages decision making
and employee participation in areas such as manufacturing processes and
customer service. The Company's management team meets frequently at various
Company locations in order to maintain a unified Company culture. To
increase employee productivity, the Company utilizes incentive programs for
all salaried and hourly employees and provides incentives for employees who
take advantage of its continuous improvement programs and who provide cost
savings ideas.
GROWTH STRATEGY:
STRATEGIC ACQUISITIONS. The Company continues to believe that
consolidation in the automotive supply industry will provide further
attractive opportunities to acquire high-quality companies that complement
its existing business. The Company seeks to make acquisitions that (i)
provide additional product, manufacturing and technical capabilities; (ii)
broaden the Company's geographic coverage domestically and strengthen its
ability to supply products on a global basis; (iii) increase the number of
models for which the Company supplies products and the content supplied for
existing models; and (iv) add new customers. The Company intends to
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seek future acquisitions or develop strategic alliances that will strengthen
the Company's ability to supply its products on a global basis.
MODULAR PRODUCT OPPORTUNITIES. The Company has capitalized on the
system/modular sourcing trend among OEMs by offering customers higher
value-added supply capabilities through an increasing focus on the production
of assemblies consisting of multiple component parts that are welded or
otherwise fastened together by the Company. The Company has the ability to
supply OEMs with modules consisting of integrated assemblies and component
parts that can be installed as a unit in a vehicle at the OEM assembly plant.
INCREASE VEHICLE PENETRATION. The Company has developed strong
relationships with certain OEM engineering and purchasing personnel which
allow it to identify business opportunities and to react to customer needs in
the early stages of vehicle design. The Company believes that these
relationships give it a competitive advantage over smaller and less capable
suppliers in marketing its broad range of products and in developing new
product concepts, such as expanded use of modules, that complement its
existing product lines.
PURSUIT OF "WORLD CAR" OPPORTUNITIES. The Company has been working
closely with certain customers on the development of "world cars," which are
designed by OEMs in one vehicle center to a single global standard but
produced and sold in different geographic markets. Suppliers for a specific
"world car" are often required to provide their products on a worldwide
basis. The Company believes that it has a competitive advantage in
potentially supplying certain world cars given its international presence,
full-service capabilities and existing position as a leading supplier on the
Ford Escort and DEW98 luxury car, as well as on other existing vehicle
platforms which may eventually evolve into world cars.
PRODUCTS
The Company's current products consist of a broad array of stamped,
formed, welded and assembled metal components, many of which are critical to
the structural integrity of a vehicle. These stampings and assemblies are
attached directly to the frame of an automobile at the OEM assembly plant and
comprise the major structure of a vehicle. Engineered assemblies
manufactured by the Company, such as hood and deck lid hinges, are attached
to larger structural components. These parts use various grades and
thicknesses of steel including hot and cold rolled, galvanized, organically
coated, stainless and aluminized steel. The Company does not produce exposed
sheet metal components, such as exterior body panels.
Although a portion of the Company's products are sold directly to OEMs
as finished products, most are used by the Company to produce assemblies
consisting of multiple parts that are welded or otherwise fastened together
by the Company. Systems and assemblies currently produced by the Company
include front and rear structural suspension systems comprised of control
arms, suspension links and axle assemblies consisting of stamped metal
trailing axles, assembled brake shoes, hoses and tie rods.
CUSTOMERS AND MARKETING
The North American automotive market is dominated by General Motors,
Ford and Chrysler, with Transplants representing approximately 20% of this
market in 1996. The Company currently supplies its products primarily to
Ford, Chrysler, Honda, General Motors, Toyota, Nissan and Mazda.
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OEMs typically award contracts that cover parts to be supplied for a
particular car model. Such contracts range from one year to over the life of
the model, which is generally three to seven years and do not require the
purchase by the customer of any minimum number of parts. The Company
supplies parts for a broad cross-section of both new and mature models,
thereby reducing its reliance on any particular model. For example, the
Company supplies parts for substantially all models produced by Ford, Honda
and Chrysler. The following table presents an overview of the major models
for which the Company supplies products:
<TABLE>
<CAPTION>
CUSTOMER CAR MODELS TRUCK MODELS
- --------------------- ---------------------------- ------------------------
<S> <C> <C>
Ford Taurus/Sable, Contour/Mystique, Explorer, Ranger, F-Series
Mustang, Escort, Crown Victoria, Econoline, Villager, Windstar
Grand Marquis, Medium Trucks, Expedition
Probe, Continental
Chrysler Concorde/Intrepid/Vision, Neon, Viper, Ram Pick-up, Dakota, Grand
Stratus/Cirrus/Breeze Cherokee, Voyager, Caravan
Ram Van, Wrangler
General Motors Cavalier, Sunfire, Grand Am, Lumina, C/K Pick-up, Blazer, Chevy Van,
Grand Prix Suburban
Honda Accord, Civic, Acura Integra
Mazda 626,MX6
Toyota Avalon, Camry Mini-van
Nissan Sentra Quest
</TABLE>
Most of the parts the Company produces have a lead time of two to five
years from product development to production. See "Design and Engineering
Support." Since 1988, the Company has been the leading supplier for hood and
deck hinges at Ford and Chrysler and is responsible for the design and
production of such products. The selling prices of these products are
generally negotiated between the Company and its customers and are typically
not subject to a competitive bid process.
Sales of the Company's products to OEMs are made directly by the
Company's sales and engineering force, headquartered at the technical center
located in Farmington Hills, Michigan. Through the technical center, the
Company services its OEM customers and manages its continuing programs of
product design improvement and development. The Company's sales and
engineering force consists of approximately 150 individuals, some of whom are
periodically placed at various customer facilities to facilitate the
development of new programs.
DESIGN AND ENGINEERING SUPPORT
The Company strives to maintain a technological advantage through
investment in product development and advanced engineering capabilities. The
Company's manufacturing engineering capabilities enable it to design and
build high-quality and efficient manufacturing systems, processes and
equipment and to continually improve its production processes and equipment.
The Company's manufacturing engineers are located at each of its
manufacturing facilities. The Company's engineering staff currently consists
of approximately 140 full-time engineers, whose responsibilities range from
research and development, advanced product development, product design,
testing and initial prototype development to the design and implementation of
manufacturing processes.
Because assembled parts must be designed at an early stage in the
development of new vehicles or model revisions, the Company is increasingly
given the opportunity to utilize its product engineering resources early in
the planning process. Advanced development engineering
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resources create original engineering designs, computer-aided designs,
feasibility studies, working prototypes and testing programs to meet customer
specifications. The Company's advanced development capabilities have
resulted in several innovations in hinge design that have provided
significant benefits to the Company's customers. The Company also has full
service design capability for chassis components.
GLOBAL INITIATIVES
The Company has formed, or is in the process of forming, strategic
alliances with other suppliers throughout the world, including in Europe,
Asia and Latin America. The Company has recently opened a European sales and
engineering office to service its U.K. and German OEM customers. In
addition, the Company has a joint manufacturing and marketing agreement with
Kirchhoff, a German automobile parts supplier, pursuant to which the Company
and Kirchhoff have agreed to provide manufacturing and marketing services to
each other when and as required by each company's OEM customers. A current
focus of the Company's acquisition strategy is to acquire European suppliers,
which would provide the Company with a manufacturing presence in Europe and
afford the Company access to new customer opportunities.
COMPETITION
The Company operates in a highly competitive, fragmented market segment
of the automotive supply industry, with a limited number of competitors
generating revenues in excess of $200 million. The number of the Company's
competitors has decreased in recent years and is expected to continue to
decrease due to the supplier consolidation resulting from changing OEM
policies. The Company's largest competitors include The Budd Company, a
subsidiary of Thyssen AG ("Budd"), Magna International, Inc. ("Magna"),
Midway Products Corp., Modern Tool & Die Co., L&W Engineering and divisions
of OEMs with internal stamping and assembly operations, all of which have
substantial financial resources. The Company competes with Magna across most
of the Company's product lines, and with its other significant competitors in
various segments of its product lines. For example, the Company competes
with Budd for large stampings, while it competes with ITT Automotive for
hinge business. Aetna Industries, Active Tool & Die Co., AG Simpson,
Lobdell-Emory Mfg. Co. and L&W Engineering compete with the Company for
medium-size structural stampings.
The Company principally competes for new business both at the beginning
of the development of new models and upon the redesign of existing models.
New model development generally begins two to five years before the marketing
of such models to the public. Once a producer has been designated to supply
parts for a new program, an OEM usually will continue to purchase those parts
from the designated producer for the life of the program, although not
necessarily for a redesign. Competitive factors in the market for the
Company's products include product quality and reliability, cost and timely
delivery, technical expertise and development capability, new product
innovation and customer service.
SUPPLIERS AND RAW MATERIALS
The primary raw material used to produce the majority of the Company's
products is steel. The Company purchases hot and cold rolled, galvanized,
organically coated, stainless and aluminized steel from a variety of
suppliers. The Company employs just-in-time manufacturing and sourcing
systems enabling it to meet customer requirements for faster deliveries while
minimizing its need to carry significant inventory levels. The Company has
not experienced any significant shortages of raw materials and normally does
not carry inventories of raw materials
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or finished products in excess of those reasonably required to meet
production and shipping schedules. Raw material costs represented
approximately 53% of the Company's revenues in 1996 and steel represented
approximately 70% to 75% of raw material costs in 1996.
Honda and Chrysler purchase all of the steel used by the Company for
their models directly from steel producers. In addition, Ford is in the
process of implementing a similar program. As a result, the Company will
have minimal exposure to changes in steel prices for parts supplied to Ford,
Honda and Chrysler, which collectively represented 86% of the Company's
revenues in 1996.
The Company expects that the content level of metal in cars and light
trucks will remain constant or increase slightly due to the trend toward
increased vehicle size and a greater emphasis on metal recycling. Although
the search for improved fuel economy and weight reduction has resulted in
attempts to reduce the sheet metal content of light vehicles, an efficient,
cost-effective substitute for steel used in the Company's products has not
been found. While various polymers have been used recently for fenders,
hoods and decks, such products do not have the inherent strength or
structural integrity on a cost-effective basis to be used for structural
components. The Company is involved in ongoing evaluations of the potential
for the use of aluminum and of specialty steel in its products.
Other raw materials purchased by the Company include dies, fasteners,
tubing, springs, rivets and rubber products, all of which are available from
numerous sources.
EMPLOYEES
As of December 31, 1996, the Company had approximately 2,900 employees,
of whom approximately 1,100 are covered under collective bargaining
agreements, one of which expires in July 1997. The Company currently
anticipates that it will enter into a new collective bargaining agreement
prior to the expiration of such agreement. The remaining collective
bargaining agreements expire in 1999. The Company believes that its future
success will depend in part on its ability to continue to recruit, retain and
motivate qualified personnel at all levels of the Company. The Company has
instituted a large number of employee programs to increase employee morale
and expand the employees' participation in the Company's business. The
Company has not experienced any work stoppages and considers its relations
with its employees to be good.
(b) SAFE HARBOR PROVISIONS
Forward-looking statements included in this Form 10-K are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. There are certain important factors that could cause future results
to differ materially from those that might be anticipated based on some of
the statements made in this report. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. Among the factors
that could cause actual results to differ materially are the following:
- RELIANCE ON MAJOR CUSTOMERS AND SELECTED MODELS. The Company's two
largest customers, Ford and Chrysler, represented approximately 67% and 10%,
respectively, of the Company's 1996 revenues. The loss of Ford, Chrysler or
any of the Company's other significant customers or a significant decrease in
demand for certain key models or a group of related models sold by any of
their major customers could have a material adverse effect on the Company.
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- INDUSTRY CYCLICALITY AND SEASONALITY. The automotive market is highly
cyclical and is dependent on consumer spending. Economic factors adversely
affecting automotive production and consumer spending could adversely impact
the Company.
- FAILURE TO OBTAIN BUSINESS RELATED TO NEW AND REDESIGNED MODEL
INTRODUCTIONS. The failure of the Company to obtain new business on new
models or to retain or increase business on redesigned existing models could
adversely affect the Company.
ITEM 2. PROPERTIES
MANUFACTURING FACILITIES
The Company maintains several manufacturing facilities located in close
proximity to many of the high-volume vehicle assembly plants in the United
States. The Company's facilities are geographically located in such a way as
to enable it to optimize its management and logistical capabilities on a
regional basis.
The following table provides information regarding the Company's principal
facilities:
<TABLE>
<CAPTION>
SQUARE TYPE OF DESCRIPTION
LOCATION FOOTAGE INTEREST OF USE
- ---------------------- ---------------- ------------------ -----------------------
<S> <C> <C> <C>
Bardstown, Kentucky.......... 240,000 Owned Manufacturing
Kalamazoo, Michigan
(2 locations)................ 222,000 Mixed Manufacturing/
Warehouse/Office
Traverse City, Michigan
(4 locations)................ 220,000 Owned Manufacturing
Greenville, Michigan......... 160,000 Owned Manufacturing/Office
Auburn, Indiana.............. 132,000 Owned Manufacturing/Office
Kendallville, Indiana........ 132,000 Owned Manufacturing
Romulus, Michigan............ 115,000 Leased Manufacturing/Office
Bluffton, Ohio............... 102,000 Owned Manufacturing
Rochester Hills, Michigan.... 89,000 Leased Office/Engineering/Design
Manchester, Michigan......... 61,000 Owned Manufacturing
Upper Sandusky, Ohio......... 56,000 Owned Manufacturing
Grand Rapids, Michigan....... 23,000 Leased Operating Headquarters
Farmington Hills, Michigan... 12,000 Leased Engineering/Design/Sales
Minneapolis, Minnesota....... 5,700 Leased Corporate Headquarters
</TABLE>
Management believes that substantially all of its property and equipment
is in good condition. In order to increase efficiency, the Company expects
to make capital expenditures for equipment upgrades at the facilities
recently acquired in the MSTI acquisition.
The Company believes that its existing facilities will be adequate to
meet its production demands for the foreseeable future. The Company's
facilities were specifically designed for the manufacturing of the Company's
products. The utilization and capacity of such facilities are dependent upon
the mix of products being produced by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material lawsuits. The
Company believes it maintains adequate insurance, including product liability
coverage. The Company historically has not been required to pay any material
liability claims.
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ENVIRONMENTAL MATTERS
The Company believes it conducts its operations in substantial
compliance with applicable environmental and occupational health and safety
laws. The Company does not expect to incur material capital expenditures for
environmental compliance during its current or succeeding fiscal year.
However, as is the case with manufacturers in general, if a release of
hazardous substances occurs on or from the Company's properties or at any
associated offsite disposal location, if contamination from prior activities
is discovered at any of the Company's properties or if non-compliance with
environmental regulations or permits is discovered, the Company may be held
liable and the amount of such liability could be material. In connection
with the Trylon and MSTI acquisitions, MascoTech has agreed to indemnify the
Company for certain environmental matters, including replacement of
underground storage tanks at the Traverse City facilities and any remediation
that may be required at the Kendallville facility.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Stockholders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference to
the section labeled "Stock Information" which appears in the Company's 1996
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to
the section labeled "Selected Consolidated Financial Data" which appears in the
Company's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by Item 7 is incorporated herein by reference
to the section labeled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" which appears in the Company's 1996
Annual Report.
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 which appear beginning on page F-2 of
the Company's preliminary prospectus dated March 25, 1997 which is 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
other 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
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management's best estimates and judgments. The financial information
contained elsewhere 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
and procedures 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS OF THE REGISTRANT
The information required by Item 10 with respect to the directors is
incorporated herein by reference to the section labeled "Election of Directors"
which appears in the Company's 1997 Proxy Statement.
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B. EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers as of March 24, 1997:
Name Age Position
------ ----- ----------
S.A. Johnson....................... 56 Chairman and Director
Adrian Vander Starre............... 64 Vice Chairman and Director
Dugald K. Campbell................. 50 President, Chief Executive Officer
and Director
James R. Lozelle................... 51 Executive Vice President and
Director
Ronald E. Gavalis.................. 59 Vice President
Anthony A. Barone.................. 47 Vice President and Chief Financial
Officer
Scott D. Rued...................... 40 Vice President, Corporate
Development and Director
Paul D. Rysenga.................... 55 Vice President
Luigi Candusso..................... 47 Vice President
S.A. (TONY) JOHNSON has served as Chairman and a Director of the Company
since April 1993. Mr. Johnson is the founder, Chief Executive Officer and
President of Hidden Creek Industries ("Hidden Creek"), a private industrial
management company based in Minneapolis which has provided certain management
and other services to the Company. Mr. Johnson is also the managing partner
of J2R Partners ("J2R"), an investment partnership that participated in the
acquisition of R.J. Tower. Prior to forming Hidden Creek, Mr. Johnson served
from 1985 to 1989 as Chief Operating Officer of Pentair, Inc., a diversified
industrial company. From 1981 to 1985, Mr. Johnson was President and Chief
Executive Officer of Onan Corp., a diversified manufacturer of electrical
generating equipment and engines for commercial, defense and industrial
markets. Mr. Johnson currently serves as Chairman and a director of Dura
Automotive Systems, Inc., a manufacturer of mechanical assemblies and
integrated systems for the automotive industry, and served as Chairman and a
director of Automotive Industries Holding, Inc., a supplier of automotive
interior trim components, from May 1990 until its sale to Lear Corporation in
August 1995.
ADRIAN VANDER STARRE has served as Vice Chairman and a Director of the
Company since April 1993. Mr. Vander Starre served as President, Chief
Executive Officer and a director of the Predecessor from 1978 to 1993. Mr.
Vander Starre originally joined the Predecessor in 1965 as Controller and
later served as Treasurer from 1974 to 1978. Mr. Vander Starre has entered
into a consulting agreement with the Company under which he performs such
duties as may be assigned by the Board of Directors.
DUGALD K. CAMPBELL has served as President, Chief Executive Officer and
a Director of the Company since December 1993. From 1991 to 1993, Mr.
Campbell served as a consultant to Hidden Creek. From 1988 to 1991, he
served as Vice President and General Manager of the Sensor Systems Division
of Siemens Automotive, a manufacturer of engine management systems and
components. From 1972 to 1988, he held various executive, engineering and
marketing positions with Allied Automotive, a manufacturer of vehicle systems
and components and a subsidiary of Allied Signal Corporation.
JAMES R. LOZELLE has served as Executive Vice President for the Tower
Automotive Technical Centers, with responsibility for advanced product
development and customer service,
-12-
<PAGE>
and a Director of the Company since the Company's acquisition of Edgewood in
May 1994. Mr. Lozelle served as President of Edgewood from 1982 until it was
acquired by the Company. Mr. Lozelle joined Edgewood in 1970 and served as
Vice President from 1971 to 1982. Mr. Lozelle is chairman of the Near Zero
Stamping research project of the Autobody Consortium.
RONALD E. GAVALIS has served as Vice President of the Company, with
responsibility for capacity planning, quality operating systems and QS-9000
certification, since April 1995. From June 1994 to April 1995, Mr. Gavalis
had responsibility for the Company's Greenville, Michigan. Mr. Gavalis
joined the Predecessor in 1983 as Director of Manufacturing, and served as
the Predecessor's Vice President, Manufacturing, from 1985 until 1989 and as
its Vice President, Operations, from 1989 until June 1994.
ANTHONY A. BARONE has served as Vice President and Chief Financial
Officer of the Company since May 1995. From 1984 to 1995, Mr. Barone served
as Chief Financial Officer of O'Sullivan Corporation, a manufacturer of
interior trim components for the automotive industry.
SCOTT D. RUED has served as Vice President, Corporate Development, and a
Director of the Company since April 1993. Mr. Rued served as Vice President,
Chief Financial Officer and a director of Automotive Industries Holding, Inc.
from April 1990 until its sale to Lear Corporation in August 1995. Mr. Rued,
a partner of J2R, has also served as Executive Vice President and Chief
Financial Officer of Hidden Creek since January 1994 and served as its Vice
President ( Finance and Corporate Development from June 1989 through 1993.
Mr. Rued is also a director of The Rottlund Company, Inc., a corporation
engaged in the development and sale of residential real estate.
PAUL D. RYSENGA has served as Vice President of the Company, with
responsibility for the Company's operations in Kendallville, Indiana,
Bluffton and Upper Sandusky, Ohio and Traverse City, Michigan, since August
1996. From October 1995 to August 1996, Mr. Rysenga had responsibility for
the Company's operations in Greenville, Romulus, and Traverse City, Michigan.
Mr. Rysenga is also responsible for the MSTI operating facilities. From
June 1994 to October 1995, Mr. Rysenga had responsibility for the Company's
operations in Auburn, Indiana. From July 1991 to June 1994, Mr. Rysenga
served as Executive Vice President and General Manager at Kalamazoo. From
1988 to July 1991, Mr. Rysenga was Executive Director of Eastman Sterling
Pharmaceutical, a division of Eastman Kodak.
LUIGI CANDUSSO has served as Vice President of the Company, with
responsibility for the Company's operations in Kalamazoo, Michigan and
Bardstown, Kentucky, since April 1995 and Romulus, Michigan since August
1996. From October 1995 to August 1996, Mr. Candusso also had responsibility
for the Company's operations in Auburn, Indiana. From 1990 to April 1995,
Mr. Candusso served as Vice President and General Manager of the Sensor
Systems Division of Siemens Automotive, a manufacturer of engine management
systems and components. From 1988 to 1990, Mr. Candusso served as Vice
President of Operations at Fabricated Steel Products (FABCO), a division of
Indal Canada.
C. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information required by Item 10 with respect to compliance with
reporting requirements is incorporated herein by reference to the section
labeled "Section 16(a) Beneficial Ownership Reporting Compliance" which
appears in the Company's 1997 Proxy Statement.
-13-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the sections labeled "Compensation of Directors" and "Executive
Compensation" which appear in the Company's 1997 Proxy Statement, excluding
information under the headings "Compensation Committee Report on Executive
Compensation" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section labeled "Security Ownership" which appears in the Company's 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section labeled "Certain Relationships and Related Transactions" which
appears in the Company's 1997 Proxy Statement.
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 the
Company's preliminary prospectus dated March 25, 1997:
- Report of Independent Public Accountants
- 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 16.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1996.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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: March 24, 1997 By /s/ S.A. Johnson
--------------------------------
S.A. Johnson, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------- ------- ------
/s/ S.A. Johnson Chairman and Director March 24, 1997
- ------------------------
S.A. Johnson
/s/ Adrian Vander Starre Vice Chairman and March 24, 1997
- ------------------------ Director
Adrian Vander Starre
/s/ Dugald K. Campbell President, Chief Executive March 24, 1997
- ------------------------ Officer (Principal Executive
Dugald K. Campbell Officer) and Director
/s/ James R. Lozelle Executive Vice President March 24, 1997
- ------------------------ and Director
James R. Lozelle
/s/ Scott D. Rued Vice President, Corporate March 24, 1997
- ------------------------ Development and Director
Scott D. Rued
/s/ W.H. Clement Director March 24, 1997
- ------------------------
W.H. Clement
/s/ Eric J. Rosen Director March 24, 1997
- ------------------------
Eric J. Rosen
/s/ Matthew O. Diggs, Jr. Director March 24, 1997
- ------------------------
Matthew O. Diggs, Jr.
/s/ F.J. Loughrey Director March 24, 1997
- ------------------------
F.J. Loughrey
/s/ K.B. Clark Director March 24, 1997
- ------------------------
K.B. Clark
/s/ Anthony A. Barone Vice President and Chief March 24, 1997
- ------------------------ Financial Officer (Principal
Anthony A. Barone Accounting Officer)
-15-
<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 10-K
Exhibit 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.
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.
-16-
<PAGE>
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.
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.
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.
-17-
<PAGE>
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.
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.
-18-
<PAGE>
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.
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 filed herewith.
13.1 Annual Report to Stockholders for the year ended December -
31, 1996 filed herewith.
21.1 List of Subsidiaries filed herewith. -
23.1 Consent of Independent Public Accountants filed herewith. -
27.1 Financial Data Schedule filed herewith. -
99.1 Preliminary Prospectus dated March 25, 1997 filed herewith. -
- ----------------------
* Incorporated by reference.
** Indicates compensatory arrangement.
-19-
<PAGE>
EXHIBIT 11
TOWER AUTOMOTIVE, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31,
------------------------------------
1996 1995 1994
--------- --------- ---------
Net income $20,637 $12,071 $7,361
Interest expense on convertible
subordinated notes 128 176 115
--------- --------- ---------
Net income available to common
stockholders $20,765 $12,247 $7,476
--------- --------- ---------
--------- --------- ---------
Weighted average number of common
and common equivalent shares (1) 12,682 10,827 7,854
Dilutive effect of outstanding stock
options after application of the
treasury stock method (1) 118 46 42
Dilutive effect of warrants (1) 20 -- --
Dilutive effect of convertible subordinated
notes assuming conversion (1) 603 824 824
--------- --------- ---------
Common and common equivalent shares
outstanding 13,423 11,697 8,720
--------- --------- ---------
--------- --------- ---------
Net income per common and common
equivalent share (2) $1.55 $1.05 $0.86
--------- --------- ---------
--------- --------- ---------
(1) Cheap stock is included in the calculation for all periods presented in
accordance with the rules and regulations of the Securities and Exchange
Commission.
(2) The calculation of net income per common and common equivalent share for
the years ended December 31, 1996, 1995 and 1994 are the same on a primary
and fully diluted basis.
<PAGE>
<TABLE>
<CAPTION>
TOWER AUTOMOTIVE, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company | The Predecessor
-----------------------------------------------------------------------------|-----------------------------
Eight and | Three and
Combined one-half month | one-half month
Year ended Year ended Year ended Year ended period ended | period ended Year ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993(1) Dec. 31, 1993 | Apr. 14, 1993 Dec. 31, 1992
------------- ------------- ------------- ---------------- ------------- | ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $399,925 $222,801 $165,526 $ 86,334 $ 61,297 | $ 25,037 $ 80,830
Cost of sales 338,290 185,388 142,986 72,367 51,941 | 20,426 70,431
S, G & A expenses 20,004 14,308 7,435 4,378 3,155 | 1,223 4,440
Amortization expense 2,191 1,185 803 197 197 | - -
Operating income 39,440 21,920 14,302 9,392 6,004 | 3,388 5,959
Interest expense 5,103 1,799 1,899 729 636 | 93 539
Provision for income
taxes 13,700 8,050 5,042 3,679 2,287 | 1,392 2,395
Net income 20,637 12,071 7,361 5,009 3,081 | 1,928 3,254
- -----------------------------------------------------------------------------------------------------|-----------------------------
Net income per share $ 1.55 $ 1.05 $ 0.86 $ 0.74 $ 0.45 | $ -- $ --
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $81,535 $32,245
Total assets 398,607 209,476
Long-term debt 113,460 70,300
Stockholders'
investment 181,877 85,585
</TABLE>
(1) On April 15, 1993, the Company acquired R.J. Tower Corporation (prior
thereto, the "Predecessor") in a transaction by an investor group led by a
subsidiary of Onex Corporation, J2R Partners and certain others, including
members of management. Accordingly, the information provided for the year ended
December 31, 1992 and for the three and one-half month period ended April 14,
1993 is not comparable. In addition, operating data of the Predecessor for the
period January 1, 1993 to April 14, 1993 have been combined for discussion
purposes with the operating data of the Company for the eight and one-half month
period ended December 31, 1993, without giving effect to purchase accounting or
the impact of the financing of the acquisition of R.J. Tower.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Revenues for the year ended December 31, 1996 increased by $177.1 million,
or 79.5%, to $399.9 million compared to $222.8 million for the year ended
December 31, 1995. Approximately $134.3 million of the increase in revenues
over 1995 is attributable to the acquisitions of MascoTech Stamping
Technologies, Inc. ("MSTI") in May 1996 and Trylon Corporation ("Trylon") in
January 1996. The remaining increase is due to new business awarded to the
Company, including business relating to the Ford Escort, Econoline and
Expedition, Dodge Ram Club Cab pick-up and Toyota Camry. These increases were
partially offset by production decreases in the first half of the year on key
models served by the Company, including the Ford Aerostar, Villager, Econoline
and Chrysler Intrepid/Concorde/Vision.
COST OF SALES
Cost of sales as a percentage of revenues for the year ended December 31,
1996 was 84.6% compared to 83.2% for the year ended December 31, 1995. The
decrease in gross margin was due to a higher proportion of components purchased
from outside suppliers as a result of the MSTI and Trylon acquisitions and
launch costs associated with new business. These decreases were partially
offset by operating efficiencies and enhanced productivity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $20.0 million, or
5.0% of revenues, for the year ended December 31, 1996 compared to $14.3
million, or 6.4% of revenues, for the year ended December 31, 1995. The
percentage decrease related to revenues reflects the economies of scale of
higher gross sales. The increased expense was due primarily to incremental
costs associated with the Company's acquisitions of MSTI and Trylon in 1996.
AMORTIZATION EXPENSE
Amortization expense for the year ended December 31, 1996 was $2.2 million
compared to $1.2 million for the year ended December 31, 1995. The increase was
due to incremental goodwill amortization related to the acquisitions of MSTI and
Trylon.
<PAGE>
INTEREST EXPENSE
Interest expense for the year ended December 31, 1996 was $5.1 million
compared to $1.8 million for the year ended December 31, 1995. The increase was
due principally to increased borrowings incurred to fund the acquisitions of
MSTI and Trylon, partially offset by the application of the proceeds from the
June 1996 offering of 2,232,900 shares of common stock at $24.50 per share, and
the absence of capitalization of interest costs for the new Bardstown, Kentucky
plant that was under construction during 1995.
INCOME TAXES
The effective income tax rate was 39.9% for the year ended December 31,
1996 and 40.0% for the year ended December 31, 1995. The effective rates
differed from the statutory rates primarily as a result of state taxes and
nondeductible goodwill amortization.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Revenues for the year ended December 31, 1995 increased $57.3 million, or
34.6%, to $222.8 million compared to $165.5 million for the year ended December
31, 1994. Revenues increased despite production decreases on key vehicles
served by the Company including the Ford Escort, Taurus/Sable, and Econoline and
Chrysler Intrepid/Concorde/Vision. These decreases were offset by new business
that began production during the year and the full year effects of the Company's
acquisitions of Edgewood Tool and Manufacturing Company and its affiliate, Ann
Arbor Assembly Corporation (Edgewood) in May 1994 and Kalamazoo Stamping and Die
Company (Kalamazoo) in June 1994.
COST OF SALES
Cost of sales, as a percentage of revenues, decreased to 83.2% for the year
ended December 31, 1995 compared to 86.4% for the year ended December 31, 1994.
The improvement in gross margin was a result of the productivity improvement
initiatives in place and synergies realized from the acquisitions of Edgewood
and Kalamazoo. These were partially offset by higher raw material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $14.3 million, or
6.4% of revenues, for the year ended December 31, 1995 compared to $7.4 million,
or 4.5% of revenues, for the year ended December 31, 1994. The increased
expense was due in part to the full year effect of the acquisitions of Edgewood
and Kalamazoo combined with the
<PAGE>
incremental engineering, technical and development costs associated with future
programs.
OTHER
Amortization expense increased to $1.2 million for the year ended December
31, 1995 from $.8 million for the year ended December 31, 1994 due to
incremental goodwill amortization related to the Company's 1994 acquisitions.
Interest expense decreased to $1.8 million in 1995 from $1.9 million in 1994.
The decrease is due to the effect of the application of the proceeds from the
Company's IPO to reduce indebtedness. The provision for income taxes was at an
effective rate of 40.0% for the year ended December 31, 1995 and 40.7% for the
year ended December 31, 1994. The effective rates were higher than federal
statutory rates as a result of nondeductible goodwill amortization and state
income taxes.
SEASONALITY
The Company's performance is dependent on automotive vehicle production,
which is seasonal in nature. The third calendar quarter is historically the
weakest, due to the impact of OEM plant shutdowns in July for vacation and model
changeovers. Additionally, general industry levels are only a partial
explanation of volume changes throughout the year. Individual vehicle platforms
are also a cause of variations in revenues depending upon market response and
acceptance of the specific platform models.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had no indebtedness outstanding under the
revolving credit facility portion of its Credit Agreement. The Credit
Agreement, as amended, consists of a revolving credit facility with a committed
amount of $75.0 million (subject to eligible accounts receivable and inventory,
as defined in the Credit Agreement, which exceeded $75.0 million at December 31,
1996). The Credit Agreement matures in January 2001 and bears interest at
variable rates equal to, at the Company's option, either a prime-based rate or
LIBOR plus a variable margin. The Credit Agreement is secured by substantially
all of the assets of the Company and provides for the issuance of up to $50
million in letters of credit to collateralize the outstanding IRBs described
below.
At December 31, 1996, the Company also had $43.8 million of indebtedness
outstanding pursuant to IRBs issued with the City of Bardstown, Kentucky.
Proceeds from these IRBs were used to finance construction of a 240,000 square
foot manufacturing facility and the related purchase of equipment. The
Bardstown IRBs, which mature on June 1, 2024 and March 1, 2025, are
collateralized by a letter of credit. As of December 31, 1996, $34.2 million of
the proceeds had been expended or committed for the first phase of the facility
and related equipment. The unexpended
<PAGE>
proceeds from the Bardstown IRBs of $10.8 million at December 31, 1996, are
invested in treasury securities and will be used to finance the second phase of
the facility. These IRBs bear interest at a floating rate which is adjusted
weekly as determined by the bond remarketing agent (5.8% at December 31, 1996).
The second phase of the facility, which includes the purchase and installation
of additional processing equipment, is anticipated to be completed by the end of
1998.
At December 31, 1996, the Company had $2.9 million in outstanding
indebtedness relating to IRBs issued in connection with the construction of its
Auburn, Indiana plant. The Auburn IRBs are collateralized by a letter of
credit, certain equipment and a mortgage on the Company's Auburn, Indiana plant.
The Auburn IRBs are payable in annual installments of $720,000 through September
2000 and bear interest at a floating rate which is adjusted weekly as determined
by the bond remarketing agent (4.4% at December 31, 1996).
On January 16, 1996, the Company acquired all of the outstanding common
stock of Trylon for total cash consideration of approximately $25 million, which
included transaction costs. To finance the acquisition, the Company incurred a
$25.0 million term loan, which was repaid in May 1996 using a portion of the
proceeds from the sale of the Senior Notes and borrowings under its revolving
credit facility.
On May 31, 1996, the Company purchased all of the outstanding common stock
of MSTI from MascoTech, Inc. (MascoTech) for an aggregate purchase price of
approximately $79 million, including payment of related fees and expenses.
Pursuant to the terms of the acquisition, the Company is required to make
additional earn-out payments to MascoTech if certain operating targets are
achieved by the MSTI facilities in the first three years following the
acquisition. If all such operating targets are met, the total payments will not
exceed $30 million.
The Company financed the cash portion of the purchase price of MSTI through
the issuance in two series of Senior Notes having an aggregate principal amount
of $65.0 million. The $40.0 million of Series A Senior Notes have a final
maturity on June 1, 2006 and require annual principal payments commencing on
June 1, 2000 and continuing every year thereafter until their final maturity.
The $25.0 million of Series B Senior Notes have a final maturity on June 1, 2008
and require annual principal payments commencing on June 1, 2004 and continuing
every year thereafter until their final maturity. The Senior Notes require the
Company to make semi-annual interest payments commencing December 1, 1996. Net
proceeds from the sale of the Senior Notes in excess of the amounts used to
finance the cash portion of the MSTI acquisition were used, together with
borrowings under the revolving credit facility, to repay in full the remaining
balance outstanding on the $25 million term loan incurred by the Company in
connection with the Trylon acquisition.
In June 1996, the Company completed an offering of 2,232,900 shares of
Common Stock at an offering price of $24.50 per share (Offering). Approximately
$32
<PAGE>
million of the net proceeds from the Offering were used by the Company to retire
borrowings under its Credit Agreement. The remaining proceeds are included in
cash and cash equivalents in the December 31, 1996 consolidated balance sheet
and will be used for other general corporate purposes, which may include
prepayment of other indebtedness, acquisitions or capital expenditures.
During the year ended December 31, 1996, the Company generated $30.0
million of cash from operations, which was partially used to fund capital
expenditures.
The Company has made substantial investments in manufacturing technology
and product design capability to support its products. The Company made capital
expenditures of approximately $16.3 million for the year ended December 31,
1996, primarily for equipment and dedicated tooling purchases related to new or
replacement programs.
On January 27, 1997, the Company entered into an agreement to acquire and
assume substantially all of the assets and liabilities of 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. This new facility will provide a total financing commitment of
up to $865 million. The specific terms and conditions of this 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
of APC.
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. 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
<PAGE>
offering will be used to fund a portion of the purchase price related to the
acquisition of APC.
The Company believes the borrowing availability under a new credit
agreement, together with funds generated by operations, should provide the
Company with the liquidity and capital resources to pursue its business strategy
through 1997, with respect to working capital, capital expenditures and other
operating needs. Under present conditions, management does not believe access
to funds will restrict its ability to pursue its acquisition strategy.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense
of floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Management believes that inflation has not significantly
impacted the Company's business over the past 12 months. However, because
selling prices generally cannot be increased until a model changeover, the
effects of inflation must be offset by productivity improvements and volume from
new business awards.
<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,
1996 and 1995, 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 consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tower Automotive,
Inc. and Subsidiaries as of December 31, 1996 and 1995, 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
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,596 $ 957
Accounts receivable 61,073 39,133
Inventories 21,864 11,398
Prepaid tooling and other 14,433 10,338
--------- ---------
Total current assets 136,966 61,826
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 1,989 984
Buildings and improvements 34,417 22,934
Machinery and equipment 118,567 56,826
Construction in progress 21,839 17,034
--------- ---------
176,812 97,778
Less-accumulated depreciation (20,564) (10,191)
--------- ---------
Net property, plant and equipment 156,248 87,587
RESTRICTED CASH 10,833 14,385
OTHER ASSETS:
Goodwill 89,429 40,027
Other 9,507 7,836
Less-accumulated amortization (4,376) (2,185)
--------- ---------
Net other assets 94,560 45,678
--------- ---------
$ 398,607 $ 209,476
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 722 $ 779
Accounts payable 32,280 19,022
Accrued liabilities 22,429 9,780
--------- ---------
Total current liabilities 55,431 29,581
--------- ---------
LONG-TERM DEBT, net of current maturities 113,460 70,300
DEFERRED INCOME TAXES 12,302 1,305
OTHER NONCURRENT LIABILITIES 35,537 22,705
--------- ---------
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;
14,283,793 and 10,830,389 issued and outstanding 143 108
Warrants to acquire common stock 2,000 -
Additional paid-in capital 136,759 63,461
Retained earnings 43,150 22,513
Common stock subscriptions receivable (175) (497)
--------- ---------
Total stockholders' investment 181,877 85,585
--------- ---------
$ 398,607 $ 209,476
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 399,925 $ 222,801 $ 165,526
Cost of sales 338,290 185,388 142,986
---------- ---------- ----------
Gross profit 61,635 37,413 22,540
Selling, general and administrative expenses 20,004 14,308 7,435
Amortization expense 2,191 1,185 803
---------- ---------- ----------
Operating income 39,440 21,920 14,302
Interest expense, net 5,103 1,799 1,899
---------- ---------- ----------
Income before provision for income taxes 34,337 20,121 12,403
Provision for income taxes 13,700 8,050 5,042
---------- ---------- ----------
Net income $ 20,637 $ 12,071 $ 7,361
---------- ---------- ----------
---------- ---------- ----------
Net income applicable to common
stockholders $ 20,765 $ 12,247 $ 7,476
---------- ---------- ----------
---------- ---------- ----------
Net income per common and common
equivalent share $ 1.55 $ 1.05 $ 0.86
---------- ---------- ----------
---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 13,423 11,697 8,720
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Additonal Common Stock Warrants
Common Stock Paid-In Retained Subscriptions to Acquire
Shares Amount Capital Earnings Receivable Common 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.
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 20,637 $ 12,071 $ 7,361
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 12,754 6,549 4,138
Deferred income tax provision 6,326 5,659 2,149
Changes in other operating items -
Accounts receivable 5,967 (4,124) (9,923)
Inventories (693) 468 (551)
Prepaid tooling and other (1,091) (922) (4,248)
Accounts payable and accrued liabilities (3,354) 2,323 (6,411)
Other assets and liabilities (10,497) (8,119) (2,890)
---------- ---------- ----------
Net cash provided by (used for) operating activities 30,049 13,905 (10,375)
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures, net (16,253) (26,148) (28,524)
Acquisitions, net of cash acquired (76,223) - (38,263)
Change in restricted cash 3,552 (7,906) (6,479)
---------- ---------- ----------
Net cash used for investing activities (88,924) (34,054) (73,266)
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 197,813 183,103 51,313
Repayments of debt (152,229) (162,427) (23,420)
Proceeds from sale of stock, net 51,297 - 54,964
Proceeds from sales of stock under Employee
Stock Discount Purchase Plan 263 34 -
Other, net 370 341 (9)
---------- ---------- ----------
Net cash provided by financing activities 97,514 21,051 82,848
---------- ---------- ----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 38,639 902 (793)
CASH AND CASH EQUIVALENTS:
Beginning of period 957 55 848
---------- ---------- ----------
End of period $ 39,596 $ 957 $ 55
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID FOR -
Interest, net of amounts capitalized $ 7,372 $ 2,993 $ 1,914
---------- ---------- ----------
---------- ---------- ----------
Income taxes $ 6,091 $ 1,702 $ 2,338
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<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):
December 31,
-----------------------
1996 1995
-------- --------
Raw materials $ 9,517 $ 4,836
Work in process 5,949 3,431
Finished goods 6,398 3,131
-------- --------
$ 21,864 $ 11,398
-------- --------
-------- --------
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.
<PAGE>
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 $3.7 million at December 31, 1996 and $3.8 million at
December 31, 1995. 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.
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:
Buildings and improvements 15 to 30 years
Machinery and equipment 3 to 20 years
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 $1,011,000 at
December 31, 1996 and $876,000 at December 31, 1995.
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.
<PAGE>
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.
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.
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.
- 3 -
<PAGE>
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. Based on
results of operations of the MSTI facilities through December 31, 1996, no
contingent payments are due. 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, 1996 and 1995 give effect to the 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):
Pro Forma Years Ended
December 31,
-----------------------
1996 1995
-------- --------
Revenues $473,728 $423,607
-------- --------
-------- --------
Net income applicable to
common stockholders $23,982 $17,249
-------- --------
-------- --------
Weighted average common and common
equivalent shares outstanding 14,802 14,482
-------- --------
-------- --------
Net income per common and common
equivalent share $ 1.62 $ 1.19
-------- --------
-------- --------
- 4 -
<PAGE>
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 Offering)
resulting in net proceeds of approximately $51.3 million. Proceeds from
the 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% (9.25% at December 31, 1996 and 9.5% at
December 31, 1995) and are due in 1998. These notes are reflected as a
reduction of stockholders' investment in the accompanying consolidated
financial statements. Approximately $330,000 and $248,000 of these notes
had been collected as of December 31, 1996 and 1995.
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
$333,000 and $93,000 of these notes had been collected as of December 31,
1996 and 1995.
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
- 5 -
<PAGE>
Participants, subject to certain adjustments reflecting changes in the
Company's capitalization. Information regarding the Stock Option Plan is
as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Shares Shares
Under Exercise Under Exercise
Option Prices Option Prices
- ---------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 120,750 $8.00-10.00 - $ -
Granted 139,000 15.125 133,750 8.00-10.00
Exercised (6,625) 8.00 - -
Forfeited (4,875) 8.00-15.125 (13,000) 8.00
- --------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 248,250 $8.00-15.125 120,750 $8.00-10.00
- --------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 27,625 $8.00-10.00 - $ -
- --------------------------------------------------------------------------------------------------------------------
Weighted average fair value of
options granted $ 9.51 $ 4.23
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1996, 18,350 shares of Common Stock were issued to employees
pursuant to this plan and during the year ended December 31, 1995, 4,143
shares of Common Stock were issued. The weighted average fair value of
shares sold in 1996 and 1995 were $14.32 and $8.11, 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
- 6 -
<PAGE>
Company accounts 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):
Years Ended December 31,
------------------------
1996 1995
--------- ----------
Net income applicable As Reported $ 20,765 $ 12,247
to common stockholders Pro Forma $ 20,611 $ 12,213
Net income per common and As Reported $ 1.55 $ 1.05
common equivalent share Pro Forma $ 1.54 $ 1.04
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 1996 and 1995.
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 5.57% in 1996 and 6.5%,
6.9% and 6.93% in 1995; expected life of seven years for 1996 and 1995;
expected volatility of 56% in 1996 and 35%, 37% and 41% in 1995.
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.
- 7 -
<PAGE>
5. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
December 31,
-----------------------
1996 1995
--------- ---------
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
(5.82% at December 31, 1996 and 5.85% at
December 31, 1995) 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 (5.82% at December 31, 1996 and
5.85% at December 31, 1995) 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 (4.4% at December 31, 1996 and 4.65% at
December 31, 1995) 2,878 3,600
Convertible subordinated notes, due May 2003,
interest at 5.75% payable quarterly 2,508 5,000
Other 31 83
--------- ---------
114,182 71,079
Less-Current maturities (722) (779)
--------- ---------
$ 113,460 $ 70,300
--------- ---------
--------- ---------
Future maturities of long-term debt as of December 31, 1996 are as follows
(in thousands):
1997 $722
1998 720
1999 720
2000 6,434
2001 5,714
Thereafter 99,872
--------
$114,182
--------
--------
- 8 -
<PAGE>
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 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 6.1% for the year ended December 31, 1996 and 7.4% for the year ended
December 31, 1995. 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, 1996 and 1995.
- 9 -
<PAGE>
6. INCOME TAXES:
The income tax provision consisted of the following (in thousands):
Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Currently payable $ 7,374 $ 2,391 $ 2,893
Deferred income tax provision 6,326 5,659 2,149
-------- -------- --------
$ 13,700 $ 8,050 $ 5,042
-------- -------- --------
-------- -------- --------
The deferred income tax provision consisted of the following (in
thousands):
Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Depreciation lives and methods $ 3,348 $ 2,624 $ 542
Accrued compensation costs (915) 1,064 316
Other reserves and accruals 3,893 1,971 1,291
-------- -------- --------
Net deferred income tax provision $ 6,326 $ 5,659 $ 2,149
-------- -------- --------
-------- -------- --------
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):
Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Taxes at federal statutory rates $ 12,018 $ 7,042 $ 4,341
State income taxes, net of
federal benefit 1,199 829 496
Effect of permanent differences,
primarily goodwill
amortization 483 179 205
-------- -------- --------
Provision for income taxes $ 13,700 $ 8,050 $ 5,042
-------- -------- --------
-------- -------- --------
- 10 -
<PAGE>
Current deferred income taxes as of December 31, 1996 and 1995 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):
1996 1995
--------- ---------
Depreciation lives and methods $ 28,770 $ 8,485
Postretirement benefit obligations (5,486) (4,084)
Accrued compensation costs (2,453) (947)
Other reserves and accruals not
currently deductible for tax purposes (8,529) (4,494)
Valuation allowance - 2,345
--------- ---------
Net deferred income tax liability $ 12,302 $ 1,305
--------- ---------
--------- ---------
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.
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:
1996 1995 1994
---- ---- ----
Ford 67% 68% 68%
Honda 9% 15% 11%
Chrysler 10% 10% 9%
Receivables from these customers represented 70% of total accounts
receivable at December 31, 1996 and 85% of total accounts receivable at
December 31, 1995.
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 $852,000
for the year ended December 31, 1996, $788,000 for the year ended December
31, 1995 and $680,000 for the year ended December 31, 1994. The plan was
substantially fully funded as of the latest valuation date.
- 11 -
<PAGE>
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 $2,803,000 during 1996, $1,157,000
during 1995 and $1,137,000 during 1994.
The Company sponsors 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 these plans 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, 1996, 1995 and 1994 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 219 $ 117 $ 51
Interest cost on projected benefit obligation 219 170 77
Return on plan assets (337) (504) 83
Net amortization and deferral 136 282 (192)
------ ------ ------
Net pension expense $ 237 $ 65 $ 19
------ ------ ------
------ ------ ------
</TABLE>
The following table sets forth the UAW plan's funded status as of December
31 (in thousands):
1996 1995
-------- --------
Actuarial present value of:
Vested benefit obligation $ 2,464 $ 2,509
-------- --------
-------- --------
Accumulated and projected benefit
obligation $ 3,031 $ 3,113
Plan assets at fair value 3,146 2,838
-------- --------
Projected benefit obligation
(greater) less than plan assets 115 (275)
Unrecognized net transition asset (223) (254)
Unrecognized prior service cost 770 706
Additional minimum liability (70) (694)
Unrecognized net loss (gain) (350) 242
-------- --------
Prepaid (accrued) pension costs $ 242 $ (275)
-------- --------
-------- --------
- 12 -
<PAGE>
The discount rate used in determining the actual present value of the
projected benefit obligation was 7.5% in 1996 and 7% 1995. The expected
long-term rate of return on plan assets was 8% for December 31, 1996 and
1995. 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
$334,000 as of December 31, 1996 and $318,000 as of December 31, 1995 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):
1996 1995 1994
------ ------ ------
Service cost-benefits earned during the period $ 174 $ 276 $ 175
Interest cost on accumulated postretirement
benefit obligation 707 636 463
------ ------ ------
Net periodic postretirement benefit cost $ 881 $ 912 $ 638
------ ------ ------
------ ------ ------
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):
1996 1995
-------- --------
Retirees $ 5,920 $ 4,613
Active employees eligible to retire 1,752 1,523
Active employees not eligible to retire 6,341 4,020
-------- --------
Accrued postretirement benefit costs $ 14,013 $ 10,156
-------- --------
-------- --------
- 13 -
<PAGE>
The projected postretirement benefit obligation is calculated using a 7.0%
annual rate of increase in per capita claims cost in 1996 and 7.5% in 1995.
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):
Year Amount
---- ------
1997 $1,799
1998 1,450
1999 1,969
2000 107
2001 24
Thereafter 52
------
$5,401
------
------
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 $475,000 for the year ended December 31, 1996, $454,000 for the
year ended December 31, 1995 and $298,000 for the period from the
acquisition of Edgewood through December 31, 1994.
The Company has made payments to Hidden Creek Industries, an affiliate of
the Company, for certain acquisition related and other management services
totaling $750,000 during 1996 and $833,000 during 1994.
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 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
- 14 -
<PAGE>
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. The specific terms and conditions of this 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 the acquisition of APC and the offering described
above had been completed as of December 31, 1996 (in thousands):
ASSETS
Current Assets $ 278,871
Property, Plant and Equipment, net 611,994
Restricted Cash 10,833
Other Assets, net 301,375
-------------
$ 1,203,073
-------------
-------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities $ 160,720
Long-Term Debt, net of current maturities 388,460
Other Noncurrent Liabilities 133,516
Stockholders' Investment 520,377
-------------
$ 1,203,073
-------------
-------------
- 15 -
<PAGE>
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):
Revenues $ 1,323,105
-------------
-------------
Operating Income $ 114,078
-------------
-------------
Net Income $ 49,680
-------------
-------------
Net Income per Common and Common Equivalent Share $ 2.25
-------------
-------------
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.
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a condensed summary of quarterly results of operations for
1996 and 1995 (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>
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
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
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
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
</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.
- 16 -
<PAGE>
STOCK INFORMATION
Tower Automotive, Inc.'s Common Stock trades on the New York Stock Exchange
under the symbol TWR. Prior to February 19, 1997, the Company's Common Stock
traded on the Nasdaq National Market under the symbol TWER. The following stock
prices were obtained from Nasdaq reports:
Stock Price by Quarter
1996 LOW HIGH
Fourth Quarter. . . . . . . . 24 32 1/8
Third Quarter . . . . . . . . 23 3/4 27
Second Quarter. . . . . . . . 16 25 1/4
First Quarter . . . . . . . . 14 1/8 16 1/8
1995 LOW HIGH
Fourth Quarter. . . . . . . . 13 1/8 17 1/2
Third Quarter . . . . . . . . 10 3/8 14 1/2
Second Quarter. . . . . . . . 8 1/4 10 1/2
First Quarter . . . . . . . . 7 1/2 10 5/8
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
R.J. Tower Corporation (a Michigan corporation)
R.J. Tower Corporation (an Indiana corporation)
R.J. Tower Corporation (a Kentucky corporation)
Edgewood Manufacturing Corp. (a Delaware corporation)
Kalamazoo Stamping and Die Company (a Michigan corporation)
Trylon Corporation (a Michigan corporation)
Tower Automotive Delaware, Inc. (a Delaware corporation)
Tower Automotive Export, Inc. (a Barbados, West Indies corporation)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-91578, 333-13589 and
333-17355.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TOWER
AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 39,596
<SECURITIES> 0
<RECEIVABLES> 61,073
<ALLOWANCES> 0
<INVENTORY> 21,864
<CURRENT-ASSETS> 136,966
<PP&E> 176,812
<DEPRECIATION> (20,564)
<TOTAL-ASSETS> 398,607
<CURRENT-LIABILITIES> 55,431
<BONDS> 113,460
0
0
<COMMON> 143
<OTHER-SE> 181,734
<TOTAL-LIABILITY-AND-EQUITY> 398,607
<SALES> 399,925
<TOTAL-REVENUES> 399,925
<CGS> 338,290
<TOTAL-COSTS> 338,290
<OTHER-EXPENSES> 22,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,103
<INCOME-PRETAX> 34,337
<INCOME-TAX> 13,700
<INCOME-CONTINUING> 20,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,637
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
</TABLE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1997
REGISTRATION NO. 333-21943
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C>
DELAWARE 41-1746238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
4508 IDS CENTER
MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 342-2310
(Address, including zip code, and telephone number, including area code, of
Registrant's principal offices)
ANTHONY A. BARONE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
TOWER AUTOMOTIVE, INC.
6303 28TH STREET S.E.
GRAND RAPIDS, MICHIGAN 49546
TELEPHONE: (616) 954-7600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
CARTER W. EMERSON, ESQ. DEWEY B. CRAWFORD, ESQ.
Kirkland & Ellis Gardner, Carton & Douglas
200 East Randolph Drive 321 North Clark Street
Chicago, Illinois 60601 Chicago, Illinois 60610-4795
(312) 861-2052 (312) 245-8422
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 25, 1997
PROSPECTUS
, 1997
10,090,000 SHARES
[LOGO]
COMMON STOCK
Of the 10,090,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), being offered (the "Offering"), 8,500,000 shares are being sold
by Tower Automotive, Inc. (the "Company"), and 1,590,000 shares are being sold
by the Selling Stockholders. See "Selling Stockholders." The Company will not
receive any part of the proceeds from the sale of shares by the Selling
Stockholders. The Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "TWR." On March 21, 1997, the last reported sale price of the
Common Stock on the NYSE was $39.625 per share. See "Market Price of Common
Stock."
On January 27, 1997, the Company agreed to acquire substantially all of the
assets of Automotive Products Company ("APC"), a division of A.O. Smith
Corporation. The Company expects to complete the acquisition of APC by the end
of April 1997. Certain of the information set forth in this Prospectus assumes
that the acquisition of APC will be completed upon the terms set forth in the
purchase agreement. If the acquisition of APC is not completed, the shares of
Common Stock offered hereby would represent an ownership interest in the Company
as it exists on the date hereof and not of the Company as combined with APC.
Therefore, if the acquisition of APC is not completed, the information set forth
in this Prospectus giving effect to such acquisition would not be relevant. See
"Risk Factors-- Risks Associated with the Failure to Complete the APC
Acquisition."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF $1,300,000 WHICH WILL BE PAID BY THE
COMPANY.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 30
DAYS HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 1,513,500 ADDITIONAL SHARES
OF COMMON STOCK AT THE PRICE TO THE PUBLIC, LESS UNDERWRITING DISCOUNTS AND
COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS AND PROCEEDS TO THE COMPANY WILL BE $ , $ AND
$ , RESPECTIVELY. SEE "UNDERWRITING."
The shares offered hereby are offered by the several Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the shares will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE PAINEWEBBER INCORPORATED
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
PIPER JAFFRAY INC.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE (THE "NYSE") OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
The following diagrams illustrate the products produced by the Company and APC:
[Illustrations depicting the principal products of the Company and APC]
/ / Currently produced by the Company.
/ / Currently produced by APC.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS SUMMARY AND ELSEWHERE IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION HAS NOT BEEN EXERCISED. UNLESS THE CONTEXT
INDICATES OTHERWISE, AS USED IN THIS PROSPECTUS THE TERM "COMPANY" REFERS TO
TOWER AUTOMOTIVE, INC., ITS CONSOLIDATED SUBSIDIARIES AND THEIR RESPECTIVE
PREDECESSORS. THE COMPANY ACQUIRED TRYLON CORPORATION ("TRYLON") ON JANUARY 16,
1996 AND MASCOTECH STAMPING TECHNOLOGIES, INC. ("MSTI") ON MAY 31, 1996 AND
EXPECTS TO COMPLETE THE ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
AUTOMOTIVE PRODUCTS COMPANY ("APC"), A DIVISION OF A.O. SMITH CORPORATION ("A.O.
SMITH"), BY THE END OF APRIL 1997. SUCH ACQUISITIONS ARE REFERRED TO HEREIN AS
THE "TRYLON ACQUISITION," THE "MSTI ACQUISITION" AND THE "APC ACQUISITION,"
RESPECTIVELY. UNLESS OTHERWISE INDICATED, FINANCIAL AND OPERATING DATA PRESENTED
HEREIN FOR 1996 ON A PRO FORMA BASIS GIVE EFFECT TO THE MSTI ACQUISITION AND THE
APC ACQUISITION AS IF THEY HAD EACH OCCURRED ON JANUARY 1, 1996. SEE "UNAUDITED
PRO FORMA FINANCIAL STATEMENTS."
THE COMPANY
GENERAL
The Company is a leading designer and producer of high-quality body
structure components and assemblies used by the major North American automotive
original equipment manufacturers ("OEMs"), Ford, Chrysler and General Motors,
and certain foreign OEMs with manufacturing operations in North America
("Transplants"), including Honda, Toyota, Nissan and Mazda. The Company's
current products range from large structural stampings and assemblies, such as
body pillars, chassis, suspension and floor pan components and major housing
assemblies, to engineered assemblies, such as hood and deck lid hinges and brake
components. On January 27, 1997, the Company agreed to acquire A.O. Smith's APC
division, a leading manufacturer of light truck frames, automotive engine
cradles and other structural and suspension components, assemblies and modules
used by major North American OEMs and Transplants. Following the APC
Acquisition, the Company believes it will be one of the largest independent
suppliers of structural components and assemblies to the North American
automotive market (based on net sales).
Since its inception in April 1993, the Company's revenues have grown rapidly
through a focused strategy of internal growth and a highly disciplined
acquisition program. During the last three years, the Company has successfully
completed and fully integrated four acquisitions. As a result of such
acquisitions and internal growth, the Company's revenues have increased from
approximately $86 million in 1993 to approximately $474 million in 1996 (pro
forma only for the MSTI Acquisition), representing a compound annual growth rate
of approximately 76%. The Company's North American content per vehicle has
increased from $6.23 in 1993 to $26.74 in 1996 on an actual basis. The APC
Acquisition will be the Company's largest acquisition to date and will increase
the Company's pro forma revenues to approximately $1.3 billion and its pro forma
North American content per vehicle to $77.49 for 1996.
The Company operates in the large and highly fragmented structural segment
of the automotive supply industry, which has recently begun to undergo
significant consolidation. To lower costs and improve quality, OEMs are reducing
their supplier base by awarding sole-source contracts to full-service suppliers
who are able to supply larger portions of a vehicle on a global basis. OEMs'
criteria for supplier selection include not only cost, quality and
responsiveness, but also full-service design, engineering and program management
capabilities. OEMs are increasingly seeking suppliers capable of providing
complete systems or modules rather than suppliers who only provide separate
component parts. In addition, OEMs are increasingly requiring their suppliers to
have the capability to design and manufacture their products in multiple
geographic markets. As a full-service supplier with strong OEM relationships,
the Company expects to continue to benefit from these trends within the
structural segment of the automotive supply industry.
3
<PAGE>
The Company's business objective is to capitalize on the consolidation,
globalization and system/ modular sourcing trends in the automotive supply
industry in order to be the leading provider of structural and suspension
components to OEMs worldwide. The Company's growth strategy focuses on the
identification and pursuit of (i) strategic acquisitions; (ii) modular product
opportunities; (iii) increased vehicle penetration; and (iv) "world car"
opportunities.
THE APC ACQUISITION
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. In 1996, over 70% of APC's
revenues was derived from the sale of structural components for light trucks and
sport utility vehicles, a growing segment of the North American automotive
market. APC's customers include the three major North American OEMs as well as
certain Transplants, including Toyota, Nissan, Isuzu and Honda. APC's three
largest customers, Ford, General Motors and Chrysler, accounted for
approximately 46%, 23% and 20%, respectively, of APC's revenues in 1996.
Approximately 11% of APC's revenues in 1996 was derived from the production of
heavy truck frame rails for North American heavy truck OEMs. The Company
believes APC is the largest supplier in this 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 Company believes that the APC Acquisition will provide the Company with
several strategic
benefits, including the following:
EXPANDED PRODUCT OFFERINGS AND MODULAR PRODUCT OPPORTUNITIES. The APC
Acquisition will significantly expand the Company's product offerings by adding
lower body structural components to the Company's existing line of upper body
structural components. In addition, APC's products provide an ideal platform for
developing modular product offerings for the Company's customers. APC's frame
and engine cradle products can be combined with a number of the Company's
existing product offerings, including control arms, suspension components,
exhaust hanger assemblies and spring towers and hangers to deliver more complete
systems or modules to its OEM customers at a lower overall cost. The APC
Acquisition will enable the Company to produce a larger portion of a vehicle,
which the Company believes will afford it significant opportunities to increase
revenues as OEMs continue to consolidate their supplier base. See
"Business--Industry Trends."
INCREASED CUSTOMER PENETRATION. The APC Acquisition will significantly
expand the Company's penetration within each of the three major North American
OEMs. Following the APC Acquisition, the Company believes it will be the largest
supplier of structural components to Chrysler, the largest supplier of metal
components to Ford and a major supplier of structural components to General
Motors. The APC Acquisition will also expand the Company's penetration within
certain Transplants by doubling the Company's sales to Toyota, expanding its
already significant position at Honda, increasing sales to Nissan and adding
Isuzu as a new customer.
INCREASED PENETRATION IN LIGHT TRUCK SEGMENT AND OTHER KEY MODELS. The APC
Acquisition will increase the Company's North American content per vehicle from
$26.74 in 1996 to $77.49 on a pro forma basis and will triple the Company's
content per vehicle in the expanding light truck/sport utility market segment,
which segment represented approximately 60% of the Company's pro forma revenues
for 1996. The APC Acquisition will increase the Company's content per vehicle on
key light truck/sport utility vehicles such as the Ford Explorer and Ranger and
the Chrysler Dakota, Durango and Ram as well as on high volume passenger cars
such as the Ford Taurus/Sable and the Chrysler Intrepid/Concorde/Vision. The
Company believes that this increased model penetration will afford it greater
opportunities to supply additional parts and modules for such models.
4
<PAGE>
COMPLEMENTARY NEW TECHNOLOGY. The APC Acquisition will provide the Company
with a variety of new and enhanced design and manufacturing technology,
including APC's patented three piece side rail frame and patented Simulform-TM-
forming technology, the latter of which may result in cost savings and quality
improvements over conventional stamping technology in certain specialized
applications. In addition, APC's existing hydroforming technology complements
the Company's initiatives in this area. The APC Acquisition will also provide
the Company with additional painting, coating and welding technologies and
advanced logistical parts management systems. The Company believes that these
acquired technologies will provide significant additional opportunities to serve
existing customers and obtain new business.
OPERATIONAL EFFICIENCIES. The APC Acquisition will provide the Company with
a number of opportunities to reduce costs and improve operational efficiency.
For example, APC currently outsources many of its stamping needs, some of which
will be able to be supplied by the Company's existing stamping facilities. In
addition, the Company's and APC's facilities are geographically located in such
a way as to allow the Company to optimize its management and logistical
capabilities on a regional basis. APC's facilities are strategically located
close to many of its and the Company's major customers, allowing for inventory
and freight cost-savings. The increased size of the Company may also improve the
Company's ability to negotiate more favorable terms on its purchasing and supply
contracts, as well as achieve other operational cost savings.
EXPANDED GLOBAL CAPABILITIES. OEMs are increasingly demanding that their
suppliers have global production capabilities. APC's presence in China, Japan
and South America complements the Company's current European initiatives to
provide expanded global production capabilities for both North American and
international OEMs. See "Business--Global Initiatives."
The aggregate purchase price of APC is approximately $625 million, plus an
additional $25 million for related fees and expenses and management's estimate
of certain post-closing adjustments. The Company expects to complete the APC
Acquisition by the end of April 1997. Pursuant to the terms of the purchase
agreement, the Company may elect not to complete the APC Acquisition if there is
a material adverse change in the operating results or financial condition of APC
prior to the closing date. Currently, the Company believes that such a change
has not occurred and that it is unlikely that such a change will occur prior to
the closing date. If the APC Acquisition is not completed, the shares of Common
Stock offered hereby would represent an ownership interest in the Company as it
exists on the date hereof and not of the Company as combined with APC. In such
an event, the net proceeds of the Offering will be used for general corporate
purposes, which may include repayment of existing indebtedness, acquisitions or
capital expenditures. See "Risk Factors--Risks Associated with the Failure to
Complete the APC Acquisition."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.... 8,500,000 shares(1)
Common Stock Offered by Selling
Stockholders......................... 1,590,000 shares
Total.............................. 10,090,000 shares
Common Stock to be Outstanding after
the Offering......................... 22,840,800 shares(2)
Use of Proceeds........................ The net proceeds to be received by the Company from
the Offering are expected to be used to pay a
portion of the cash purchase price of the APC
Acquisition. The Company will not receive any
proceeds from the sale of the shares by the
Selling Stockholders. See "Use of Proceeds."
New York Stock Exchange Symbol......... TWR(3)
</TABLE>
- --------------------------
(1) Does not include the Underwriters' over-allotment option granted by the
Company for an aggregate of 1,513,500 shares of Common Stock.
(2) Does not include: (i) 1,019,477 shares of Common Stock reserved for issuance
under the Company's stock option plans and employee stock discount purchase
plan, of which options to purchase 459,250 shares were outstanding; (ii)
102,984 shares issuable upon the exercise of stock options issued in
connection with the acquisition of Edgewood Tool and Manufacturing Company
and its affiliate; (iii) 407,743 shares issuable upon conversion of
convertible subordinated notes issued in connection with the acquisition of
Edgewood (the "Convertible Notes"); and (iv) 200,000 shares issuable upon
the exercise of outstanding warrants issued to MascoTech, Inc. ("MascoTech")
in connection with the MSTI Acquisition (the "Warrants").
(3) The Company's Common Stock commenced trading on the NYSE on February 19,
1997. Prior thereto, the Common Stock was traded on the Nasdaq National
Market under the symbol "TWER."
RISK FACTORS
In analyzing an investment in the Common Stock offered hereby, prospective
investors should carefully consider, along with other matters referred to
herein, the risks relating to: (i) the failure of the Company to complete the
APC Acquisition; (ii) the degree to which the Company will be leveraged
following the APC Acquisition; (iii) the Company's reliance on major customers
and selected models; (iv) the cyclicality and seasonality of the automotive
market; (v) the failure to realize the benefits of the APC Acquisition; (vi)
obtaining new business on new and redesigned models; and (vii) the Company's
ability to continue to implement its acquisition strategy. See "Risk Factors."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA OF THE COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
PRO FORMA
AS ADJUSTED
1994 1995 1996(1) 1996(2)
(IN THOUSANDS, EXCEPT PER SHARE AND PER VEHICLE
AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 165,526 $ 222,801 $ 399,925 $ 1,323,105
Gross profit........................................... 22,540 37,413 61,635 181,958
Operating income....................................... 14,302 21,920 39,440 114,078
Net income............................................. 7,361 12,071 20,637 52,481
Net income applicable to common stockholders........... 7,476 12,247 20,765 52,609
Net income per common and common equivalent share(3)... $ 0.86 $ 1.05 $ 1.55 $ 2.25
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Weighted average common and common equivalent shares
outstanding.......................................... 8,720 11,697 13,423 23,432
OTHER DATA:
Capital expenditures, net.............................. $ 28,524 $ 26,148 $ 16,253 $ 167,787
EBITDA(4).............................................. 18,440 28,469 52,194 166,976
Cash provided by (used in):
Operating activities................................. (10,375) 13,905 30,049 NA
Investing activities................................. (73,266) (34,054) (88,924) NA
Financing activities................................. 82,848 21,051 97,514 NA
North American content per vehicle(5).................. 10.83 14.92 26.74 77.49
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................... $ 81,535 $ 115,955
Total assets....................................................................... 398,607 1,200,877
Total debt......................................................................... 114,182 406,486
Stockholders' investment........................................................... 181,877 500,877
</TABLE>
- --------------------------
(1) Includes the results of operations of MSTI from the date of acquisition, May
31, 1996.
(2) The unaudited pro forma as adjusted statement of operations data reflect:
(i) the MSTI Acquisition (including related financing transactions); (ii)
the APC Acquisition; (iii) the sale by the Company of 2,232,900 shares of
Common Stock in June 1996 (the "1996 Offering") and the application of the
proceeds therefrom; (iv) the refinancing of the Company's existing credit
agreement (the "Existing Credit Agreement") and the redemption of the
Company's senior notes (the "Senior Notes") in connection with the APC
Acquisition; and (v) the Offering and the application of the net proceeds to
the Company as described in "Use of Proceeds," as if such transactions had
occurred on January 1, 1996. The Company acquired Trylon on January 16,
1996. Results of operations of Trylon for the period January 1, 1996 through
the acquisition date are not material and therefore have not been included
in the Company's pro forma results of operations for the year ended December
31, 1996. See "Use of Proceeds" and "Unaudited Pro Forma Financial
Statements." Net income, net income applicable to common stockholders and
net income per common and common equivalent share are presented before
extraordinary loss on early extinguishment of debt.
(3) The Company has not declared or paid any cash dividends on its Common Stock
in the past, currently intends to retain its earnings to support its growth
strategy and does not anticipate paying dividends in the foreseeable future.
See "Dividend Policy."
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
7
<PAGE>
(4) "EBITDA" is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles ("GAAP") and the Company's calculation thereof may not be
comparable to that reported by other companies. The Company believes that it
is widely accepted that EBITDA provides useful information regarding a
company's ability to service and/or incur indebtedness. This belief is based
on the Company's negotiations with its lenders who have indicated that the
amount of indebtedness the Company will be permitted to incur will be based,
in part, on the Company's EBITDA. EBITDA does not take into account the
Company's working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary uses. Set forth below is a reconciliation
of the Company's operating income, as reported, to EBITDA for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
PRO FORMA
AS ADJUSTED
1994 1995 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating income.................................................. $ 14,302 $ 21,920 $ 39,440 $ 114,078
Depreciation and amortization..................................... 4,138 6,549 12,754 52,898
--------- --------- --------- -----------
EBITDA............................................................ $ 18,440 $ 28,469 $ 52,194 $ 166,976
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
(5) "North American content per vehicle" on an actual basis is the Company's
revenues divided by total North American vehicle production, which is
comprised of car and light truck production in the United States, Canada and
Mexico, as estimated by the Company from industry sources. Pro forma as
adjusted "North American content per vehicle" also includes the automotive
revenues of APC (excluding APC's heavy truck revenues).
(6) The unaudited pro forma as adjusted balance sheet data reflect: (i) the APC
Acquisition; (ii) the refinancing of the Company's Existing Credit Agreement
and redemption of the Senior Notes; and (iii) the Offering and the
application of the net proceeds to the Company as described in "Use of
Proceeds," as if such transactions had occurred on December 31, 1996. See
"Use of Proceeds," "Capitalization" and "Unaudited Pro Forma Financial
Statements."
8
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA OF APC
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT PER VEHICLE
AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................................... $ 722,718 $ 845,305 $ 862,977
Gross profit............................................................... 97,952 95,174 92,882
Operating income........................................................... 63,931 57,741 55,649
Income before provision for income taxes................................... 59,880 52,384 48,820
OTHER DATA:
Capital expenditures, net(1)............................................... $ 59,023 $ 78,908 $ 151,534
EBITDA(2).................................................................. 98,031 99,562 106,417
Cash provided by (used in):
Operating activities..................................................... 41,510 40,089 92,554
Investing activities..................................................... (59,023) (82,658) (168,436)
Financing activities..................................................... 17,513 42,569 75,882
North American content per vehicle(3)...................................... 39.23 48.25 50.75
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996
<S> <C>
BALANCE SHEET DATA:
Working capital................................................................................... $ 63,822
Total assets...................................................................................... 601,311
Parent company investment......................................................................... 392,614
</TABLE>
- --------------------------
(1) APC made capital expenditures of $4.3 million and $63.1 million in the years
ended December 31, 1995 and 1996, respectively, to finance the construction
of and to purchase equipment for its new Plymouth, Michigan and Roanoke,
Virginia manufacturing facilities.
(2) "EBITDA" is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by GAAP and the Company's
calculation thereof may not be comparable to that reported by other
companies. The Company believes that it is widely accepted that EBITDA
provides useful information regarding a company's ability to service and/or
incur indebtedness. This belief is based on the Company's negotiations with
its lenders who have indicated that the amount of indebtedness the Company
will be permitted to incur will be based, in part, on the Company's EBITDA.
EBITDA does not take into account APC's working capital requirements, debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses. Set forth below is a reconciliation of APC's operating income, as
reported, to EBITDA for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income.............................................................. $ 63,931 $ 57,741 $ 55,649
Depreciation and amortization................................................. 34,100 41,821 50,768
--------- --------- ---------
EBITDA........................................................................ $ 98,031 $ 99,562 $ 106,417
--------- --------- ---------
--------- --------- ---------
</TABLE>
(3) "North American content per vehicle" is APC's automotive revenues (excluding
heavy truck revenues) divided by total North American vehicle production,
which is comprised of car and light truck production in the United States,
Canada and Mexico, as estimated by the Company from industry sources.
9
<PAGE>
RISK FACTORS
THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN,
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"). ALSO, DOCUMENTS
SUBSEQUENTLY FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") AND INCORPORATED HEREIN BY REFERENCE WILL CONTAIN
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON THE
BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ON ASSUMPTIONS MADE BY AND
INFORMATION CURRENTLY AVAILABLE TO THE COMPANY AT THE TIME SUCH STATEMENTS WERE
MADE. WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "EXPECT," "INTENDS" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE
COMPANY OR APC, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH
INCLUDE STATEMENTS RELATING TO, AMONG OTHER THINGS, (I) THE CONSUMMATION OF THE
APC ACQUISITION; (II) THE INTEGRATION OF THE OPERATIONS OF APC WITH THOSE OF THE
COMPANY; AND (III) THE STRATEGIC BENEFITS OF THE APC ACQUISITION. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF THE RISK FACTORS SET FORTH BELOW, THE MATTERS SET FORTH OR
INCORPORATED IN THE PROSPECTUS GENERALLY AND CERTAIN ECONOMIC AND BUSINESS
FACTORS, SOME OF WHICH MAY BE BEYOND THE CONTROL OF THE COMPANY. THE COMPANY
CAUTIONS THE READER, HOWEVER, THAT THIS LIST OF FACTORS MAY NOT BE EXHAUSTIVE,
PARTICULARLY WITH RESPECT TO FUTURE FILINGS WITH THE COMMISSION. IN ANALYZING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER, ALONG WITH THE OTHER MATTERS REFERRED TO HEREIN, THE RISK
FACTORS DESCRIBED BELOW.
RISKS ASSOCIATED WITH THE FAILURE TO COMPLETE THE APC ACQUISITION
The Company expects to complete the APC Acquisition by the end of April
1997. Pursuant to the terms of the purchase agreement, the Company may elect not
to complete the APC Acquisition if there is a material adverse change in the
operating results or financial condition of APC prior to the closing date. There
can be no assurance that such a change will not occur or that, if such a change
were to occur, that the APC Acquisition would be completed. If the APC
Acquisition is not completed, the shares of Common Stock offered hereby would
represent an ownership interest in the Company as it exists on the date hereof
and not of the Company as combined with APC. Therefore, if the APC Acquisition
is not consummated, the information set forth in this Prospectus giving effect
to the APC Acquisition would not be relevant.
Prior to the Offering, there were 14,340,800 shares of Common Stock
outstanding. Upon consummation of the Offering, there will be 22,840,800 shares
of Common Stock outstanding. If the APC Acquisition is not consummated, the size
of the Company will not increase, but the number of outstanding shares will
have, and thus the value of each share of the Common Stock would be
significantly diluted. The Company's net income per common and common equivalent
share before extraordinary item ("EPS") for 1996 on a pro forma as adjusted
basis would have been $2.25 per share. If the APC Acquisition is not completed,
the Company's EPS for 1996 on a pro forma as adjusted basis would have been
$1.17 per share. In addition, the net proceeds to the Company from the Offering
are expected to be used to pay a portion of the cash purchase price of the APC
Acquisition. In the event the APC Acquisition is not consummated, the Company
intends to use the net proceeds of the Offering for general corporate purposes,
which may include repayment of existing indebtedness, acquisitions or capital
expenditures.
In connection with the APC Acquisition, the Company expects to enter into a
new credit agreement (the "New Credit Agreement") to finance a portion of the
APC Acquisition. The commitments of its bank lender under the New Credit
Agreement expire if the APC Acquisition is not consummated on or prior to April
30, 1997. If such commitments expire and are not renewed by such lender, the
Company would be required to seek alternative sources of financing. There can be
no assurance that the Company would be able to secure such alternative financing
or that such financing, if available, would be on terms acceptable to the
Company. If the Company does not consummate the APC Acquisition because it fails
to secure financing, the Company is required to pay A.O. Smith a fee of $15.0
million. In addition, if the APC Acquisition is not consummated by June 30,
1997, A.O. Smith's obligation to consummate the APC Acquisition will lapse and
there can be no assurance that the Company will be able to purchase APC on the
terms disclosed herein, on terms acceptable to the Company or at all.
10
<PAGE>
RISKS ASSOCIATED WITH LEVERAGE
The APC Acquisition will significantly increase the Company's debt service
obligations. As of December 31, 1996 on a pro forma basis, the Company would
have had total outstanding long-term indebtedness of approximately $405.8
million, or 44.8% of the Company's total capitalization. The degree to which the
Company is leveraged could make it more difficult for the Company to adjust to
rapidly changing market conditions and could make it more vulnerable in the
event of a downturn in general economic conditions or its business. See
"Description of New Credit Agreement."
RELIANCE ON MAJOR CUSTOMERS AND SELECTED MODELS
Ford, Chrysler and General Motors accounted for approximately 67%, 10% and
4%, respectively, of the Company's revenues during 1996 and approximately 53%,
17% and 17%, respectively, on a pro forma basis. Although the Company and APC
have contracts with many of their customers, such contracts provide for
supplying the customers' requirements for a particular model, rather than for
manufacturing a specific quantity of products. The loss of any one of their
major customers or a significant decrease in demand for certain key models or a
group of related models sold by any of their major customers could have a
material adverse effect on the Company and APC. There is substantial and
continuing pressure from OEMs to reduce costs, including the cost of products
purchased from outside suppliers such as the Company and APC. Certain of the
Company's products are sold under long-term agreements that require the Company
to provide annual cost reductions to such purchasers (directly through price
reductions or indirectly through suggestions regarding manufacturing
efficiencies or other cost savings) by certain percentages each year. Although
the Company has been able to achieve a portion of such reductions through
production cost savings, there can be no assurance that the Company will be able
to continue to generate such cost savings in the future. If the Company were
unable to generate sufficient production cost savings in the future to offset
such price reductions, the Company's gross margin could be adversely affected.
See "Business--Customers and Marketing."
RISKS RELATED TO INDUSTRY CYCLICALITY AND SEASONALITY
The automotive market is highly cyclical and is dependent on consumer
spending. Economic factors adversely affecting automotive production and
consumer spending could adversely impact the Company. In addition, the Company's
business is somewhat seasonal. The Company typically experiences decreased
revenue and operating income during the third quarter of each year due to the
impact of OEM plant shutdowns in July for vacations and model changeovers. The
Company expects such seasonality to continue following the APC Acquisition. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Seasonality."
FAILURE TO REALIZE BENEFITS OF APC ACQUISITION
The Company believes the APC Acquisition will significantly enhance its
competitive position and business prospects. There can be no assurance, however,
that such benefits will be realized or that the combination of the Company and
APC will be successful. In addition, the Company expects to achieve cost savings
through the integration of the operations of APC with those of the Company.
There can be no assurance that the Company will not experience difficulties in
integrating the operations of APC with those of the Company or that the expected
cost savings will be realized. The integration of APC will require the
experience and expertise of certain key managers of APC who are expected to be
retained by the Company. There can be no assurance that the APC managers
retained by the Company will remain with the Company for the time period
necessary to successfully integrate APC into the Company.
11
<PAGE>
RISKS ASSOCIATED WITH OBTAINING BUSINESS FOR NEW AND REDESIGNED MODEL
INTRODUCTIONS
The Company and APC principally compete for new business both at the
beginning of the development of new models and upon the redesign of existing
models by their major customers. New model development generally begins two to
five years prior to the marketing of such models to the public. There can be no
assurance that the Company and APC will be successful in obtaining significant
new business on new models and in supplying additional parts for existing models
as they are redesigned by their customers. The failure of the Company and APC to
obtain new business on new models or to retain or increase business on
redesigned existing models could adversely affect the Company. See "Business--
Competition."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
Acquiring businesses that complement the Company's existing business has
been and will continue to be an important element of the Company's strategy for
achieving profitable growth. There can be no assurance that suitable acquisition
candidates will be identified and acquired in the future, that financing for any
such acquisitions will be available on satisfactory terms, that the Company will
be able to accomplish its strategic objectives as a result of any such
acquisition or that any business or assets acquired by the Company will be
integrated successfully into the Company's operations. The Company is
continually evaluating possible acquisitions and engages in discussions with
acquisition candidates from time to time. The Company does not currently have
any pending acquisitions that are probable other than as described herein. See
"Business--Strategy."
RISKS FROM COMPETITION
The automotive components supply industry is highly competitive. Some of the
competitors of the Company and APC, including certain divisions of its OEM
customers, are larger and have greater financial and other resources than the
Company and APC. There can be no assurance that the Company will be able to
maintain its current competitive position and continue to supply its products to
OEMs. See "Business-- Competition."
ANTI-TAKEOVER PROVISIONS COULD PREVENT OR DELAY A CHANGE IN CONTROL
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, which permit the Board of Directors to issue up to 5,000,000
shares of preferred stock without further stockholder approval, as well as
certain provisions of the Delaware General Corporation Law, could have the
effect of delaying, deterring or preventing a change in control of the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
The public offering price per share of the Common Stock has been determined
by negotiations among the Company and representatives of the Underwriters based
in part on the trading price of the Common Stock on the NYSE and may not be
indicative of the price at which the Common Stock will trade after completion of
the Offering. In addition, the stock markets have from time to time experienced
extreme price and volume volatility. These fluctuations may be unrelated to the
operating performance of particular companies whose shares are traded. Market
fluctuations may adversely affect the market price of the Common Stock. The
market price of the Common Stock could be subject to significant fluctuations in
response to the Company's operating results and other factors, some of which may
be beyond the Company's control. There can be no assurance that the market price
of the Common Stock will not decline below the price at which the shares of the
Common Stock are sold in this Offering.
12
<PAGE>
THE COMPANY
The Company was formed to acquire R.J. Tower Corporation (the
"Predecessor"), the acquisition of which was completed in April 1993 (the "R.J.
Tower Acquisition") for an aggregate cost of approximately $26 million. Since
the R.J. Tower Acquisition, the Company has successfully completed and fully
integrated four strategic acquisitions:
EDGEWOOD. In May 1994, the Company acquired Edgewood Tool and Manufacturing
Company and its affiliate, Ann Arbor Assembly Corporation (collectively,
"Edgewood") for approximately $30 million in aggregate consideration. Edgewood
is a leading supplier of hood and deck lid hinges as well as structural
stampings and assemblies. The acquisition of Edgewood: (i) added engineered
mechanical stampings, primarily hood and deck lid hinges, and additional
structural components to the Company's product offerings; (ii) increased model
penetration with the Company's existing customers; and (iii) provided the
Company with a significant new customer, Mazda.
KALAMAZOO. In June 1994, the Company acquired Kalamazoo Stamping and Die
Company ("Kalamazoo"), a supplier of structural stampings and assemblies, for
approximately $12 million in cash. The acquisition of Kalamazoo added additional
structural components to the Company's product offerings and increased model
penetration with Ford.
TRYLON. In January 1996, the Company acquired Trylon from MascoTech for
approximately $25 million in cash, including transaction costs. The Trylon
Acquisition: (i) broadened the Company's product offerings to include small,
precision metal stampings and assemblies, which were previously outsourced to
third parties; (ii) established a relationship between the Company and General
Motors; and (iii) increased content on Ford models, primarily the Villager.
Trylon generated $47.9 million in revenues in 1995.
MSTI. In May 1996, the Company acquired MSTI from MascoTech for
approximately $79 million (including the payment of related fees and expenses),
plus additional earn-out payments if certain operating targets are achieved by
the MSTI facilities in the first three years following the acquisition. The MSTI
Acquisition: (i) expanded the Company's product capabilities into chassis and
suspension components; (ii) provided chassis and suspension technology as well
as value-added processing technologies including assembling, painting and
welding; and (iii) increased the Company's content per vehicle on key light
truck and sport utility vehicles such as the Ford F-Series, Explorer and
Windstar and the Chrysler Ram and Dakota as well as on high volume passenger
cars such as the Ford Taurus/Sable. MSTI had revenues of $152.9 million in 1995.
The Company completed an initial public offering (the "IPO") of its Common
Stock in August 1994 and the sale of an additional 2,232,900 shares in June
1996. The Company's principal executive offices are located at 4508 IDS Center,
Minneapolis, Minnesota 55402, and its telephone number is (612) 342-2310.
APC ACQUISITION FINANCING
The Company expects to complete the APC Acquisition by the end of April
1997. The aggregate purchase price of APC is approximately $625 million, plus an
additional $25 million for related fees and expenses and management's estimate
of certain post-closing adjustments. The Company has executed a commitment
letter with its principal bank lender pursuant to which such lender has agreed,
subject to the satisfaction of certain conditions, to enter into the New Credit
Agreement. The Company anticipates that the New Credit Agreement will provide
for a six year revolving credit facility of up to $750 million (the "Revolving
Credit Facility.") The Company intends to finance the APC Acquisition by using
the proceeds from this Offering and a portion of its available borrowings under
the New Credit Agreement. In the event that the Offering has not been completed
at the time of the consummation of the APC Acquisition, an additional loan of up
to $200 million will be made available to the Company under the New Credit
Agreement in the form of a term loan. This loan would have a term of 18 months
and would be fully repaid from the proceeds of the Offering. See "Description of
New Credit Agreement."
13
<PAGE>
The following table sets forth the anticipated sources and uses of funds for
the APC Acquisition (dollars in thousands):
<TABLE>
<S> <C>
SOURCES:
Revolving Credit Facility....................................... $ 357,304
Proceeds from the Offering(1)................................... 322,000
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(2)....... 68,900
Fees and expenses and estimated post-closing adjustments........ 25,000
---------
Total uses.................................................... $ 718,900
---------
---------
</TABLE>
- ------------------------------
(1) Assumes a public offering price of $39.63 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by the Company.
(2) Includes the redemption of the Senior Notes in aggregate principal amount of
$65.0 million and a prepayment penalty of approximately $3.9 million. The
Senior Notes were issued by the Company in May 1996 to finance the cash
portion of the purchase price of MSTI.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
8,500,000 shares of Common Stock offered by the Company hereby (at an assumed
public offering price of $39.63 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company) are estimated to be $322.0 million ($379.6 million if the Underwriters'
over-allotment option is exercised in full). The Company expects to use the net
proceeds to pay a portion of the cash purchase price of the APC Acquisition. The
Company expects to use borrowings under the New Credit Agreement of $357.3
million, together with cash on hand of $39.6 million, to pay the remaining
portion of the purchase price of the APC Acquisition.
In the event that the APC Acquisition is not consummated, the Company
reserves the right to use the net proceeds of the Offering for general corporate
purposes, which may include repayment of existing indebtedness, acquisitions or
capital expenditures. Pending such uses, the Company expects that such proceeds
will be invested in short-term, interest bearing, investment grade securities.
See "Risk Factors-- Risks Associated with the Failure to Complete the APC
Acquisition."
The Company is continually evaluating possible acquisitions and engages in
discussions with acquisition candidates from time to time. The Company does not
currently have any pending acquisitions that are probable other than as
described herein.
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders. See "Selling Stockholders."
14
<PAGE>
MARKET PRICE OF COMMON STOCK
The Company's Common Stock is traded on the NYSE under the symbol "TWR." The
Common Stock commenced trading on the Nasdaq National Market on August 12, 1994
under the symbol "TWER." The Common Stock commenced trading on the NYSE on
February 19, 1997. The following table sets forth, for the periods indicated,
the high and low closing sale prices for the Common Stock on the Nasdaq National
Market or the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1995
- ----------------------------------------------------------------------------
First Quarter............................................................... $ 10 5/8 $ 7 1/2
Second Quarter.............................................................. 10 1/2 8 1/4
Third Quarter............................................................... 14 1/2 10 3/8
Fourth Quarter.............................................................. 17 1/2 13 1/8
1996
- ----------------------------------------------------------------------------
First Quarter............................................................... $ 16 1/8 $ 14 1/8
Second Quarter.............................................................. 25 1/4 16
Third Quarter............................................................... 27 23 3/4
Fourth Quarter.............................................................. 32 1/8 24
1997
- ----------------------------------------------------------------------------
First Quarter (through March 21, 1997)...................................... $ 45 1/16 $ 29 3/4
</TABLE>
The reported last sale price of the Common Stock on the NYSE as of a recent
date is set forth on the cover page of this Prospectus.
As of December 31, 1996, there were approximately 125 holders of record of
the outstanding Common Stock. The Company believes it has a significantly larger
number of beneficial holders of its Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
in the past, currently intends to retain its earnings to support its growth
strategy and does not anticipate paying dividends in the foreseeable future. Any
future payment of dividends is within the discretion of the Company's Board of
Directors and will depend upon, among other factors, the capital requirements,
operating results and financial condition of the Company from time to time. In
addition, the Company's ability to pay cash dividends is expected to be limited
by the terms of the New Credit Agreement. As of December 31, 1996, under the
most restrictive terms of the New Credit Agreement as currently proposed, the
Company would not have been permitted to pay any dividends. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources Following the APC Acquisition."
15
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the actual consolidated capitalization
of the Company at December 31, 1996; and (ii) the pro forma as adjusted
capitalization of the Company giving effect to (a) the APC Acquisition, (b) the
refinancing of the Existing Credit Agreement and redemption of the Senior Notes
and (c) the sale by the Company of 8,500,000 shares of Common Stock in the
Offering and the application of the net proceeds therefrom to the Company as
described under "Use of Proceeds," as if such transactions had occurred on such
date. See "APC Acquisition Financing," "Use of Proceeds" and "Unaudited Pro
Forma Financial Statements." This table should be read in conjunction with the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Cash and cash equivalents................................................................. $ 39,596 $ --
--------- -----------
--------- -----------
Long-term debt:
Existing Credit Agreement............................................................... $ -- $ --
New Credit Agreement:
Revolving Credit Facility............................................................. -- 357,304
Senior Notes............................................................................ 65,000 --
Industrial development revenue bonds(1)................................................. 46,643 46,643
Convertible Notes....................................................................... 2,508 2,508
Other................................................................................... 31 31
Less: current maturities................................................................ (722) (722)
--------- -----------
Total long-term debt.................................................................. 113,460 405,764
--------- -----------
Stockholders' investment:
Preferred stock, par value $1.00; 5,000,000 shares authorized; no shares issued or
outstanding........................................................................... -- --
Common stock, par value $.01; 30,000,000 shares authorized; 14,283,793 shares on an
actual basis; and 22,783,793 shares on a pro forma as adjusted basis(2)............... 143 228
Additional paid-in capital.............................................................. 136,759 458,674
Warrants(3)............................................................................. 2,000 2,000
Retained earnings....................................................................... 43,150 40,150
Common stock subscriptions receivable................................................... (175) (175)
--------- -----------
Total stockholders' investment........................................................ 181,877 500,877
--------- -----------
Total capitalization.................................................................. $ 295,337 $ 906,641
--------- -----------
--------- -----------
</TABLE>
- --------------------------
(1) Long-term debt includes an aggregate of $43.8 million of indebtedness from
the issuance of industrial development revenue bonds ("IRBs") to finance the
construction of the Company's Bardstown facility and the purchase of related
equipment. The $10.8 million of uncommitted proceeds from these IRBs is
reflected as "restricted cash" on the Company's balance sheet as of December
31, 1996.
(2) Does not include: (i) 48,655 shares of Common Stock issued since December
31, 1996 under the Company's employee stock purchase plan; (ii) 5,602 shares
of Common Stock issued since December 31, 1996 upon the conversion of
certain of the Convertible Notes; (iii) 1,022,227 shares of Common Stock
reserved for issuance under the Company's stock option plans and employee
stock purchase plan, of which options to purchase 270,750 shares were
outstanding as of December 31, 1996; (iv) 102,984 shares issuable upon the
exercise of stock options issued in connection with the acquisition of
Edgewood; (v) 407,743 shares issuable upon conversion of the Convertible
Notes; or (vi) 200,000 shares issuable upon the exercise of the Warrants.
(3) Valued as of the time of the MSTI Acquisition using the Black-Scholes option
pricing model.
16
<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 MSTI Acquisition (including related
financing transactions); (ii) the 1996 Offering and the application of the net
proceeds therefrom; (iii) the APC Acquisition; (iv) the refinancing of the
Existing Credit Agreement and redemption of the Senior Notes; and (v) the
Offering and the application of the net proceeds therefrom to the Company as
described in "Use of Proceeds," as if such transactions had occurred on January
1, 1996. The Company acquired Trylon on January 16, 1996. Results of operations
of Trylon for the period from January 1, 1996 through the acquisition date are
not material and therefore have not been included in the Company's results of
operations for the year ended December 31, 1996 on a pro forma basis. See "The
Company" and "Use of Proceeds" on pages 13 and 14, respectively, for a more
detailed description of the transactions included in the Unaudited Pro Forma
Financial Statements.
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 Existing Credit Agreement and
redemption of the Senior Notes; and (iii) the Offering and the application of
the net proceeds therefrom to the Company as described under "Use of Proceeds,"
as if such transactions had occurred on such date. The historical balance sheet
of the Company as of December 31, 1996 already reflects the Trylon Acquisition,
the MSTI Acquisition and the 1996 Offering.
The Company expects to achieve cost savings through the integration of the
operations of APC with those of the Company. See "Business--APC Acquisition."
The Unaudited Pro Forma Financial Statements set forth herein do not reflect any
of these anticipated cost savings.
The Company expects to complete the APC Acquisition by the end of April
1997. Pursuant to the terms of the purchase agreement, the Company may elect not
to complete the APC Acquisition if there is a material adverse change in the
operating results or financial condition of APC prior to the closing date.
Currently, the Company believes that such a change has not occurred and that it
is unlikely that such a change will occur prior to the closing date. If the APC
Acquisition is not consummated, the size of the Company will not increase, but
the number of outstanding shares will have, and thus the value of each share of
Common Stock would be significantly diluted. The Company's EPS for 1996 on a pro
forma as adjusted basis would have been $2.25 per share. If the APC Acquisition
is not completed, the Company's EPS for 1996 on a pro forma as adjusted basis
would have been $1.17 per share. See "Risk Factors--Risks Associated with the
Failure to Complete the APC Acquisition." The Company is required to pay A.O.
Smith a fee of $15.0 million in the event that the APC Acquisition is not
completed. The Company currently believes that the APC Acquisition will be
completed. As a result, the Company has not reflected this payment in the
accompanying Unaudited Pro Forma Financial Statements.
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, included elsewhere in this Prospectus.
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.
17
<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 64,224 770,095 (31,462)(5) 1,141,147
----------- --------- ---------- --------------- ------------
Gross profit.................................. 61,635 9,579 92,882 17,862 181,958
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 55,649 13,497 114,078
Interest expense, net......................... 5,103 37 6,829 14,640(7) 26,609
----------- --------- ---------- --------------- ------------
Income before provision for income taxes...... 34,337 5,455 48,820 (1,143) 87,469
Provision for income taxes.................... 13,700 1,640 20,000 (352)(8) 34,988
----------- --------- ---------- --------------- ------------
Income before extraordinary item.............. 20,637 3,815 28,820 (791) 52,481
Extraordinary loss on early extinguishment of
debt, net of income taxes................... -- -- -- (3,000)(9) (3,000)
----------- --------- ---------- --------------- ------------
Net income.................................. $ 20,637 $ 3,815 $ 28,820 $ (3,791) $ 49,481
----------- --------- ---------- --------------- ------------
----------- --------- ---------- --------------- ------------
Income applicable to common stockholders:
Before extraordinary item................. $ 20,765 $ 52,609
----------- ------------
----------- ------------
Net income................................ $ 20,765 $ 49,609
----------- ------------
----------- ------------
Income per common and common equivalent
share:
Before extraordinary item................. $ 1.55 $ 2.25
----------- ------------
----------- ------------
Net income................................ $ 1.55 $ 2.12
----------- ------------
----------- ------------
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.
18
<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 ($26,750).
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 $440 and net income would change by approximately
$265.
(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.
19
<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 -- 292,304(6) 405,764
Other noncurrent liabilities............................... 47,839 101,377 (15,700)(7) 133,516
---------- ---------- -------------- ------------
Stockholders' investment:
Preferred stock.......................................... -- -- -- --
Common stock............................................. 143 -- 85(6) 228
Additional paid-in capital............................... 136,759 -- 321,915(6) 458,674
Warrants................................................. 2,000 -- -- 2,000
Retained earnings........................................ 43,150 -- (3,000)(6) 40,150
Net assets to be acquired................................ -- 392,614 (392,614)(8) --
Subscriptions receivable................................. (175) -- -- (175)
---------- ---------- -------------- ------------
Total stockholders' investment......................... 181,877 392,614 (73,614) 500,877
---------- ---------- -------------- ------------
$ 398,607 $ 601,311 $ 200,959 $ 1,200,877
---------- ---------- -------------- ------------
---------- ---------- -------------- ------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Balance Sheet.
20
<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...................... $ 392,614
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)......... 35,700
Reserves established in connection with the APC Acquisition (Note
7).............................................................. (20,000)
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....................................... $ 357,304
Proceeds from the Offering...................................... 322,000
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 $35,700 and to record management's
preliminary estimate of reserves to be established in connection with the
APC Acquisition, including $15,500 of losses to be incurred on the sale of
products which have costs in excess of selling prices and $4,500 of costs to
be incurred to rationalize certain facilities of APC. These reserves have
been established based on preliminary estimates.
(8) To eliminate APC's historical stockholder's investment.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF THE COMPANY
The consolidated financial data for the year ended December 31, 1992 and the
three and one-half month period ended April 14, 1993 are derived from the
audited consolidated financial statements of the Predecessor. The consolidated
financial data for the eight and one-half month period ended December 31, 1993
has been derived from the audited consolidated financial statements of the
Company. The consolidated financial data for the years ended December 31, 1994,
1995 and 1996 have been derived from the audited consolidated financial
statements of the Company, which are included as part of this Prospectus. The
financial data for the combined year ended December 31, 1993 have been derived
from the financial statements of the Predecessor and the Company and are
unaudited. The selected financial data below should be read in conjunction with
the consolidated financial statements and the notes thereto of the Company
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
PREDECESSOR(1) THE COMPANY
-------------------------- -----------------------------------------------------------
JANUARY 1 APRIL 15 YEAR ENDED DECEMBER 31,
YEAR ENDED THROUGH THROUGH --------------------------------------------
DECEMBER 31, APRIL 14, DECEMBER 31, COMBINED
1992 1993 1993 1993(2) 1994 1995 1996(3)
(IN THOUSANDS, EXCEPT PER SHARE AND PER VEHICLE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 80,830 $ 25,037 $ 61,297 $ 86,334 $ 165,526 $ 222,801 $ 399,925
Cost of sales............... 70,431 20,426 51,941 72,367 142,986 185,388 338,290
------------- ----------- ------------- ----------- --------- --------- ---------
Gross profit.............. 10,399 4,611 9,356 13,967 22,540 37,413 61,635
Selling, general and
administrative expenses... 4,440 1,223 3,155 4,378 7,435 14,308 20,004
Amortization expense........ -- -- 197 197 803 1,185 2,191
------------- ----------- ------------- ----------- --------- --------- ---------
Operating income.......... 5,959 3,388 6,004 9,392 14,302 21,920 39,440
Interest expense, net....... 539 93 636 729 1,899 1,799 5,103
Other income, net........... (229) (25) -- (25) -- -- --
------------- ----------- ------------- ----------- --------- --------- ---------
Income before provision
for income taxes........ 5,649 3,320 5,368 8,688 12,403 20,121 34,337
Provision for income
taxes..................... 2,395 1,392 2,287 3,679 5,042 8,050 13,700
------------- ----------- ------------- ----------- --------- --------- ---------
Net income................ $ 3,254 $ 1,928 $ 3,081 $ 5,009 $ 7,361 $ 12,071 $ 20,637
------------- ----------- ------------- ----------- --------- --------- ---------
------------- ----------- ------------- ----------- --------- --------- ---------
Net income applicable to
common stockholders(4).. $ 3,254 $ 1,928 $ 3,081 $ 5,009 $ 7,476 $ 12,247 $ 20,765
------------- ----------- ------------- ----------- --------- --------- ---------
------------- ----------- ------------- ----------- --------- --------- ---------
Net income per common and
common equivalent
share................... $ 0.45 $ 0.74 $ 0.86 $ 1.05 $ 1.55
Weighted average common
and common equivalent
shares outstanding...... 6,812 6,812 8,720 11,697 13,423
OTHER DATA:
Capital expenditures, net... $ 3,066 $ 5,156 $ 28,524 $ 26,148 $ 16,253
EBITDA(5)................... 7,851 12,143 18,440 28,469 52,194
Cash provided by (used in):
Operating activities...... 4,682 9,241 (10,375) 13,905 30,049
Investing activities...... (22,344) (24,434) (73,266) (34,054) (88,924)
Financing activities...... 18,510 15,024 82,848 21,051 97,514
North American content per
vehicle(6)................ NA 6.23 10.83 14.92 26.74
<CAPTION>
PRO FORMA
AS ADJUSTED 1996
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $1,323,105
Cost of sales............... 1,141,147
----------------
Gross profit.............. 181,958
Selling, general and
administrative expenses... 60,641
Amortization expense........ 7,239
----------------
Operating income.......... 114,078
Interest expense, net....... 26,609
Other income, net........... --
----------------
Income before provision
for income taxes........ 87,469
Provision for income
taxes..................... 34,988
----------------
Net income................ $ 52,481
----------------
----------------
Net income applicable to
common stockholders(4).. $ 52,609
----------------
----------------
Net income per common and
common equivalent
share................... $ 2.25
Weighted average common
and common equivalent
shares outstanding...... 23,432
OTHER DATA:
Capital expenditures, net... $ 167,787
EBITDA(5)................... 166,976
Cash provided by (used in):
Operating activities...... NA
Investing activities...... NA
Financing activities...... NA
North American content per
vehicle(6)................ 77.49
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
PRO FORMA
AS
BALANCE SHEET DATA (AT END ADJUSTED
OF PERIOD): 1993 1994 1995 1996 1996
Working capital................................................ $ 1,440 $ 33,145 $ 32,245 $ 81,535 $ 115,955
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets................................................... 51,358 178,398 209,476 398,607 1,200,877
Total debt..................................................... 14,433 50,403 71,079 114,182 406,486
Stockholders' investment....................................... 10,823 73,139 85,585 181,877 500,877
<CAPTION>
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital................................................
<S> <C> <S> <C> <C> <C> <C> <C>
Total assets...................................................
Total debt.....................................................
Stockholders' investment.......................................
</TABLE>
- ------------------------------
(1) On April 15, 1993, the Company acquired the Predecessor. Accordingly,
certain information provided for the year ended December 31, 1992, and the
three and one-half month period ended April 14, 1993, is not comparable to
the Statement of Operations Data of the Company due to the effects of
certain purchase accounting adjustments and the financing of the R.J. Tower
Acquisition. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
(2) Operating data for the Predecessor for the period January 1, 1993 to April
14, 1993 have been combined for presentation purposes with the operating
data of the Company for the eight and one-half month period ended December
31, 1993, without giving effect to purchase accounting or the impact of the
financing of the R.J. Tower Acquisition.
(3) Includes the results of operations of MSTI from the date of acquisition, May
31, 1996.
(4) The Company has not declared or paid any cash dividends on its Common Stock
in the past, currently intends to retain its earnings to support its growth
strategy and does not anticipate paying dividends in the foreseeable future.
See "Dividend Policy."
(5) "EBITDA" is operating income plus amortization and depreciation. EBITDA does
not represent and should not be considered an alternative to net income or
cash flow from operations as determined by GAAP and the Company's
calculation thereof may not be comparable to that reported by other
companies. The Company believes that it is widely accepted that EBITDA
provides useful information regarding a company's ability to service and/or
incur indebtedness. This belief is based on the Company's negotiations with
its lenders who have indicated that the amount of indebtedness the Company
will be permitted to incur will be based, in part, on the Company's EBITDA.
EBITDA does not take into account the Company's working capital
requirements, debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available
for discretionary uses. Set forth below is a reconciliation of the Company's
operating income, as reported, to EBITDA for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
APRIL 15 --------------------------------------------------------------
THROUGH COMBINED PRO FORMA
DECEMBER 31, 1993 1993 1994 1995 1996 AS ADJUSTED 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating income................ $ 6,004 $ 9,392 $ 14,302 $ 21,920 $ 39,440 $ 114,078
Depreciation and amortization... 1,847 2,751 4,138 6,549 12,754 52,898
------ ----------- --------- --------- --------- --------
EBITDA.......................... $ 7,851 $ 12,143 $ 18,440 $ 28,469 $ 52,194 $ 166,976
------ ----------- --------- --------- --------- --------
------ ----------- --------- --------- --------- --------
</TABLE>
(6) "North American content per vehicle" is the Company's revenues divided by
total North American vehicle production, which is comprised of car and light
truck production in the United States, Canada and Mexico, as estimated by
the Company from industry sources.
23
<PAGE>
SELECTED COMBINED FINANCIAL DATA OF APC
The combined financial data for the years ended December 31, 1994, 1995 and
1996 are derived from the audited combined financial statements of APC, which
are included as a part of this Prospectus. The selected financial data below
should be read in conjunction with the combined financial statements of APC and
the notes thereto included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--Results of Operations--APC."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT PER
VEHICLE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................................... $ 722,718 $ 845,305 $ 862,977
Cost of sales...................................................................... 624,766 750,131 770,095
--------- --------- ---------
Gross profit..................................................................... 97,952 95,174 92,882
Selling, general and administrative expenses....................................... 34,021 37,433 37,233
--------- --------- ---------
Operating income................................................................. 63,931 57,741 55,649
Interest expense, net.............................................................. 4,051 5,357 6,829
--------- --------- ---------
Income before provision for income taxes......................................... $ 59,880 $ 52,384 $ 48,820
--------- --------- ---------
--------- --------- ---------
OTHER DATA:
Capital expenditures, net(1)....................................................... $ 59,023 $ 78,908 $ 151,534
EBITDA(2).......................................................................... 98,031 99,562 106,417
Cash provided by (used in):
Operating activities............................................................. 41,510 40,089 92,554
Investing activities............................................................. (59,023) (82,658) (168,436)
Financing activities............................................................. 17,513 42,569 75,882
North American content per vehicle(3).............................................. 39.23 48.25 50.75
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
BALANCE SHEET DATA: 1996
<S> <C>
Working capital..................................................................................... $ 63,822
Total assets........................................................................................ 601,311
Parent company investment........................................................................... 392,614
</TABLE>
- ------------------------------
(1) APC made capital expenditures of $4.3 million and $63.1 million in the years
ended December 31, 1995 and 1996, respectively, to finance the construction
of and to purchase equipment for its new Plymouth, Michigan and Roanoke,
Virginia manufacturing facilities.
(2) "EBITDA" is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by GAAP and the Company's
calculation thereof may not be comparable to that reported by other
companies. The Company believes that it is widely accepted that EBITDA
provides useful information regarding a company's ability to service and/or
incur indebtedness. This belief is based on the Company's negotiations with
its lenders who have indicated that the amount of indebtedness the Company
will be permitted to incur will be based, in part, on the Company's EBITDA.
EBITDA does not take into account APC's working capital requirements, debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses. Set forth below is a reconciliation of APC's operating income, as
reported, to EBITDA for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income................................................... $ 63,931 $ 57,741 $ 55,649
Depreciation and amortization...................................... 34,100 41,821 50,768
--------- --------- ---------
EBITDA............................................................. $ 98,031 $ 99,562 $ 106,417
--------- --------- ---------
--------- --------- ---------
</TABLE>
(3) "North American content per vehicle" is APC's automotive revenues (excluding
heavy truck revenues) divided by total North American vehicle production,
which is comprised of car and light truck production in the United States,
Canada and Mexico, as estimated by the Company from industry sources.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company was organized to effect the R.J. Tower Acquisition, which was
financed with a combination of common equity and secured indebtedness. Since the
R.J. Tower Acquisition, the Company has successfully completed and fully
integrated four strategic acquisitions. See "The Company." The Company expects
to complete the APC Acquisition by the end of April 1997. No assurance can be
given, however, that the APC Acquisition will be completed. See "Risk
Factors--Risks Associated with the Failure to Complete the APC Acquisition."
The Company's four previous acquisitions have affected, and the APC
Acquisition will prospectively affect, the Company's results of operations in
certain significant respects. As a result of the APC Acquisition, the Company
will increase the historical book value of APC's assets, including intangible
assets such as goodwill, which will significantly increase the amount of
amortization expense reported in the Company's ongoing operations. In addition,
the Company's interest expense will increase significantly due to increased
borrowings to finance the APC Acquisition. The Company expects to achieve cost
savings through the integration of the operations of APC with those of the
Company.
The Company believes that its overall gross margin has been slightly higher
than that of APC, primarily because the Company has historically sold a greater
percentage of complex, high value-added products than APC. In addition, APC's
overall gross margin has been negatively impacted in recent years as a result of
APC's beginning production of certain products that require a greater proportion
of components purchased from outside suppliers and higher launch costs and
depreciation expense related to the new production. The Company expects that, as
a result of the APC Acquisition, its overall gross margin will be lower in
future periods.
RESULTS OF OPERATIONS--THE COMPANY
The following table sets forth the percentage relationship of certain items
to revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
PRO FORMA
1994 1995 1996 1996
<S> <C> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................ 86.4 83.2 84.6 86.2
--------- --------- --------- -----
Gross profit....................................... 13.6 16.8 15.4 13.8
Selling, general and administrative expenses......... 4.5 6.5 5.0 4.6
Amortization expense................................. 0.5 0.5 0.5 0.6
--------- --------- --------- -----
Operating income................................... 8.6 9.8 9.9 8.6
Interest and other expense........................... 1.1 0.8 1.3 2.0
--------- --------- --------- -----
Income before provision for income taxes........... 7.5 9.0 8.6 6.6
Provision for income taxes........................... 3.0 3.6 3.4 2.6
--------- --------- --------- -----
Net income before extraordinary item............... 4.5% 5.4% 5.2% 4.0%
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues for the year ended December 31, 1996 increased by $177.1
million, or 79.5%, to $399.9 million compared to $222.8 million for the year
ended December 31, 1995. Approximately $134.3 million of the increase in
revenues over 1995 is attributable to the acquisitions of MSTI in May 1996 and
Trylon in January 1996. The remaining increase is due to new business awarded to
the Company, including
25
<PAGE>
business relating to the Ford Escort, Econoline and Expedition, Dodge Ram Club
Cab pick-up and Toyota Camry. These increases were partially offset by
production decreases in the first half of the year on key models served by the
Company, including the Ford Aerostar, Villager, Econoline and Chrysler Intrepid/
Concorde/Vision.
COST OF SALES. Cost of sales as a percentage of revenues for the year ended
December 31, 1996 was 84.6% compared to 83.2% for the year ended December 31,
1995. The decrease in gross margin was due to a higher proportion of components
purchased from outside suppliers as a result of the Trylon and MSTI Acquisitions
and launch costs associated with new business. These decreases were partially
offset by operating efficiencies and enhanced productivity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $20.0 million, or 5.0% of revenues, for the
year ended December 31, 1996 compared to $14.3 million, or 6.4% of revenues, for
the year ended December 31, 1995. The percentage decrease related to revenues
reflects the economies of scale of higher gross sales. The increased expense was
due primarily to incremental costs associated with the Company's acquisitions of
MSTI and Trylon in 1996.
AMORTIZATION EXPENSE. Amortization expense for the year ended December 31,
1996 was $2.2 million compared to $1.2 million for the year ended December 31,
1995. The increase was due to incremental goodwill amortization related to the
acquisitions of MSTI and Trylon.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1996 was
$5.1 million compared to $1.8 million for the year ended December 31, 1995. The
increase was due principally to increased borrowings incurred to fund the
acquisitions of MSTI and Trylon, partially offset by the application of the
proceeds from the 1996 Offering, and the absence of capitalization of interest
costs for the new Bardstown, Kentucky plant which was under construction during
1995.
INCOME TAXES. The effective income tax rate was 39.9% for the year ended
December 31, 1996 and 40.0% for the year ended December 31, 1995. The effective
rates differed from the statutory rates primarily as a result of state taxes and
nondeductible goodwill amortization.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues for the year ended December 31, 1995 increased $57.3
million, or 34.6%, to $222.8 million compared to $165.5 million for the year
ended December 31, 1994. Revenues increased despite significant production
decreases on key vehicles served by the Company including the Ford Escort,
Taurus/Sable, and Econoline and Chrysler Intrepid/Concorde/Vision. These
decreases were offset by new business that began production during the year and
the full year effects of the Company's acquisitions of Edgewood in May 1994 and
Kalamazoo in June 1994.
COST OF SALES. Cost of sales, as a percentage of revenues, decreased to
83.2% for the year ended December 31, 1995 compared to 86.4% for the year ended
December 31, 1994. The improvement in gross margin was a result of the
productivity improvement initiatives in place and synergies realized from the
acquisitions of Edgewood and Kalamazoo. These were partially offset by higher
raw material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $14.3 million, or 6.4% of revenues, for the
year ended December 31, 1995 compared to $7.4 million, or 4.5% of revenues, for
the year ended December 31, 1994. The increased expense was due in part to the
full year effect of the acquisitions of Edgewood and Kalamazoo combined with the
incremental engineering, technical and development costs associated with future
programs.
OTHER. Amortization expense increased to $1.2 million for the year ended
December 31, 1995 from $0.8 million for the year ended December 31, 1994 due to
incremental goodwill amortization related to the Company's 1994 acquisitions.
Interest expense decreased to $1.8 million in 1995 from $1.9 million in 1994.
26
<PAGE>
The decrease is due to the effect of the application of the proceeds from the
Company's IPO to reduce indebtedness. The provision for income taxes was at an
effective rate of 40.0% for the year ended December 31, 1995 and 40.7% for the
year ended December 31, 1994. The effective rates were higher than federal
statutory rates as a result of nondeductible goodwill amortization and state
income taxes.
RESULTS OF OPERATIONS--APC
The following table sets forth the percentage relationship of certain items
to revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Revenues.............................................................................. 100.0% 100.0% 100.0%
Cost of sales......................................................................... 86.4 88.7 89.2
--------- --------- ---------
Gross profit........................................................................ 13.6 11.3 10.8
Selling, general and administrative expenses.......................................... 4.7 4.5 4.3
--------- --------- ---------
Operating income.................................................................... 8.9% 6.8% 6.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues for the year ended December 31, 1996 increased $17.7
million, or 2.1%, to $863.0 million compared to $845.3 million for the year
ended December 31, 1995. This increase in revenue is attributable to new
business associated with the redesigned Nissan pick-up and the effects of the
full year's production of the Dodge Ram Club Cab pick-up, as well as overall
production increases on key vehicles served by APC, including the Ford
Taurus/Sable and the General Motors Yukon/Chevrolet Tahoe. These increases were
partially offset by lower production of the Dodge Dakota pick-up as a result of
the launch of a redesigned version of this vehicle during 1996.
COST OF SALES. Cost of sales, as a percentage of revenues, was 89.2% for
the year ended December 31, 1996, compared to 88.7% for the year ended December
31, 1995. APC's gross margin was negatively impacted by higher incremental costs
associated with the launch of new products during 1996, along with relative
increases in depreciation expense associated with capital equipment placed in
service during 1995 and 1996 related to this new business. These increases were
partially offset by improved labor efficiencies and productivity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $37.2 million, or 4.3% of revenues, for the year
ended December 31, 1996 compared to $37.4 million for the prior year, a decrease
of approximately 0.5%. These costs include incremental design and engineering
expenditures associated with new business to be introduced in future periods,
including the Ford Ranger, which was launched late in 1996, the Dodge Durango,
Chrysler's entry into the sport utility market, and the front and rear
suspension modules for the Chrysler Intrepid/Concorde/Vision. These incremental
costs were offset by lower overall general and administrative costs.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues for the year ended December 31, 1995 increased $122.6
million, or 17.0%, to $845.3 million compared to $722.7 million for the year
ended December 31, 1994. This increase was attributable to new business
associated with the launches of the redesigned Ford Explorer and General Motors
Yukon/Chevrolet Tahoe, as well as the effect of the full year's production of
the Ford Contour/ Mercury Mystique, which was launched during 1994.
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COST OF SALES. Cost of sales, as a percentage of revenues, was 88.7% for
the year ended December 31, 1995, compared to 86.4% for the year ended December
31, 1994. Higher costs associated with the launch of new products during 1995
contributed to the overall increase in these costs. In addition, APC also
experienced higher relative labor costs as a result of the increase in overall
product demand during 1995. Higher depreciation expense associated with capital
equipment used in the production of new products launched during 1994 and 1995
also contributed to these higher costs. Gross margin was also negatively
impacted as a result of APC's beginning production of certain products that
require a greater proportion of components purchased from outside suppliers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $37.4 million, or 4.5% of revenues, for the year
ended December 31, 1995 compared to $34.0 million, or 4.7% of revenues, for the
prior year, an increase of approximately 10.0%. Higher design and engineering
costs associated with products to be launched in future periods, including the
redesigned Ford Ranger and Dodge Dakota pick-ups, contributed to this increase.
In addition, selling and general administrative costs increased to support the
overall higher revenues in 1995 compared to 1994.
SEASONALITY
The Company's performance is dependent on automotive vehicle production,
which is seasonal in nature. The third calendar quarter is historically the
weakest, due to the impact of OEM plant shutdowns in July for vacation and model
changeovers. Additionally, general industry levels are only a partial
explanation of volume changes throughout the year. Individual vehicle platforms
are also a cause of variations in revenues depending upon market response and
acceptance of the specific platform models.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had no indebtedness outstanding under the
revolving credit facility portion of its Existing Credit Agreement. The Existing
Credit Agreement consists of a revolving credit facility with a committed amount
of $75.0 million (subject to eligible accounts receivable and inventory, as
defined in the Existing Credit Agreement, which exceeded $75.0 million at
December 31, 1996). The Existing Credit Agreement matures in January 2001 and
bears interest at variable rates equal to, at the Company's option, either a
prime-based rate or LIBOR plus a variable margin. The Existing Credit Agreement
provides for the issuance of up to $50 million in letters of credit to
collateralize the outstanding IRBs described below.
At December 31, 1996, the Company also had $43.8 million of indebtedness
outstanding pursuant to IRBs issued with the City of Bardstown, Kentucky.
Proceeds from these IRBs were used to finance construction of a 240,000 square
foot manufacturing facility and the related purchase of equipment. The Bardstown
IRBs, which mature on June 1, 2024 and March 1, 2025, are collateralized by a
letter of credit. As of December 31, 1996, $34.2 million of the proceeds had
been expended or committed for the first phase of the facility and related
equipment. The unexpended proceeds from the Bardstown IRBs of $10.8 million at
December 31, 1996, are invested in treasury securities and will be used to
finance the second phase of the facility. These IRBs bear interest at a floating
rate which is adjusted weekly as determined by the bond remarketing agent (5.8%
at December 31, 1996). The second phase of the facility, which includes the
purchase and installation of additional processing equipment, is anticipated to
be completed by the end of 1998.
At December 31, 1996, the Company had $2.9 million in outstanding
indebtedness relating to IRBs issued in connection with the construction of its
Auburn, Indiana plant. The Auburn IRBs are collateralized by a letter of credit,
certain equipment and a mortgage on the Company's Auburn, Indiana plant. The
Auburn IRBs are payable in annual installments of $720,000 through September
2000 and bear interest at a floating rate which is adjusted weekly as determined
by the bond remarketing agent (4.4% at December 31, 1996).
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On January 16, 1996, the Company acquired all of the outstanding common
stock of Trylon for total cash consideration of approximately $25 million, which
included transaction costs. To finance the acquisition, the Company incurred a
$25.0 million term loan, which was repaid in May 1996 using a portion of the
proceeds from the sale of the Senior Notes and borrowings under the Existing
Credit Agreement.
On May 31, 1996, the Company purchased all of the outstanding common stock
of MSTI from MascoTech for an aggregate purchase price of approximately $79
million, including payment of related fees and expenses. Pursuant to the terms
of the acquisition, the Company is required to make additional earn-out payments
to MascoTech if certain operating targets are achieved by the MSTI facilities in
the first three years following the acquisition. If all such operating targets
are met, the total payments will not exceed $30.0 million.
The Company financed the cash portion of the purchase price of MSTI through
the issuance in two series of Senior Notes having an aggregate principal amount
of $65.0 million. The $40.0 million of Series A Senior Notes have a final
maturity on June 1, 2006 and require annual principal payments commencing on
June 1, 2000 and continuing every year thereafter until their final maturity.
The $25.0 million of Series B Senior Notes have a final maturity on June 1, 2008
and require annual principal payments commencing on June 1, 2004 and continuing
every year thereafter until their final maturity. The Senior Notes require the
Company to make semi-annual interest payments commencing December 1, 1996. Net
proceeds from the sale of the Senior Notes in excess of the amounts used to
finance the cash portion of the MSTI Acquisition were used, together with
borrowings under the revolving credit facility, to repay in full the remaining
balance outstanding on the $25.0 million term loan incurred by the Company in
connection with the Trylon Acquisition.
In June 1996, the Company completed an offering of 2,232,900 shares of
Common Stock at an offering price of $24.50 per share. Approximately $32 million
of the net proceeds from the 1996 Offering were used by the Company to retire
borrowings under its Existing Credit Agreement. The remaining proceeds are
included in cash and cash equivalents in the December 31, 1996 consolidated
balance sheet and will be used for other general corporate purposes, which may
include prepayment of other indebtedness, acquisitions or capital expenditures.
During the year ended December 31, 1996, the Company generated $30.0 million
of cash from operations, which was partially used to fund capital expenditures.
The Company has made substantial investments in manufacturing technology and
product design capability to support its products. The Company made capital
expenditures of approximately $16.3 million for the year ended December 31,
1996, primarily for equipment and dedicated tooling purchases related to new or
replacement programs.
LIQUIDITY AND CAPITAL RESOURCES FOLLOWING THE APC ACQUISITION
The aggregate purchase price of the APC Acquisition is approximately $625
million, plus an additional $25 million for related fees and expenses and
management's estimates of certain post-closing adjustments. The Company expects
to complete the APC Acquisition by the end of April 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 the APC Acquisition, the Company expects to enter into
the New Credit Agreement. The New Credit Agreement will provide for borrowings
under the Revolving Credit Facility of up to $750 million over six years. In
addition, a term loan facility with up to $200 million in borrowings, payable
within 18 months, will be made available in the event the APC Acquisition is
completed prior to the completion of the Offering. Interest will be payable on
borrowings under the New Credit Agreement at the bank's Base Rate or the reserve
adjusted LIBOR Rate plus a margin ranging from 17 to 50 basis points, depending
upon the ratio of the consolidated indebtedness of the Company to stockholders'
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<PAGE>
investment. The New Credit Agreement will also include certain restrictive
covenants, which the Company expects will be similar in nature to those in the
Existing Credit Agreement. The New Credit Agreement will become effective
contemporaneously with the completion of the APC Acquisition.
Proceeds from borrowings under the New Credit Agreement will be used to: (i)
finance the APC Acquisition; (ii) refinance existing indebtedness of the
Company, including the redemption of the Senior Notes; and (iii) pay transaction
fees and expenses associated with the APC Acquisition. In connection with the
redemption of the Senior Notes, the Company will record an extraordinary loss of
approximately $3.0 million, net of income taxes, related to prepayment penalties
and the write-off of previously capitalized deferred financing costs.
Proceeds from this Offering will be used to fund a portion of the purchase
price related to the APC Acquisition or to repay indebtedness incurred under the
New Credit Agreement in the event that the APC Acquisition is consummated prior
to the completion of the Offering.
APC's capital expenditures for the year ended December 31, 1996 were
approximately $152 million, of which approximately $63 million was used to
finance the construction and to purchase equipment for its new Plymouth,
Michigan and Roanoke, Virginia manufacturing facilities. APC's remaining capital
expenditures were used primarily to purchase equipment and dedicated tooling
related to new or replacement programs. The Company's capital expenditures for
the year ended December 31, 1996 on a pro forma basis were approximately $168
million. After completing the APC Acquisition, the Company expects its budget
for capital expenditures during the remainder of 1997 to be approximately $75
million. Capital expenditures in 1997 are expected to be financed either with
cash generated from operations or borrowings under the New Credit Agreement.
The Company believes the borrowing availability under the New Credit
Agreement, together with funds generated by operations, should provide the
Company with the liquidity and capital resources to pursue its business strategy
through 1997, with respect to working capital, capital expenditures and other
operating needs. Under present conditions, management does not believe access to
funds will restrict its ability to pursue its acquisition strategy.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense
of floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Management believes that inflation has not significantly impacted
the Company's business over the past 12 months. However, because selling prices
generally cannot be increased until a model changeover, the effects of inflation
must be offset by productivity improvements and volume from new business awards.
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BUSINESS
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INDUSTRY
PUBLICATIONS AND INTERNAL COMPANY SURVEYS. INDUSTRY PUBLICATIONS GENERALLY
STATED THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES
BELIEVED TO BE RELIABLE. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED THESE MARKET
DATA. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE
RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES. THE COMPANY HAS
INCLUDED INFORMATION REGARDING THE OPERATIONS OF APC AS A RESULT OF ITS BELIEF
THAT THE APC ACQUISITION WILL BE COMPLETED IN ACCORDANCE WITH THE TERMS SET
FORTH HEREIN. IF THE APC ACQUISITION IS NOT COMPLETED, THE INFORMATION SET FORTH
IN THIS PROSPECTUS GIVING EFFECT TO SUCH ACQUISITION WOULD NOT BE RELEVANT. SEE
"RISK FACTORS--RISKS ASSOCIATED WITH THE FAILURE TO COMPLETE THE APC
ACQUISITION."
GENERAL
The Company is a leading designer and producer of high-quality body
structure components and assemblies used by the major North American automotive
OEMs, Ford, Chrysler and General Motors, and certain Transplants, including
Honda, Toyota, Nissan and Mazda. The Company's current products range from large
structural stampings and assemblies, such as body pillars, chassis, suspension
and floor pan components and major housing assemblies, to engineered assemblies,
such as hood and deck lid hinges and brake components. On January 27, 1997, the
Company agreed to acquire A.O. Smith's APC division, a leading manufacturer of
light truck frames, automotive engine cradles and other structural and
suspension components, assemblies and modules used by major North American OEMs
and Transplants. Following the APC Acquisition, the Company believes it will be
one of the largest independent suppliers of structural components and assemblies
to the North American automotive market (based on net sales).
Since its inception in April 1993, the Company's revenues have grown rapidly
through a focused strategy of internal growth and a highly disciplined
acquisition program. During the last three years, the Company has successfully
completed and fully integrated four acquisitions. As a result of such
acquisitions and internal growth, the Company's revenues have increased from $86
million in 1993 to approximately $474 million in 1996 (pro forma only for the
MSTI Acquisition), representing a compound annual growth rate of approximately
76%. The Company's North American content per vehicle has increased from $6.23
in 1993 to $26.74 in 1996 on an actual basis. The APC Acquisition will be the
Company's largest acquisition to date and will increase the Company's pro forma
revenues to approximately $1.3 billion and its pro forma North American content
per vehicle to $77.49 for 1996.
INDUSTRY TRENDS
The Company's performance and growth is directly related to certain trends
within the automotive market, including the consolidation of the component
supply industry, the increase in global sourcing and the growth of
system/modular sourcing.
SUPPLIER CONSOLIDATION. The automotive supply industry has recently begun
to undergo significant consolidation. To lower costs and improve quality, OEMs
are reducing their supplier base by awarding sole-source contracts to
full-service suppliers who are able to supply larger segments of a vehicle.
OEMs' criteria for supplier selection include not only cost, quality and
responsiveness, but also full-service design, engineering and program management
capabilities. For full-service suppliers such as the Company, the new
environment provides an opportunity to grow by obtaining business previously
provided by other non-full service suppliers and by acquiring suppliers that
further enhance product, manufacturing and service capabilities. OEMs rigorously
evaluate suppliers on the basis of product quality, cost control, reliability of
delivery, product design capability, financial strength, new technology
implementation, quality and condition of facilities and overall management.
Suppliers that obtain superior ratings are considered for sourcing new business.
Although these new supplier policies have already resulted in significant
consolidation of component suppliers in certain segments, the Company believes
that consolidation within the
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structural and suspension component segments of the automotive industry will
continue to provide attractive opportunities to acquire high-quality companies
that complement its existing business.
GLOBAL SOURCING. Regions such as Asia, Latin America, Mexico and Eastern
Europe are expected to experience significant growth in vehicle demand over the
next ten years. OEMs are positioning themselves to reach these emerging markets
in a cost-effective manner by seeking to design and produce "world cars" which
can be designed in one vehicle center to a single global standard but produced
and sold in different geographic markets, thereby allowing OEMs to reduce design
costs, take advantage of low-cost manufacturing locations and improve product
quality and consistency. OEMs increasingly are requiring their suppliers to have
the capability to design and manufacture their products in multiple geographic
markets.
SYSTEM/MODULAR SOURCING. OEMs are increasingly seeking suppliers capable of
providing complete systems or modules rather than suppliers who only provide
separate component parts. A system is a group of component parts which operate
together to provide a specific engineering driven functionality whereas a module
is a group of systems and/or component parts which are assembled and shipped to
the OEM for installation in a vehicle as a unit. By outsourcing complete systems
or modules, OEMs are able to reduce their costs associated with the design and
integration of different components and improve quality by enabling their
suppliers to assemble and test major portions of the vehicle prior to beginning
production. As a result of the APC Acquisition, the Company will be in an
improved position to capitalize on this trend by designing its products to
function together and by providing designs that are integrated into the design
of the entire vehicle.
STRATEGY
The Company's business objective is to capitalize upon the consolidation,
globalization and system/ modular sourcing trends in the automotive supply
industry in order to be the leading provider of structural and suspension
components to OEMs on a worldwide basis. Key elements of the Company's operating
and growth strategies are outlined below:
OPERATING STRATEGY
FULL-SERVICE TECHNICAL DESIGN, ENGINEERING AND PROGRAM MANAGEMENT
CAPABILITIES. The Company strives to maintain a competitive advantage through
investment in research and product development, advanced engineering and program
management. The Company works with OEMs throughout the product development
process from concept vehicle and prototype development through the design and
implementation of manufacturing processes to provide full-service capabilities
to its customers. In some cases, the Company places design engineers at customer
facilities to coordinate its product design efforts with those of its OEM
customers.
EFFICIENT MANUFACTURING/CONTINUOUS IMPROVEMENT PROGRAMS. In response to
OEMs' increasingly stringent demands, the Company has implemented manufacturing
practices designed to maximize product quality and timeliness of delivery and
eliminate waste and inefficiency. The Company has continued to upgrade its
manufacturing equipment and processes through substantial investment in new
equipment, maintenance of existing equipment and utilization of manufacturing
engineering personnel.
GLOBAL PRESENCE. The Company strives to offer manufacturing and support
services to its customers on a global basis through a combination of
international wholly owned facilities and by entering into joint ventures and
partnerships with foreign suppliers. Since 1993, in furtherance of its global
expansion strategy, the Company has opened a European sales and engineering
office to service U.K. and German OEM customers and has established an
industrial partnership with The Kirchhoff Group ("Kirchhoff") in Germany. With
the APC Acquisition, the Company will further expand its ability to service OEMs
on a global basis. The Company also has relocated certain technical personnel
resources to locations where OEMs are developing "world cars."
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DECENTRALIZED, PARTICIPATIVE CULTURE. The Company's decentralized approach
to managing its manufacturing facilities encourages decision making and employee
participation in areas such as manufacturing processes and customer service. The
Company's management team meets frequently at various Company locations in order
to maintain a unified Company culture. To increase employee productivity, the
Company utilizes incentive programs for all salaried and hourly employees and
provides incentives for employees who take advantage of its continuous
improvement programs and who provide cost savings ideas.
GROWTH STRATEGY
STRATEGIC ACQUISITIONS. The Company continues to believe that consolidation
in the automotive supply industry will provide further attractive opportunities
to acquire high-quality companies that complement its existing business. The
Company seeks to make acquisitions that (i) provide additional product,
manufacturing and technical capabilities; (ii) broaden the Company's geographic
coverage domestically and strengthen its ability to supply products on a global
basis; (iii) increase the number of models for which the Company supplies
products and the content supplied for existing models; and (iv) add new
customers. With the consummation of the APC Acquisition, the Company will have
acquired five businesses since 1993. The Company intends to seek future
acquisitions or develop strategic alliances that will strengthen the Company's
ability to supply its products on a global basis.
MODULAR PRODUCT OPPORTUNITIES. The Company has capitalized on the
system/modular sourcing trend among OEMs by offering customers higher
value-added supply capabilities through an increasing focus on the production of
assemblies consisting of multiple component parts that are welded or otherwise
fastened together by the Company. The APC Acquisition will significantly expand
the Company's ability to supply OEMs with modules consisting of integrated
assemblies and component parts that can be installed as a unit in a vehicle at
the OEM assembly plant.
INCREASE VEHICLE PENETRATION. The Company has developed strong
relationships with certain OEM engineering and purchasing personnel which allow
it to identify business opportunities and to react to customer needs in the
early stages of vehicle design. The Company believes that these relationships
give it a competitive advantage over smaller and less capable suppliers in
marketing its broad range of products and in developing new product concepts,
such as expanded use of modules, that complement its existing product lines.
PURSUIT OF "WORLD CAR" OPPORTUNITIES. The Company has been working closely
with certain customers on the development of "world cars," which are designed by
OEMs in one vehicle center to a single global standard but produced and sold in
different geographic markets. Suppliers for a specific "world car" are often
required to provide their products on a worldwide basis. The Company believes
that it has a competitive advantage in potentially supplying certain world cars
given its international presence, full-service capabilities and existing
position as a leading supplier on the Ford Escort and DEW98 luxury car, as well
as on other existing vehicle platforms which may eventually evolve into world
cars.
THE APC ACQUISITION
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. In 1996, over 70% of APC's
revenues was derived from the sale of structural components for light trucks and
sport utility vehicles, a growing segment of the North American automotive
market. APC's customers include the three major North American OEMs as well as
certain Transplants, including Toyota, Nissan, Isuzu and Honda. APC's three
largest customers, Ford, General Motors and Chrysler, accounted for
approximately 46%, 23% and 20%, respectively, of APC's revenues in 1996.
Approximately 11% of APC's revenues in 1996 was derived from the production of
heavy truck frame rails for North American heavy truck OEMs. The Company
believes APC is the largest supplier in this segment, with a market share of
approximately 51% in 1996. APC
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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 Company believes that the APC Acquisition will provide the Company with
several strategic benefits, including the following:
EXPANDED PRODUCT OFFERINGS AND MODULAR PRODUCT OPPORTUNITIES. The APC
Acquisition will significantly expand the Company's product offerings by adding
lower body structural components to the Company's existing line of upper body
structural components. In addition, APC's products provide an ideal platform for
developing modular product offerings for the Company's customers. APC's frame
and engine cradle products can be combined with a number of the Company's
existing product offerings, including control arms, suspension components,
exhaust hanger assemblies and spring towers and hangers to deliver more complete
systems or modules to its OEM customers at a lower overall cost. The APC
Acquisition will enable the Company to produce a larger portion of a vehicle,
which the Company believes will afford it significant opportunities to increase
revenues as OEMs continue to consolidate their supplier base.
INCREASED CUSTOMER PENETRATION. The APC Acquisition will significantly
expand the Company's penetration within each of the three major North American
OEMs. Following the APC Acquisition, the Company believes it will be the largest
supplier of structural components to Chrysler, the largest supplier of metal
components to Ford and a major supplier of structural components to General
Motors. The APC Acquisition will also expand the Company's penetration within
certain Transplants by doubling the Company's sales to Toyota, expanding its
already significant position at Honda, increasing sales to Nissan and adding
Isuzu as a new customer.
INCREASED PENETRATION IN LIGHT TRUCK SEGMENT AND OTHER KEY MODELS. The APC
Acquisition will increase the Company's North American content per vehicle from
$26.74 in 1996 to $77.49 on a pro forma basis and will triple the Company's
content per vehicle in the expanding light truck/sport utility market segment,
which segment represented approximately 60% of the Company's pro forma revenues
for 1996. The APC Acquisition will increase the Company's content per vehicle on
key light truck/sport utility vehicles such as the Ford Explorer and Ranger and
the Chrysler Dakota, Durango and Ram as well as on high volume passenger cars
such as the Ford Taurus/Sable and the Chrysler Intrepid/Concorde/Vision. The
Company believes that this increased model penetration will afford it greater
opportunities to supply additional parts and modules for such models.
COMPLEMENTARY NEW TECHNOLOGY. The APC Acquisition will provide the Company
with a variety of new and enhanced design and manufacturing process technology,
including APC's patented three piece side rail frame and patented Simulform-TM-
forming technology, the latter of which may result in cost savings and quality
improvements over conventional stamping technology in certain specialized
applications. In addition, APC's existing hydroforming technology complements
the Company's initiatives in this area. The APC Acquisition will also provide
the Company with additional painting, coating and welding technologies and
advanced logistical parts management systems. The Company believes that these
acquired technologies will provide significant additional opportunities to serve
existing customers and obtain new business.
OPERATIONAL EFFICIENCIES. The APC Acquisition will provide the Company with
a number of opportunities to reduce costs and improve operational efficiency.
For example, APC currently outsources many of its stamping needs, some of which
will be able to be supplied by the Company's existing stamping facilities. In
addition, the Company's and APC's facilities are geographically located in such
a way as to allow the Company to optimize its management and logistical
capabilities on a regional basis. APC's facilities are strategically located
close to many of its and the Company's major customers, allowing for inventory
and freight cost-savings. The increased size of the Company may also improve the
Company's ability to negotiate more favorable terms on its purchasing and supply
contracts, as well as achieve other operational cost savings.
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EXPANDED GLOBAL CAPABILITIES. OEMs are increasingly demanding that their
suppliers have global production capabilities. APC's presence in China, Japan
and South America complements the Company's current European initiatives to
provide expanded global production capabilities for both North American and
international OEMs. See "--Global Initiatives."
PRODUCTS
GENERAL. The Company's current products consist of a broad array of
stamped, formed, welded and assembled metal components, many of which are
critical to the structural integrity of a vehicle. As a result of the APC
Acquisition, the Company will expand its product offerings and will be able to
manufacture and supply its customers with, among other products, light truck
frames, automotive engine cradles, trailing axles and heavy truck frame rails.
These additional products will complement the Company's existing base of
products, many of which are currently attached directly to the frame of a
vehicle at the OEM assembly plant. Following the APC Acquisition, the Company's
products will generally include structural components, suspension components and
engineered assemblies.
STRUCTURAL COMPONENTS. The Company's current structural component products
form the basic upper body structure of the vehicle and include large metal
stampings such as body pillars, roofrails, side sills, parcel shelves and
intrusion beams. APC's structural component products form the basic lower body
structure of the vehicle and include light truck frames, automotive engine
cradles and heavy truck frame rails. Critical to the strength and safety of
vehicles, structural products carry the load of the vehicle and provide crash
integrity.
SUSPENSION COMPONENTS. The Company's current suspension component products
include stamped, formed and welded products such as control arms, suspension
links, track bars and spring/shock towers. APC's suspension components include
control arms, suspension links and trailing axles. Critical to the ride,
handling and noise characteristics of a vehicle, suspension components are a
natural extension of the Company's larger structural components.
ENGINEERED ASSEMBLIES. The Company's current engineered assemblies include
a broad array of highly engineered parts such as hood and deck lid hinges, brake
components and fuel filler assemblies. Such engineered assemblies are a natural
extension to the Company's other products in that they are attached to both
structural and suspension components. The APC Acquisition will not add
materially to the Company's existing array of engineered assembly products.
OTHER. In addition to the Company's and APC's structural, suspension and
mechanical component products, each of the Company and APC manufactures a
variety of other products, including heat shields and other precision stampings,
for their OEM customers.
The following table sets forth the percentage of revenues derived from the
sale of certain products in 1996:
PERCENTAGE OF REVENUES BY PRODUCT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
PRODUCT CATEGORY COMPANY APC PRO FORMA
<S> <C> <C> <C>
Structural components....................................... . 48.6% 90.9% 77.5%
Suspension components....................................... . 22.7 5.0 10.6
Engineered assemblies....................................... . 16.1 -- 5.1
Other......................................................... 12.6 4.1 6.8
----- --------- -----
Total..................................................... 100.0% 100.0% 100.0%
----- --------- -----
----- --------- -----
</TABLE>
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Although a portion of the Company's products are sold directly to OEMs as
finished products, most are used by the Company to produce assemblies consisting
of multiple parts that are welded or otherwise
fastened together by the Company. Systems and assemblies currently produced by
the Company include front and rear structural suspension systems comprised of
control arms, suspension links and axle assemblies consisting of stamped metal
trailing axles, assembled brake shoes, hoses and tie rods. As a result of the
APC Acquisition, the Company will significantly expand its ability to supply
OEMs with systems and modules consisting of integrated assemblies and component
parts that can be installed as a unit in a vehicle at the OEM assembly plant.
CUSTOMERS AND MARKETING
The North American automotive market is dominated by General Motors, Ford
and Chrysler, with Transplants representing approximately 20% of this market in
1996. The Company currently supplies its products primarily to Ford, Chrysler,
Honda, General Motors, Toyota, Nissan and Mazda. The APC Acquisition will
significantly expand the Company's penetration within each of the three major
North American OEMs. In addition, the APC Acquisition will also expand the
Company's penetration with certain Transplants, including doubling the Company's
sales to Toyota, expanding its already significant position at Honda, increasing
sales to Nissan and adding Isuzu as a new customer. APC sells its heavy truck
products primarily to Ford, Freightliner Corporation, PACCAR Inc., Volvo/GM
Heavy Truck Corp. and Navistar International Corp.
The following table sets forth the percentage of revenues derived from the
sale of products to certain customers in 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
CUSTOMER COMPANY APC PRO FORMA
<S> <C> <C> <C>
Ford.......................................................... 66.9% 46.4% 52.9%
Chrysler...................................................... 10.2 20.0 16.9
General Motors................................................ 3.5 23.1 16.9
Honda......................................................... 9.2 -- 2.9
Other......................................................... 10.2 10.5 10.4
----- --------- -----
Total..................................................... 100.0% 100.0% 100.0%
----- --------- -----
----- --------- -----
</TABLE>
OEMs typically award contracts that cover parts to be supplied for a
particular car model. Such contracts range from one year to over the life of the
model, which is generally three to seven years and do not require the purchase
by the customer of any minimum number of parts. The Company and APC also compete
for new business to supply parts for successor models and therefore are subject
to the risk that the OEM will not select the Company to produce parts on a
successor model. The Company and APC supply parts for a broad cross-section of
both new and mature models, thereby reducing their reliance on any particular
model. For example, the Company supplies parts for substantially all models
produced by Ford, Honda and Chrysler and APC currently supplies Chrysler with
substantially all of its full frame requirements.
36
<PAGE>
The following table presents an overview of the major models for which the
Company supplies products. Those models added as a result of the APC Acquisition
are shown with an asterisk, and those models for which the APC Acquisition will
increase the Company's content per vehicle have been italicized.
<TABLE>
<CAPTION>
CUSTOMER CAR MODELS LIGHT TRUCK MODELS
<S> <C> <C>
Ford............ TAURUS/SABLE, CONTOUR/MYSTIQUE, EXPLORER, RANGER, F-Series,
Mustang, Escort, Crown Victoria, ECONOLINE,Villager, WINDSTAR, Medium
Grand Marquis, Probe, CONTINENTAL Trucks, Expedition
Chrysler........ CONCORDE/INTREPID/VISION, Neon, RAM PICK-UP, DAKOTA, Grand Cherokee,
Viper, Stratus/Cirrus/Breeze Voyager, Caravan, RAM VAN, Wrangler,
Durango*
General Cavalier, Sunfire, Grand Am, Lumina, C/K PICK-UP, BLAZER,
Motors...... . Grand Prix SUBURBAN,Tahoe*, Yukon*, Astro*,
Safari*, Chevy Van
Honda........... Accord, Civic, Acura Integra
Mazda........... 626, MX6
Toyota.......... Avalon, CAMRY Mini-van
Nissan.......... Sentra Quest, Pick-up*
Isuzu........... Rodeo*, Amigo*
</TABLE>
Most of the parts the Company and APC produce have a lead time of two to
five years from product development to production. See "--Design and Engineering
Support." Since 1988, the Company has been the leading supplier for hood and
deck hinges at Ford and Chrysler and is responsible for the design and
production of such products. The selling prices of these products are generally
negotiated between the Company and its customers and are typically not subject
to a competitive bid process. APC is currently the largest supplier of
structural components to Chrysler.
The Company has been awarded new business (i.e., parts not previously
supplied by the Company) for the calendar year indicated for the models set
forth below:
<TABLE>
<CAPTION>
MODEL YEAR MODELS
<S> <C>
1997............... Ford Escort Coupe, Ranger, Continental; Honda Accord; Toyota Mini-van
1998............... Ford Medium Truck, Lincoln, DEW98; General Motors Saturn, Innovate;
Acura
1999............... Ford Escort, Mini-Explorer, Jaguar X200
</TABLE>
APC has been awarded new business (i.e., parts not previously supplied by
APC) for the calendar year indicated for the models set forth below:
<TABLE>
<CAPTION>
MODEL YEAR MODELS
<S> <C>
1997............... Toyota Corolla; Chrysler LH, B-Van; General Motors Prizm; Isuzu Rodeo,
Amigo
1998............... Probe replacement; GMT800(C/K platform); Acura; Chrysler Durango
</TABLE>
Sales of the Company's and APC's products to OEMs are made directly by their
respective sales and engineering forces, each headquartered in their respective
technical centers located in Farmington Hills, Michigan. Through their technical
centers, the Company and APC service their OEM customers and manage their
continuing programs of product design improvement and development. The Company
and APC each periodically place engineering staff at various customer facilities
to facilitate the development of
37
<PAGE>
new programs. After the APC Acquisition, the Company's sales and engineering
force will consist of approximately 460 individuals.
DESIGN AND ENGINEERING SUPPORT
The Company strives to maintain a technological advantage through investment
in product development and advanced engineering capabilities. The Company's
manufacturing engineering capabilities enable it to design and build
high-quality and efficient manufacturing systems, processes and equipment and to
continually improve its production processes and equipment. The Company's
manufacturing engineers are located at each of its manufacturing facilities.
As a result of the APC Acquisition, the Company's engineering staff will
increase from approximately 140 to approximately 400 full-time engineers, whose
responsibilities range from research and development, advanced product
development, product design, testing and initial prototype development to the
design and implementation of manufacturing processes.
Because assembled parts must be designed at an early stage in the
development of new vehicles or model revisions, the Company is increasingly
given the opportunity to utilize its product engineering resources early in the
planning process. Advanced development engineering resources create original
engineering designs, computer-aided designs, feasibility studies, working
prototypes and testing programs to meet customer specifications. The Company's
advanced development capabilities have resulted in several innovations in hinge
design that have provided significant benefits to the Company's customers. The
Company also has full service design capability for chassis components. APC has
a long history of developing innovative new designs both to improve the quality
and to lower the cost of its designs. Recent innovations include the patented
three piece side rail, the use of aluminum and other alternative material
applications in its structural components and the use of high-performance
alternative coatings for its structural components, including epoxy coated
primer, two-coat water-reducible coatings, ultrasolids and hybrid coatings.
GLOBAL INITIATIVES
The Company has formed, or is in the process of forming, strategic alliances
with other suppliers throughout the world, including in Europe, Asia and Latin
America. The Company has recently opened a European sales and engineering office
to service its U.K. and German OEM customers. In addition, the Company has a
joint manufacturing and marketing agreement with Kirchhoff, a German automobile
parts supplier, pursuant to which the Company and Kirchhoff have agreed to
provide manufacturing and marketing services to each other when and as required
by each company's OEM customers. A current focus of the Company's acquisition
strategy is to acquire European suppliers, which would provide the Company with
a manufacturing presence in Europe and afford the Company access to new customer
opportunities.
The APC Acquisition will significantly expand the Company's global
initiatives. In addition to a Japanese sales office, APC has a 60% ownership
interest in a joint venture located in Changchun, China, which will manufacture
automobile parts for Volkswagen A.G. APC also has a Brazilian subsidiary, which
will be supplying frame components for the Dodge Dakota and has a manufacturing
arrangement to provide cross beams for the Ford Fiesta. Prior to entering into
negotiations with APC, the Company had been investigating the possibility of
opening a sales office in Japan and acquiring an interest in a Brazilian
operation.
MANUFACTURING
After the APC Acquisition, the Company's manufacturing operations will
consist primarily of stamping operations, system and modular assembly
operations, roll-forming and hydroforming operations and associated coating and
other ancillary operations. The APC Acquisition will provide the Company with
significant additional stamping and assembly capacity.
38
<PAGE>
Stamping involves passing metal through dies in a stamping press to form the
metal into three-dimensional parts. The Company produces stamped parts using
over 240 precision single-stage, progressive and transfer presses, ranging in
size from 150 to 2,000 tons, which perform multiple functions as raw material
proceeds through the press and is converted into a finished product. The Company
continually invests in its press technology to increase flexibility, improve
safety and minimize die changeover time. The APC Acquisition will broaden the
Company's stamping capabilities by adding over 400 stamping presses ranging from
200 to 4,000 tons in size.
After forming is completed, stampings that are to be used in assemblies are
placed in work-in-progress staging areas from which they are fed into
cell-oriented assembly operations that produce complex, value-added assemblies
through the combination of multiple parts that are welded or fastened together.
The Company's assembly operations are performed on either dedicated, high-volume
welding/fastening machines or on flexible-cell oriented robotic lines for units
with lower volume production runs. The assembly machines attach additional
parts, fixtures or stampings to the original metal stampings. In addition to
standard production capabilities, the Company's assembly machines are also able
to perform various statistical control functions and identify improper welds and
attachments. The Company continually works with manufacturers of fixed/robotic
welding systems to develop faster, more flexible machinery. Several of the
Company's welding systems were designed by the Company.
APC's manufacturing and assembly processes are state-of-the-art. Using
highly-automated assembly processes, APC's new Plymouth, Michigan light truck
frame assembly facility requires no changeover time between the six frame models
it assembles for Chrysler's new Dodge Dakota. Line programmable controllers
adjust assembly equipment to accommodate various frame wheelbase configurations
at various stages of assembly, while robotic welding and material handling
processes are responsible for 99 percent of the facility's frame welding. In
comparison, conventional light truck frame assembly requires equipment and tool
reconfiguration to accommodate various frame models. APC's patented
Simulform-TM- forming process, currently being tested for production use,
simultaneously forms, pierces and joins components of an engine cradle assembly,
resulting in cost savings over traditional stamping techniques, due to a
reduction in the number of presses and operators required and the enhanced
quality and lighter weight of the products manufactured through this method. In
addition, APC's solid state welding capabilities allow it to weld at lower
temperatures which results in less structural distortion of products,
exceptional weld quality and higher production rates than conventional welding
processes. APC also utilizes a significant number of robots in its frame
riveting processes and automated transfer systems in addition to their use in
welding operations.
The products manufactured by the Company and APC use various grades and
thicknesses of steel and aluminum, including hot and cold rolled, galvanized,
organically coated, stainless and aluminized steel. Neither the Company nor APC
produces exposed sheet metal components, such as exterior body panels. See
"--Suppliers and Raw Materials."
OEMs have established quality rating systems involving rigorous inspections
of suppliers' facilities and operations. OEMs' factory rating programs provide a
quantitative measure of a company's success in improving the quality of its
operations. The Company and APC have each received quality awards from Ford (Q1)
and Chrysler (Pentastar) and the Company has consistently received one of Ford's
highest commercial ratings for suppliers in the stamping segment. The automotive
industry has recently adopted a quality rating system known as QS-9000. The
Company has recently received QS-9000 certification and APC expects to receive
such certification by the end of 1997.
COMPETITION
The Company operates in a highly competitive, fragmented market segment of
the automotive supply industry, with a limited number of competitors generating
revenues in excess of $200 million. The number of the Company's competitors has
decreased in recent years and is expected to continue to decrease due to the
supplier consolidation resulting from changing OEM policies. The Company's
largest competitors include The Budd Company, a subsidiary of Thyssen AG
("Budd"), Magna International Inc. ("Magna"),
39
<PAGE>
Midway Products Corp., Modern Tool & Die Co., L&W Engineering and divisions of
OEMs with internal stamping and assembly operations, all of which have
substantial financial resources. The Company competes with Magna across most of
the Company's product lines, and with its other significant competitors in
various segments of its product lines. For example, the Company competes with
Budd for large stampings, while it competes with ITT Automotive for hinge
business. Aetna Industries, Active Tool & Die Co., AG Simpson, Lobdell-Emory
Mfg. Co. and L&W Engineering compete with the Company for medium-size structural
stampings.
APC also operates in a highly competitive market segment that is
significantly less fragmented than the Company's market segment. APC's principal
competitors include Dana Corporation, Magna and internal divisions of OEMs, all
of which are large and have substantial resources. APC also competes with
Midland Corporation across its heavy truck product lines.
The Company and APC principally compete for new business both at the
beginning of the development of new models and upon the redesign of existing
models. New model development generally begins two to five years before the
marketing of such models to the public. Once a producer has been designated to
supply parts for a new program, an OEM usually will continue to purchase those
parts from the designated producer for the life of the program, although not
necessarily for a redesign. Competitive factors in the market for the Company's
and APC's products include product quality and reliability, cost and timely
delivery, technical expertise and development capability, new product innovation
and customer service.
SUPPLIERS AND RAW MATERIALS
The primary raw material used to produce the majority of the Company's
products is steel. The Company purchases hot and cold rolled, galvanized,
organically coated, stainless and aluminized steel from a variety of suppliers.
The Company employs just-in-time manufacturing and sourcing systems enabling it
to meet customer requirements for faster deliveries while minimizing its need to
carry significant inventory levels. The Company has not experienced any
significant shortages of raw materials and normally does not carry inventories
of raw materials or finished products in excess of those reasonably required to
meet production and shipping schedules. Raw materials costs represented
approximately 53% of the Company's revenues in 1996, and steel represented
approximately 70% to 75% of raw material costs in 1996.
Honda and Chrysler currently purchase all of the steel used by the Company
for their models directly from steel producers. Ford is in the process of
implementing a similar program. As a result, the Company will have minimal
exposure to changes in steel prices for parts supplied to Ford, Honda and
Chrysler, which collectively represented 86% of the Company's revenues in 1996.
APC currently purchases substantially all of the steel used in its manufacturing
operations from steel manufacturers, either directly or through distributors.
The Company expects that APC will adopt a similar arrangement with such
customers following the APC Acquisition.
The Company expects that the content level of metal in cars and light trucks
will remain constant or increase slightly due to the trend toward increased
vehicle size and a greater emphasis on metal recycling. Although the search for
improved fuel economy and weight reduction has resulted in attempts to reduce
the sheet metal content of light vehicles, an efficient, cost-effective
substitute for steel used in the Company's structural products has not been
found. While various polymers have been used recently for fenders, hoods and
decks, such products do not have the inherent strength or structural integrity
on a cost-effective basis to be used for structural components. The Company and
APC are involved in ongoing evaluations of the potential for the use of aluminum
and of specialty steel in their products.
Other raw materials purchased by the Company include dies, fasteners,
tubing, springs, rivets and rubber products, all of which are available from
numerous sources. APC currently outsources many of its stamping needs, some of
which can be supplied by the Company's existing stamping facilities.
40
<PAGE>
FACILITIES
The Company maintains several manufacturing facilities located in close
proximity to many of the high-volume vehicle assembly plants in the United
States. In addition, APC has located its facilities close to its major OEM
customers in order to facilitate the just-in-time delivery requirements of its
customers and to minimize freight delivery costs. The Company's and APC's
facilities are geographically located in such a way as to enable the Company to
optimize their management and logistical capabilities on a regional basis.
The following table provides information regarding the Company's and APC's
principal facilities:
<TABLE>
<CAPTION>
TOWER AUTOMOTIVE
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
Bardstown, Kentucky.................... 240,000 Owned(1) Manufacturing
<S> <C> <C> <C>
Kalamazoo, Michigan
(2 locations)........................ 222,000 Mixed Manufacturing/Warehouse/Office
Traverse City, Michigan
(4 locations)........................ 220,000 Owned Manufacturing
Greenville, Michigan................... 160,000 Owned Manufacturing/Office
Auburn, Indiana........................ 132,000 Owned(1) Manufacturing/Office
Kendallville, Indiana.................. 132,000 Owned Manufacturing
Romulus, Michigan...................... 115,000 Leased Manufacturing/Office
Bluffton, Ohio......................... 102,000 Owned Manufacturing
Rochester Hills, Michigan.............. 89,000 Leased Office/Engineering/Design
Manchester, Michigan................... 61,000 Owned Manufacturing
Upper Sandusky, Ohio................... 56,000 Owned Manufacturing
Grand Rapids, Michigan................. 23,000 Leased Operating Headquarters
Farmington Hills, Michigan............. 12,000 Leased Engineering/Design/Sales
Minneapolis, Minnesota................. 5,700 Leased Corporate Headquarters
APC
<CAPTION>
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
<S> <C> <C> <C>
Milwaukee, Wisconsin................... 3,527,000 Owned Manufacturing
Milan, Tennessee....................... 533,000 Owned(1) Manufacturing
Granite City, Illinois................. 458,000 Owned Manufacturing
Plymouth, Michigan..................... 221,000 Leased Manufacturing
Roanoke, Virginia...................... 185,000 Owned Manufacturing
Corydon, Indiana....................... 155,000 Leased Manufacturing
Rockford, Illinois..................... 140,000 Leased Manufacturing
Belcamp, Maryland...................... 68,000 Owned Manufacturing
Bellevue, Ohio......................... 66,000 Owned Manufacturing
Farmington Hills, Michigan............. 47,000 Leased Engineering/Design/Sales
Fenton, Missouri....................... 40,000 Leased Warehouse
Barrie, Ontario........................ 40,000 Leased Manufacturing
Bowling Green, Kentucky................ 39,000 Owned Manufacturing
Yokohama, Japan........................ 800 Leased Sales
Changchun, China....................... 140,500 Leased(2) Manufacturing
</TABLE>
- ------------------------------
(1) Facility is subject to an IRB financing arrangement pursuant to which the
Company or APC makes periodic lease payments and has the option to acquire
such facility for nominal consideration at the end of the term.
(2) Facility is leased by a joint venture in which APC holds a 60% equity
interest.
Management believes that substantially all of the Company's and APC's
property and equipment is in good condition. In order to increase efficiency,
the Company expects to make capital expenditures for equipment upgrades at the
facilities recently acquired in the MSTI Acquisition. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources."
The Company believes that its existing facilities will be adequate to meet
its production demands for the foreseeable future. The Company's facilities were
specifically designed for the manufacturing of the
41
<PAGE>
Company's products. The utilization and capacity of such facilities are
dependent upon the mix of products being produced by the Company.
EMPLOYEES
The Company currently has approximately 2,900 employees, of whom
approximately 1,100 are covered under collective bargaining agreements, one of
which expires in July 1997. The Company currently anticipates that it will enter
into a new collective bargaining agreement prior to the expiration of such
agreement. The remaining collective bargaining agreements expire in 1999. The
Company believes that its future success will depend in part on its ability to
continue to recruit, retain and motivate qualified personnel at all levels of
the Company. The Company has instituted a large number of employee programs to
increase employee morale and expand the employees' participation in the
Company's business. The Company has not experienced any work stoppages and
considers its relations with its employees to be good.
APC currently has approximately 5,300 employees, of whom approximately 2,900
are covered under several collective bargaining agreements, the earliest of
which expires in September 1998. The Company believes APC's relations with its
employees are generally good. The Company expects to retain APC's employees on
substantially the same terms and conditions of employment as were in place prior
to the APC Acquisition.
ENVIRONMENTAL MATTERS
The Company believes it conducts its operations in substantial compliance
with applicable environmental and occupational health and safety laws. The
Company does not expect to incur material capital expenditures for environmental
compliance during its current or succeeding fiscal year. However, as is the case
with manufacturers in general, if a release of hazardous substances occurs on or
from the Company's properties or at any associated offsite disposal location, if
contamination from prior activities is discovered at any of the Company's
properties or if non-compliance with environmental regulations or permits is
discovered, the Company may be held liable and the amount of such liability
could be material. In connection with the Trylon and MSTI Acquisitions,
MascoTech has agreed to indemnify the Company for certain environmental matters,
including replacement of underground storage tanks at the Traverse City
facilities and any remediation that may be required at the Kendallville
facility.
In connection with the APC Acquisition, A.O. Smith has agreed, subject to
certain limitations, to indemnify the Company for environmental matters relating
to APC arising from events occurring, or conditions arising, prior to the date
of the APC Acquisition. This indemnification obligation applies to claims to the
extent exceeding $250,000 submitted by the Company within three years of the
acquisition date. To the extent that such claims exceed $5.0 million in the
aggregate, A.O. Smith will indemnify 70% of such losses, up to A.O. Smith's
maximum $75.0 million indemnification obligation under the purchase agreement.
In addition, A.O. Smith has agreed to retain certain environmental liabilities
for, among other things, liabilities arising from offsite disposal of hazardous
substances prior to the APC Acquisition.
LEGAL PROCEEDINGS
The Company is not currently involved in any material lawsuits. The Company
believes it maintains adequate insurance, including product liability coverage.
The Company historically has not been required to pay any material liability
claims. APC is subject to a number of outstanding lawsuits arising in the
ordinary course of its business. A.O. Smith has agreed, however, to retain
responsibility for all material lawsuits relating to APC and to indemnify the
Company for any losses it may incur in connection with such lawsuits.
A.O. Smith is a party to a lawsuit alleging, among other things, that APC
misappropriated trade secrets from one of its competitors in developing certain
techniques used in a hydroforming process being developed by APC. In connection
with the APC Acquisition, A.O. Smith has retained the liability relating to this
litigation and has agreed to indemnify the Company for any monetary damages it
may incur as a result of such litigation. A.O. Smith has informed the Company
that it believes this suit to be without merit and is asserting various defenses
to such allegations. The hydroforming process currently being used by APC is not
the subject of this lawsuit. As a result, the Company does not currently believe
that its ability to utilize APC's hydroforming technology will be materially
impaired even if A.O. Smith is found liable in such suit.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
S. A. Johnson.......................... 56 Chairman and Director
Adrian Vander Starre................... 64 Vice Chairman and Director
Dugald K. Campbell..................... 50 President, Chief Executive Officer and Director
James R. Lozelle....................... 51 Executive Vice President and Director
Michael W. Doherty..................... 54 Vice President
Anthony A. Barone...................... 47 Vice President and Chief Financial Officer
Paul D. Rysenga........................ 55 Vice President
Ronald E. Gavalis...................... 58 Vice President
Scott D. Rued.......................... 40 Vice President, Corporate Development and Director
Luigi Candusso......................... 47 Vice President
</TABLE>
S. A. (TONY) JOHNSON has served as Chairman and a Director of the Company
since April 1993. Mr. Johnson is the founder, Chief Executive Officer and
President of Hidden Creek Industries ("Hidden Creek"), a private industrial
management company based in Minneapolis which has provided certain management
and other services to the Company. Mr. Johnson is also the Managing Partner of
J2R Partners ("J2R"), an investment partnership that participated in the R.J.
Tower Acquisition. Prior to forming Hidden Creek, Mr. Johnson served from 1985
to 1989 as Chief Operating Officer of Pentair, Inc., a diversified industrial
company. From 1981 to 1985, Mr. Johnson was President and Chief Executive
Officer of Onan Corp., a diversified manufacturer of electrical generating
equipment and engines for commercial, defense and industrial markets. Mr.
Johnson currently serves as Chairman and a director of Dura Automotive Systems,
Inc., a manufacturer of mechanical assemblies and integrated systems for the
automotive industry, and served as Chairman and a director of Automotive
Industries Holding, Inc., a supplier of automotive interior trim components,
from May 1990 until its sale to Lear Corporation in August 1995.
ADRIAN VANDER STARRE has served as Vice Chairman and a Director of the
Company since April 1993. Mr. Vander Starre served as President, Chief Executive
Officer and a director of the Predecessor from 1978 to 1993. Mr. Vander Starre
originally joined the Predecessor in 1965 as Controller and later served as
Treasurer from 1974 to 1978. Mr. Vander Starre has entered into a consulting
agreement with the Company under which he performs such duties as may be
assigned by the Board of Directors.
DUGALD K. CAMPBELL has served as President, Chief Executive Officer and a
Director of the Company since December 1993. From 1991 to 1993, Mr. Campbell
served as a consultant to Hidden Creek. From 1988 to 1991, he served as Vice
President and General Manager of the Sensor Systems Division of Siemens
Automotive, a manufacturer of engine management systems and components. From
1972 to 1988, he held various executive, engineering and marketing positions
with Allied Automotive, a manufacturer of vehicle systems and components and a
subsidiary of AlliedSignal, Inc.
JAMES R. LOZELLE has served as Executive Vice President for the Tower
Automotive Technical Centers, with responsibility for advanced product
development and customer service, and a Director of the Company since the
Company's acquisition of Edgewood in May 1994. Mr. Lozelle served as President
of Edgewood from 1982 until it was acquired by the Company. Mr. Lozelle joined
Edgewood in 1970 and served as Vice President from 1971 to 1982. Mr. Lozelle is
chairman of the Near Zero Stamping research project of the Autobody Consortium.
MICHAEL W. DOHERTY has served as Vice President, with responsibility for
program management and overall business planning including global strategy,
since April 1993. From October 1992 until April 1993,
43
<PAGE>
Mr. Doherty served as Senior Vice President of the Predecessor, with
responsibility for sales and engineering. From 1978 to 1992, Mr. Doherty served
as the Predecessor's Vice President, Sales and Engineering.
ANTHONY A. BARONE has served as Vice President and Chief Financial Officer
of the Company since May 1995. From 1984 to 1995, Mr. Barone served as Chief
Financial Officer of O'Sullivan Corporation, a manufacturer of interior trim
components for the automotive industry.
PAUL D. RYSENGA has served as Vice President of the Company, with
responsibility for the Company's operations in Kendallville, Indiana, Bluffton
and Upper Sandusky, Ohio and Traverse City, Michigan, since August 1996. From
October 1995 to August 1996, Mr. Rysenga had responsibility for the Company's
operations in Greenville, Romulus and Traverse City, Michigan. Mr. Rysenga is
also responsible for the MSTI operating facilities. From June 1994 to October
1995, Mr. Rysenga had responsibility for the Company's operations in Auburn,
Indiana. From July 1991 to June 1994, Mr. Rysenga served as Executive Vice
President and General Manager at Kalamazoo. From 1988 to July 1991, Mr. Rysenga
was Executive Director of Eastman Sterling Pharmaceutical, a division of Eastman
Kodak.
RONALD E. GAVALIS has served as Vice President of the Company, with
responsibility for capacity planning, quality operating systems and QS-9000
certification, since April 1995. From June 1994 to April 1995, Mr. Gavalis had
responsibility for the Company's Greenville, Michigan operations. Mr. Gavalis
joined the Predecessor in 1983 as Director of Manufacturing, and served as the
Predecessor's Vice President, Manufacturing, from 1985 until 1989 and as its
Vice President, Operations, from 1989 until June 1994.
SCOTT D. RUED has served as Vice President, Corporate Development, and a
Director of the Company since April 1993. Mr. Rued served as Vice President,
Chief Financial Officer and a director of Automotive Industries Holding, Inc.
from April 1990 until its sale to Lear Corporation in August 1995. Mr. Rued, a
partner of J2R, has also served as Executive Vice President and Chief Financial
Officer of Hidden Creek since January 1994 and served as its Vice
President-Finance and Corporate Development from June 1989 through 1993. Mr.
Rued is also a director of The Rottlund Company, Inc., a corporation engaged in
the development and sale of residential real estate.
LUIGI CANDUSSO has served as Vice President of the Company, with
responsibility for the Company's operations in Kalamazoo, Michigan and
Bardstown, Kentucky, since April 1995 and Romulus, Michigan since August 1996.
From October 1995 to August 1996, Mr. Candusso also had responsibility for the
Company's operations in Auburn, Indiana. From 1990 to April 1995, Mr. Candusso
served as Vice President and General Manager of the Sensor Systems Division of
Siemens Automotive, a manufacturer of engine management systems and components.
From 1988 to 1990, Mr. Candusso served as Vice President of Operations of
Fabricated Steel Products (FABCO), a division of Indal Canada.
After the consummation of the APC Acquisition, the Company expects to retain
the services of certain key executives of APC. The Company is currently in the
process of identifying such key executives, determining what positions such
executives would hold with the Company and determining the terms and conditions
upon which it will retain such executives.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
Unless otherwise noted, the following table sets forth certain information
regarding ownership of the Common Stock as of March 25, 1997 and after
completion of the Offering by (i) the beneficial owners of more than 5% of the
Common Stock of the Company, (ii) each Director and executive officer of the
Company and (iii) all Directors and executive officers of the Company as a
group. To the knowledge of the Company, each of such stockholders has sole
voting and investment power as to the shares shown unless otherwise noted.
Beneficial ownership of the Common Stock listed in the table has been determined
in accordance with the applicable rules and regulations promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act").
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY OWNED -----------------------------
PRIOR TO THE PRIOR TO THE AFTER THE
5% STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS OFFERING OFFERING OFFERING
<S> <C> <C> <C>
Onex Corporation(2)(3)............................................... 3,064,120 21.4% 2.2%
RCM Capital Management, L.L.C.(4).................................... 1,002,800 7.0 4.4
First Union Corporation(5)........................................... 765,204 5.3 3.4
Chancellor Entities(6)............................................... 717,400 5.0 3.1
S. A. Johnson(7)..................................................... 634,182 4.4 2.3
Adrian Vander Starre(8).............................................. 19,351 * *
Dugald K. Campbell(9)................................................ 226,276 1.6 1.0
James R. Lozelle(10)................................................. 348,820 2.4 1.5
Michael W. Doherty(11)............................................... 158,020 1.1 *
Anthony A. Barone.................................................... 11,700 * *
Paul D. Rysenga...................................................... 7,150 * *
Ronald E. Gavalis.................................................... 71,444 * *
Scott D. Rued(12).................................................... 590,836 4.1 2.1
Luigi Candusso....................................................... 12,750 * *
W. H. Clement(13).................................................... 676,926 4.7 2.5
Eric J. Rosen(2)..................................................... 10,000 * *
Matthew O. Diggs, Jr.(14)............................................ 8,500 * *
Kim B. Clark......................................................... 2,500 * *
F. J. Loughrey....................................................... 4,500 * *
All Directors and executive officers as a group (15 persons)......... 1,634,326 11.1 6.6
</TABLE>
- ------------------------
* Less than one percent.
(1) Does not reflect the exercise of the Underwriters' over-allotment option and
does not give effect to any purchases, if any, by such persons in the
Offering other than an affiliate of Onex Corporation. See Footnote 2. In the
event the over-allotment option is exercised in full, the Company will sell
an additional 1,513,500 shares in the Offering.
(2) Prior to the Offering, Onex Corporation ("Onex") had shared voting power of
3,064,120 shares and sole dispositive power of 1,486,778 shares. Onex has
indicated its intention to sell an aggregate of 1,486,778 shares of Common
Stock in the Offering. In addition, OMI Quebec FCI LLC ("OMI"), an indirect
wholly owned subsidiary of Onex, has indicated its intention to purchase an
aggregate of 500,000 shares in the Offering in order to realign its
ownership interest in the Company. See "Selling Stockholders." Eric J.
Rosen, a Director of the Company, is Managing Director of Onex Investment
Corp. and disclaims beneficial ownership of all shares of Common Stock owned
by Onex. The record holder of such shares listed in the table as owned by
Onex is ONEX DHC LLC, an affiliate of Onex ("Onex DHC"). Onex DHC and Onex
Investment Corp. are both wholly owned subsidiaries of Onex. The address for
Onex, Onex DHC and Mr. Rosen is c/o Onex Investment Corp., 712 Fifth Avenue,
40th Floor, New York, New York 10019.
(3) Onex, Messrs. Johnson, Vander Starre, Campbell, Lozelle, Doherty, Gavalis,
Rued, Clement and certain of the Company's other existing stockholders have
entered into agreements pursuant to which such stockholders agreed to vote
their shares of the Company's voting stock in the same manner as Onex votes
its shares on all matters presented to the Company's stockholders for a vote
and, to the extent permitted by law, granted to Onex a proxy to effectuate
such agreement. These voting arrangements will terminate upon completion of
the Offering.
45
<PAGE>
(4) RCM Capital Management, L.L.C. ("RCM Capital") reported as of December 31,
1996 sole voting power with respect to 897,800 shares of Common Stock and
sole dispositive power with respect to 1,002,800 shares of Common Stock. RCM
Limited L.P., as the Managing Agent of RCM Capital, and RCM General
Corporation, as the General Partner of RCM Limited L.P., also reported
beneficial ownership of such shares. The address for such entities is Four
Embarcadero Center, Suite 2900, San Francisco, California 94111. Dresdner
Bank AG also reported beneficial ownership of 1,002,800 shares of Common
Stock as a result of its being the parent corporation of RCM Capital. The
address for Dresdner Bank AG is Jurgen-Ponto-Platz 1, 60301 Frankfurt,
Germany.
(5) First Union Corporation reported as of December 31, 1996 sole voting and
dispositive power with respect to 765,204 shares of Common Stock, which
represented approximately 5.4% of the outstanding Common Stock at that time.
The address for First Union Corporation is One First Union Center,
Charlotte, North Carolina 28288.
(6) Chancellor LGT Asset Management, Inc. ("Chancellor Asset") and Chancellor
LGT Trust Company ("Chancellor Trust"), as investment advisors for various
fiduciary accounts, and LGT Asset Management, Inc. ("Asset Management") as
the holding company for Chancellor Asset, reported as of December 31, 1996
the sole power to vote and dispose of an aggregate of 717,400 shares of
Common Stock, which represented approximately 5.4% of the outstanding Common
Stock at that time. The address for Chancellor Asset and Chancellor Trust is
1166 Avenue of the Americas, New York, New York 10036 and the address for
Asset Management is 50 California Street, San Francisco, California 94111.
(7) Includes the shares owned by J2R, of which Mr. Johnson is Managing Partner,
and 57,700 shares owned by Mr. Johnson.
(8) Includes: 19,351 shares held in an irrevocable trust for the benefit of Mr.
Vander Starre's children as to all of which Mr. Vander Starre's children are
the trustees. Mr. Vander Starre disclaims beneficial ownership of the shares
held in trust.
(9) Includes: (i) 3,195 shares owned by Mr. Campbell's wife; (ii) 350 shares
owned by Mr. Campbell's child; (iii) 74,805 shares held in an annuity trust,
of which Mr. Campbell is the trustee; and (iv) 15,000 shares issuable upon
the exercise of currently exercisable options held by Mr. Campbell. Mr.
Campbell disclaims beneficial ownership of the shares held by his wife, his
child and in trust.
(10) Includes 266,600 shares of Common Stock issuable upon the conversion of
Convertible Notes and 78,816 shares issuable upon the exercise of currently
exercisable options held by Mr. Lozelle.
(11) Includes 150,816 shares owned by Mr. Doherty and 7,000 shares issuable upon
the exercise of currently exercisable options held by Mr. Doherty.
(12) Includes the shares owned by J2R, of which Mr. Rued is a partner, and
14,354 shares owned by Mr. Rued. Mr. Rued disclaims beneficial ownership of
those shares owned by J2R in which he does not have a pecuniary interest.
(13) Includes the shares owned by J2R, of which Mr. Clement is a partner, 69,744
shares owned by Mr. Clement and an aggregate of 30,700 shares held in trusts
for the benefit of Mr. Clement's grandchildren, as to all of which trusts
Mr. Clement serves as the sole trustee. Mr. Clement disclaims beneficial
ownership of those shares owned by J2R and the shares held in trust in which
he does not have a pecuniary interest.
(14) Includes 6,000 shares owned by EJJM Partnership, of which Mr. Diggs is the
General Partner and 2,500 shares issuable upon the exercise of currently
exercisable options held by Mr. Diggs. Mr. Diggs disclaims beneficial
ownership of the shares owned by EJJM Partnership in which he does not have
a pecuniary interest.
46
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the Common
Stock beneficially owned by the Selling Stockholders, before and after this
Offering, and the number of shares of Common Stock to be sold in this Offering.
To the knowledge of the Company, each of such stockholders has sole voting and
investment power as to the shares shown unless otherwise noted. Beneficial
ownership of the Common Stock listed in the table has been determined in
accordance with the applicable rules and regulations promulgated under the
Exchange Act.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ ------------------------
NO. OF PERCENT OF NO. OF SHARES NO. OF PERCENT OF
SELLING STOCKHOLDERS SHARES CLASS OFFERED HEREBY SHARES CLASS
<S> <C> <C> <C> <C> <C>
Onex (1).............................................. 3,064,120 21.4% 1,486,778 500,000 2.2%
J2R Partners (2).................................... . 576,482 4.0 103,222 473,260 2.1
</TABLE>
- ------------------------
(1) Prior to the Offering, Onex had shared voting power of 3,064,120 shares and
sole dispositive power of 1,486,778 shares. OMI has informed the Company of
its intention to purchase an aggregate of 500,000 shares in the Offering in
order for Onex to realign its ownership interest in the Company. As a
result, the Company has requested that the Underwriters reserve up to
500,000 shares for sale to OMI at the public offering price. Upon completion
of the Offering, Onex is expected to have beneficial ownership of 500,000
shares. See "Underwriting."
(2) The partners of J2R are S. A. Johnson, Scott D. Rued, W. H. Clement, Robert
R. Hibbs, Mary L. Johnson and Carl E. Nelson.
Set forth below are the material relationships which existed between the
Company and the Selling Stockholders during the last three years:
The Company, Onex and certain stockholders, including J2R and its partners,
are parties to a registration agreement pursuant to which the Company has
granted such stockholders rights to register their shares of Common Stock.
Pursuant to the terms of such agreement, the Company will pay all expenses of
the Offering attributable to the Selling Stockholders other than underwriting
discounts and commissions that may be incurred by them.
The Company, Onex, J2R and its partners and certain other investors, who
collectively own 2,310,836 shares of Common Stock (prior to the Offering), are
parties to an Investor Stockholders Agreement pursuant to which each party has
agreed to vote his or its shares in the same manner that Onex votes its shares
of Common Stock. In addition, certain members of management, who collectively
own 753,284 shares of Common Stock, have executed irrevocable proxies that grant
Onex the right to vote such shares on all matters presented to the Company's
stockholders for a vote. These voting arrangements will terminate upon
completion of the Offering.
In 1994, Hidden Creek, a partnership affiliated with Onex and J2R, received
$333,000 for providing strategic direction, management and financial services to
the Company. In addition, in 1994 the Company paid Hidden Creek an aggregate of
$500,000 for services rendered in connection with the acquisitions of Edgewood
and Kalamazoo. In 1996, the Company paid Hidden Creek an aggregate of $750,000
for services in connection with the acquisitions of Trylon and MSTI. The Company
expects to pay Hidden Creek an aggregate of $1,250,000 for services rendered in
connection with the APC Acquisition.
In May 1994, Onex acquired 788,831 shares of Common Stock for aggregate
consideration of $2,543,599 and J2R acquired 197,207 shares of Common Stock for
aggregate consideration of $4,176. Onex and J2R are parties to a Co-Investment
Agreement pursuant to which they have agreed to an allocation of the purchase
price of their investments. As a result of this allocation, the combined price
per share paid by Onex and J2R in connection with the purchase of the
above-described shares is the same price per share paid by all other
stockholders acquiring shares at such time.
47
<PAGE>
DESCRIPTION OF NEW CREDIT AGREEMENT
In connection with the APC Acquisition, the Company's principal operating
subsidiary expects to enter into the New Credit Agreement. Proceeds from
borrowings under the New Credit Agreement will be used to (i) pay a portion of
the cash purchase price of the APC Acquisition; (ii) redeem the Senior Notes;
and (iii) pay transaction fees and expenses associated with the APC Acquisition.
In the event that this Offering has not been completed at the time of the
consummation of the APC Acquisition, the Company will finance the entire APC
Acquisition with the proceeds from borrowings under the New Credit Agreement.
The Company anticipates that the New Credit Agreement will provide for a six
year revolving credit facility of up to $750 million, with a letter of credit
sublimit of $100 million and an alternative currency facility sublimit of $55
million. In addition, an additional loan of up to $200 million will be made
available to the Company in the event the APC Acquisition is consummated prior
to the receipt of the proceeds of the Offering. This loan would have a term of
18 months and would be fully repaid from the proceeds of the Offering. The
following description of the material terms of the New Credit Agreement is
qualified in its entirety by reference to the executed letter agreement relating
to the New Credit Agreement, which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Indebtedness under the New Credit Agreement will be guaranteed by the
Company and certain of its subsidiaries (with exceptions for foreign
subsidiaries to be mutually agreed upon).
The loans under the New Credit Agreement will bear interest at a rate per
annum equal to, at the Company's option, (i) the Base Rate or (ii) the reserve
adjusted LIBOR Rate plus a margin ranging from 17 to 50 basis points, depending
upon the ratio of the consolidated indebtedness of the Company to stockholders'
investment. Adjustments to the margin set forth above will be made according to
the pricing matrix that will be attached to the New Credit Agreement.
The New Credit Agreement will require the Company to meet certain financial
tests, including but not limited to minimum interest coverage, minimum
debt/capital and maximum leverage ratio. The New Credit Agreement will also
contain covenants which, among other things, will limit (i) the incurrence of
additional indebtedness and contingent obligations; (ii) the creation of liens
and encumbrances; (iii) the payment of dividends; (iv) additional investments;
(v) prepayments of other indebtedness; (vi) asset sales, acquisitions, joint
ventures, mergers and consolidations; (vii) transactions with affiliates; and
(viii) other matters customarily restricted in such agreements.
The New Credit Agreement will contain customary events of default including
but not limited to (i) payment defaults; (ii) breach of representations and
warranties; (iii) noncompliance with covenants; (iv) bankruptcy; (v) judgments
in excess of specified amounts; (vi) failure of any guaranty or security
agreement supporting the New Credit Agreement to be in full force and effect;
(vii) defaults under other instruments or agreements of indebtedness; and (viii)
a Change of Control (as such term will be defined in the New Credit Agreement).
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company, the Selling Stockholders and the Underwriters named below (the
"Underwriting Agreement"), Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), PaineWebber Incorporated, Morgan Stanley & Co. Incorporated, Robert W.
Baird & Co. Incorporated ("Baird") and Piper Jaffray Inc. (the "Underwriters")
have severally agreed to purchase from the Company and the Selling Stockholders
the respective number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
UNDERWRITER COMMON STOCK
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......................
PaineWebber Incorporated.................................................
Morgan Stanley & Co. Incorporated........................................
Robert W. Baird & Co. Incorporated.......................................
Piper Jaffray Inc........................................................
-------------------
Total................................................................ 10,090,000
-------------------
-------------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of the Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all the shares of the Common Stock if any are taken.
The Company has been advised that the Underwriters propose to offer the
shares of the Common Stock in part directly to the public initially at the
public offering price set forth on the cover page of this Prospectus and in part
to certain dealers at such price less a concession not in excess of $. per
share; that the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $. per share on sales to other dealers; and that
after the public offering, the public offering price and other selling terms may
be changed by the Underwriters. The Underwriters have informed the Company that
they do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
1,513,500 additional shares of Common Stock at the price to the public less
underwriting discounts and commissions. The Underwriters may exercise such
option only for the purpose of covering over-allotments, if any, incurred in
connection with the sales of Common Stock offered hereby. To the extent that the
Underwriters exercise such option, each Underwriter will become obligated,
subject to certain conditions, to purchase the same percentage of such
additional shares as the number of other shares to be purchased by that
Underwriter bears to the total number of shares set forth on the cover page of
this Prospectus.
The Company, its Directors and executive officers, the Selling Stockholders
and certain other stockholders have agreed with the Underwriters not to offer,
sell, contract to sell, grant any other option to purchase or otherwise dispose
of any shares of the Common Stock or any securities convertible into or
exercisable for, or warrants, rights or options to acquire, shares of Common
Stock for a period of 90 days without the prior written consent of DLJ, other
than sales of Common Stock under the Underwriting Agreement, the issuance of
shares of Common Stock upon the exercise of outstanding options and certain
transfers to affiliates.
At the request of the Company, the Underwriters have reserved up to 500,000
shares of Common Stock for sale at the public offering price to OMI. The number
of shares of Common Stock available to the general public will be reduced to the
extent OMI purchases any of the reserved shares. Any reserved shares of Common
Stock that are not so purchased by OMI at the closing of the Offering will be
offered by the Underwriters to the general public on the same terms as the other
shares in the Offering.
49
<PAGE>
The Company, its principal operating subsidiaries and the Selling
Stockholders have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that they may be required to make in respect thereof.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a syndicate
short position. Underwriters may bid for and purchase shares of Common Stock in
the open market to cover syndicate short positions. In addition, the
Underwriters may bid for and purchase shares of Common Stock in the open market
to stabilize the price of the Common Stock. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
these activities at any time.
DLJ was retained by the Company to deliver a fairness opinion to the Board
of Directors of the Company in connection with the APC Acquisition and received
usual and customary compensation for such services. Baird will receive an
advisory fee for services as financial advisor to the Company in connection with
the APC Acquisition. DLJ, Baird and the other Underwriters have in the past
provided and may continue to provide investment banking services to the Company
and its affiliates, and have received usual and customary compensation for their
services.
LEGAL MATTERS
Certain legal matters regarding the issuance of the shares of Common Stock
being offered hereby have been passed upon for the Company by Kirkland & Ellis,
Chicago, Illinois (a partnership which includes professional corporations).
Certain legal matters will be passed upon for the Underwriters by Gardner,
Carton & Douglas, Chicago, Illinois. A partner of Gardner, Carton & Douglas
holds 2,000 shares of Common Stock.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement, to the extent and for the periods indicated in
their reports, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement (the
"Registration Statement," which term shall include any amendments thereto) on
Form S-3 under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission and to which reference is hereby made. Summaries included in this
Prospectus of any documents filed as an exhibit to the Registration Statement
describe all material provisions of such documents but are not necessarily
complete. With respect to each such document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission referred to below.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and information
filed by the Company with the Commission pursuant to the informational
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C.
50
<PAGE>
20549, and at the Commission's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained at prescribed rates by writing the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. Any reports, proxy statements and other
information filed with the Commission prior to February 19, 1997 can be
inspected at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006. Reports, proxy statements and other information filed
with the Commission after such date are available for inspection at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and shall be deemed to be a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (Commission File No. 1-12733).
2. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed on February 11, 1997.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from their respective
dates of filing. Any statement contained herein or in any document incorporated
or deemed to be incorporated shall be deemed to be modified or superseded for
all purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon written or oral request of such person,
a copy of any and all of the information that has been incorporated by reference
in this Prospectus (other than exhibits thereto, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to: Tower Automotive, Inc., 4508 IDS
Center, Minneapolis, Minnesota 55402, Attention: Shareholder Services (telephone
number (612) 342-2310).
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996............... F-4
Consolidated Statements of Stockholders' Investment for the years ended December 31, 1994, 1995 and
1996................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996............... F-6
Notes to Consolidated Financial Statements............................................................... F-7
AUTOMOTIVE PRODUCTS COMPANY, A DIVISION OF A.O. SMITH CORPORATION
Report of Independent Public Accountants................................................................. F-23
Combined Statements of Net Assets to be Acquired as of December 31, 1995 and 1996........................ F-24
Combined Statements of Revenues and Expenses for the years ended December 31, 1994, 1995 and 1996........ F-25
Combined Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996................... F-26
Notes to Combined Financial Statements................................................................... F-27
</TABLE>
F-1
<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 consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated 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:
The Company recognizes revenue as its products are shipped to its customers.
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.
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.
F-9
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS: (CONTINUED)
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 14,802
---------- ----------
---------- ----------
Net income per common and common equivalent share..................... $ 1.19 $ 1.62
---------- ----------
---------- ----------
</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....................... 405,764
Other Noncurrent Liabilities.................................... 133,516
Stockholders' Investment........................................ 500,877
---------
$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................................................ $ 114,078
---------
---------
Net Income...................................................... $ 52,481
---------
---------
Net Income per Common and Common Equivalent Share............... $ 2.25
---------
---------
</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
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To A.O. Smith Corporation:
We have audited the accompanying combined statements of net assets to be
acquired 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 revenues and expenses 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.
These financial statements have been prepared to reflect the operations of
A.O. Smith Corporation to be acquired pursuant to the transaction discussed in
Note 1 and are not intended to be a complete presentation of A.O. Smith
Corporation's assets and liabilities, revenues and expenses or cash flows.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets to be acquired of the Automotive
Products Company pursuant to the Asset Purchase Agreement discussed in Note 1 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-23
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
COMBINED STATEMENTS OF NET ASSETS TO BE ACQUIRED
(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
----------- -----------
Total assets........................................................................ 469,042 601,311
----------- -----------
LIABILITIES
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................................................................... 27,800 35,700
----------- -----------
Commitments and contingencies (Note 7)
Total liabilities................................................................... 181,130 208,697
----------- -----------
Net assets to be acquired......................................................... $ 287,912 $ 392,614
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-24
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
COMBINED STATEMENTS OF REVENUES AND EXPENSES
(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................................................................ 624,766 750,131 770,095
---------- ---------- ----------
Gross profit............................................................... 97,952 95,174 92,882
Selling, general and administrative expenses................................. 34,021 37,433 37,233
---------- ---------- ----------
Revenues over expenses before interest and provision for income taxes...... 63,931 57,741 55,649
Interest expense............................................................. 4,051 5,357 6,829
---------- ---------- ----------
Revenues over expenses before provision for income taxes................... 59,880 52,384 48,820
Provision for income taxes................................................... 24,400 21,400 20,000
---------- ---------- ----------
Revenues over expenses..................................................... $ 35,480 $ 30,984 $ 28,820
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-25
<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.................................................................. $ 35,480 $ 30,984 $ 28,820
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)................................... (900) 3,900 7,900
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
---------- ---------- ----------
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-26
<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
assets and liabilities, revenues and expenses and cash flows of the operations
conducted by APC to be acquired by R.J. Tower. This presentation is intended to
provide a meaningful representation of the historical financial information of
the acquired operations and is not intended to represent a presentation of the
financial position and results of operations of A.O. Smith. 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-27
<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-28
<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>
REVENUE RECOGNITION:
The Company recognizes revenue upon shipment of product to the customer.
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 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
F-29
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 revenues and
expenses 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.
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
F-30
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. SALES TO METALSA: (CONTINUED)
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 statements of net
assets to be acquired. 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 revenues and expenses 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)...................... (900) 3,900 7,900
--------- --------- ---------
$ 24,400 $ 21,400 $ 20,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
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............... (3,300) 1,100 (400)
Other, net................................................... 100 500 300
--------- --------- ---------
Deferred income tax provision (benefit)...................... $ (900) $ 3,900 $ 7,900
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-31
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
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............................. $ 21,100 $ 18,500 $ 17,300
State income taxes, net of federal benefit................... 3,100 2,700 2,500
Effect of permanent differences.............................. 200 200 200
--------- --------- ---------
Provision for income taxes................................... $ 24,400 $ 21,400 $ 20,000
--------- --------- ---------
--------- --------- ---------
</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........................ (23,700) (24,200)
Other................................................................. 400 500
---------- ----------
Net long-term deferred tax liability.................................. $ 27,800 $ 35,700
---------- ----------
---------- ----------
</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 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.
F-32
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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>
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
F-33
<PAGE>
AUTOMOTIVE PRODUCTS COMPANY
(A DIVISION OF A.O. SMITH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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.
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-34
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
The Company.................................... 13
APC Acquisition Financing...................... 13
Use of Proceeds................................ 14
Market Price of Common Stock................... 15
Dividend Policy................................ 15
Capitalization................................. 16
Unaudited Pro Forma Financial Statements....... 17
Selected Consolidated Financial Data of the
Company...................................... 22
Selected Combined Financial Data of APC........ 24
Management's Discussion and Analysis of Results
of Operations and Financial Condition........ 25
Business....................................... 31
Management..................................... 43
Principal Stockholders......................... 45
Selling Stockholders........................... 47
Description of New Credit Agreement............ 48
Underwriting................................... 49
Legal Matters.................................. 50
Experts........................................ 50
Available Information.......................... 50
Incorporation of Certain Documents by
Reference.................................... 51
Index to Financial Statements.................. F-1
</TABLE>
10,090,000 SHARES
[LOGO]
TOWER AUTOMOTIVE, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
MORGAN STANLEY & CO.
INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
PIPER JAFFRAY INC.
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses of the Registrant in connection
with the issuance and distribution of the securities being registered, other
than underwriting discounts and commissions. All such amounts are estimates,
other than the filing fees payable to the Commission, the National Association
of Securities Dealers, Inc. ("NASD") and the listing fee to the New York Stock
Exchange.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 150,318
NASD filing fee................................................. 30,500
New York Stock Exchange listing fee............................. 65,300
Printing and mailing expenses................................... 200,000
Legal fees and expenses......................................... 500,000
Blue sky fees and expenses...................................... 10,000
Accounting fees and expenses.................................... 325,000
Miscellaneous................................................... 18,882
---------
Total....................................................... $1,300,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
permits a Delaware corporation to limit the personal liability of its directors
in accordance with the provisions set forth therein. The Restated Certificate of
Incorporation of the Registrant provides that the personal liability of its
directors shall be limited to the fullest extent permitted by applicable law.
Section 145 of the General Corporation Law of the State of Delaware contains
provisions permitting corporations organized thereunder to indemnify directors,
officers, employees or agents against expenses, judgments and fines reasonably
incurred and against certain other liabilities in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person was or is a director, officer, employee or agent of the corporation. The
Restated Certificate of Incorporation of the Registrant provide for
indemnification of its directors and officers to the fullest extent permitted by
applicable law.
The form of Underwriting Agreement attached hereto as Exhibit 1.1, which
provides for, among other things, the Registrant's sale to the Underwriters of
the securities being registered herein, will obligate the Underwriters to
indemnify the registrant and the Registrant's officers and directors against
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
ITEM 16. EXHIBITS.
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
**1.1 Form of Underwriting Agreement.
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.+
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
*4.1 Specimen Certificate for shares of Common Stock, incorporated by reference to Exhibit 4.1 of the
Company's Form S-1 Registration Statement (Registration No. 33-80320) (the "Form S-1").
*4.2 Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit
3.1 of the Form S-1.
*4.3 Amended and Restated By-Laws of the Company, incorporated by reference to Exhibit 3.2 of the Form S-1.
**4.4 Letter agreement, dated December 10, 1996, between Bank of America National Savings and Trust
Association and the Company, relating to the New Credit Agreement.
**5.1 Opinion of Kirkland & Ellis regarding legality of securities being registered.
23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Kirkland & Ellis - included in Exhibit 5.1.
*24.1 Powers of Attorney included in Part II of Registration Statement.
*27.1 Financial Data Schedule of the Company.
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request of the Commission.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis, Minnesota, as of March 25, 1997.
TOWER AUTOMOTIVE, INC.
By: /s/ S. A. JOHNSON
-----------------------------------------
S. A. Johnson
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE
*
- ------------------------ Chairman of the Board and March 25, 1997
S. A. Johnson Director
*
- ------------------------ Director March 25, 1997
Adrian Vander Starre
President, Chief Executive
* Officer and
- ------------------------ Director (Principal March 25, 1997
Dugald K. Campbell Executive Officer)
Vice President and Chief
* Financial Officer
- ------------------------ (Principal Financial and March 25, 1997
Anthony A. Barone Accounting Officer)
*
- ------------------------ Director March 25, 1997
James R. Lozelle
*
- ------------------------ Director March 25, 1997
Scott D. Rued
*
- ------------------------ Director March 25, 1997
W. H. Clement
*
- ------------------------ Director March 25, 1997
Eric J. Rosen
*
- ------------------------ Director March 25, 1997
Matthew O. Diggs, Jr.
*
- ------------------------ Director March 25, 1997
F. J. Loughrey
*
- ------------------------ Director March 25, 1997
Kim B. Clark
/s/ SCOTT D. RUED
- ------------------------ Attorney-in-Fact March 25, 1997
Scott D. Rued
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
**1.1 Form of Underwriting Agreement.
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.+
*4.1 Specimen Certificate for shares of Common Stock, incorporated by reference to Exhibit 4.1 of the
Company's Form S-1 Registration Statement (Registration No. 33-80320) (the "Form S-1").
*4.2 Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit
3.1 of the Form S-1.
*4.3 Amended and Restated By-Laws of the Company, incorporated by reference to Exhibit 3.2 of the Form S-1.
**4.4 Letter agreement, dated December 10, 1996, between Bank of America National Savings and Trust
Association and the Company, relating to the New Credit Agreement.
**5.1 Opinion of Kirkland & Ellis regarding legality of securities being registered.
23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Kirkland & Ellis - included in Exhibit 5.1.
*24.1 Powers of Attorney included in Part II of Registration Statement.
*27.1 Financial Data Schedule of the Company.
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request of the Commission.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
TOWER AUTOMOTIVE, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
