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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
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Amendment No. 2
to
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, 1997 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.
As of March 23, 1998, 23,064,087 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 $1,014,407,000.
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, 1997 (the "1997 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 19, 1998 (the "1998 Proxy
Statement").
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PART I
Item 1 set forth in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (the "Form 10-K") is hereby amended and
restated in its entirety to read as follows:
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 assemblies, 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 four years, the Company has successfully completed six acquisitions and
acquired joint venture interests in Mexico and Brazil. As a result of such
acquisitions and internal growth, the Company's revenues have increased from
approximately $86 million in 1993 to approximately $1.2 billion in 1997,
representing a compound annual growth rate of approximately 95%. The
Company's North American content per vehicle has increased from $6.23 in 1993
to $91.14 in 1997.
The Company operates in the large and highly fragmented structural
segment of the automotive supply industry, which has recently begun to
undergo significant consolidation. In order 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.
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 six strategic acquisitions and
acquired joint venture interests in Mexico and Brazil including:
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CATERINA. In March 1998, the Company acquired a 40 percent equity
interest in Metalurgica Caterina S.A. ("Caterina"), a supplier of structural
stampings and assemblies to the Brazilian automotive market. In addition,
the Company also has the right to acquire the remaining 60 percent of the
equity of Caterina in the future. The Company paid approximately $48 million
for its initial equity interest. This investment added Volkswagen and
Mercedes as new customers.
METALSA. In October 1997, the Company acquired a 40 percent equity
interest in Metalsa S. de R.L. ("Metalsa"). In addition, the Company has
entered into a technology sharing arrangement which will allow it to utilize
the latest available product and process technology. Metalsa is the largest
supplier of vehicle frames and structures in Mexico. The Company paid
approximately $120 million for its equity interest with an additional
amount of up to $45 million payable based upon Metalsa's future net earnings.
SIMES. In May 1997, the Company acquired Societa Industria Meccanica e
Stampaggio S.p.A. ("SIMES") for approximately $50.7 million in cash, plus up
to an additional $3.0 million if SIMES achieves certain operating targets
following the acquisition. The acquisition of SIMES (i) significantly
expanded the Company's global capabilities by providing the Company with a
manufacturing presence in Europe, (ii) added Fiat as a new customer and (iii)
enhanced the Company's design and engineering capabilities.
APC. In April 1997, the Company acquired Automotive Products Company
("APC"), a division of A.O. Smith, for approximately $700 million in cash.
APC is a leading designer and producer of structural and suspension
components for the automotive, light truck and heavy truck markets. The
acquisition of APC (i) expanded product offerings and modular product
opportunities; (ii) increased customer penetration within each of the three
major North American OEMs and within certain Transplants; (iii) increased
penetration in the light truck segment and other key models; (iv) added
complementary new technology; (v) provided opportunities to reduce costs and
improve operational efficiency; and (vi) provided an expanded presence in
China, Japan and South America, which complemented the Company's current
European initiatives to provide expanded global production capabilities for
both North American and international OEMs.
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, 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.
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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.
The Company completed an initial public offering (the "IPO") of its
Common Stock in August 1994, the sale of an additional 2,232,900 shares in
June 1996 and an additional 8,500,000 shares in April 1997 (in each case
without giving effect to the Company's July 1998 2-for-1 stock split). The
Company's principal executive offices are located at 4508 IDS Center,
Minneapolis, Minnesota 55402, and its telephone number is (612) 342-2310.
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 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."
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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 leadership 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 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.
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.
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SUPPLIER CONSOLIDATION. The automotive supply industry has begun to
undergo significant consolidation. In order 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 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.
PRODUCTS
The Company produces a broad range of stamped and welded assemblies for
vehicle body structures and suspension systems, many of which are critical to
the structural integrity of a vehicle. These products include body
structural assemblies such as pillars and package trays, control arms,
suspension links, engine cradles and full frame assemblies. 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. The Company's
products generally can be classified into the following categories:
Structural components, suspension components and engineered assemblies.
STRUCTURAL COMPONENTS. The Company's 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. The Company expanded its product offerings to include
structural component products that form the basic lower body structure of
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the vehicle such as 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, spring/shock towers, 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 filter 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.
OTHER. In addition to the Company's structural, suspension and
mechanical component products, the Company manufactures a variety of other
products, including heat shields and other precision stampings, for its OEM
customers.
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 28% of this
market in 1997. The Company currently supplies its products primarily to
Ford, Chrysler, General Motors, Honda, Toyota, Nissan and Mazda.
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 ten years and do not require the
purchase by the customer of any minimum number of parts. The Company also
competes for new business to supply parts for successor models and therefore
is subject to the risk that the OEM will not select the Company to produce
parts on a successor model. 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 and currently
supplies Chrysler with substantially all of its full frame requirements. The
following table presents an overview of the major models for which the
Company supplies products:
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CUSTOMER CAR MODELS TRUCK MODELS
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Ford Taurus/Sable, Contour/Mystique, Mustang, Explorer, Ranger, F-Series,
Escort, Crown Victoria, Grand Marquis, Econoline, Villager, Windstar,
Probe, Continental Medium Trucks, Expedition
Chrysler Concorde/Intrepid, Neon, Viper, Ram Pick-up, Dakota, Grand
Stratus/Cirrus/Breeze Cherokee, Voyager, Caravan,
Ram Van, Wrangler, Durango,
General Motors Cavalier, Sunfire, Grand Am, Lumina, Grand C/K Pick-up, Blazer, Chevy Van,
Prix Suburban, Tahoe, Yukon, Astro,
Safari
Honda Accord, Civic, Acura Integra
Mazda 626,MX6
Toyota Avalon, Camry Mini-van
Nissan Sentra Quest, Pick-up
Isuzu Rodeo, Amigo
Fiat Marea, Punto, Bravo
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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 forces, located at its technical centers in
Farmington Hills, Michigan, Milwaukee, Wisconsin, Yokohama, Japan and Torino,
Italy. Through its technical centers, the Company services its OEM customers
and manages its continuing programs of product design improvement and
development. The Company periodically places engineering staff 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 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.
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GLOBAL INITIATIVES
The Company has formed, or is in the process of forming, strategic
alliances with other suppliers throughout the world, including those located
in Europe, Asia and Latin America. The Company has opened a European sales
and engineering office to service its U.K. and German OEM customers. As part
of its acquisition of APC, the Company acquired a 60% equity interest in a
joint venture that manufactures structural components in China. In addition
to the Company's equity interests in Metalsa and Caterina, 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 foreign suppliers that would
provide the Company with a manufacturing presence in new geographic areas and
afford the Company access to new customer opportunities.
MANUFACTURING
The Company's manufacturing operations consist primarily of stamping
operations, system and modular assembly operations, roll-forming and
hydroforming operations and associated coating and other ancillary operations.
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 640 precision single-stage, progressive and transfer presses,
ranging in size from 150 to 4,000 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.
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.
The products manufactured by the Company use various grades and
thicknesses of steel and aluminum, 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. 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 has received quality awards from Ford (Q1) and Chrysler
(Pentastar) and has consistently received one of Ford's highest commercial
ratings for suppliers in the stamping segment. The automotive
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industry adopted a quality rating system known as QS-9000. The Company has
received QS-9000 certification in compliance with the automotive industry
requirements.
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"), Dana
Corporation, Midway Products Corp., Modern Tool & Die Co., L&W Engineering,
Midland Corporation 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 Ltd., Oxford Automotive, Inc. 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 or finished products in excess of
those reasonably required to meet production and shipping schedules. Raw
material costs represented approximately 47.9% of the Company's revenues in
1997.
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 70.7% of the Company's
revenues in 1997.
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,
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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 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, 1997, the Company had approximately 8,750 employees,
of whom approximately 4,000 are covered under collective bargaining
agreements. These collective bargaining agreements expire between 1998 and
2000. 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 48% and 19%,
respectively, of the Company's 1997 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.
- 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.
-11-
<PAGE>
Item 3 set forth in the Form 10-K is hereby amended and restated in its
entirety to read as follows:
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.
-12-
<PAGE>
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 acquisition of Trylon, MasoTech agreed to indemnify the Company for
all losses (including reasonable legal expenses) resulting from: (i) a breach
of its representation set forth in the acquisition agreement relating to
environmental and safety matters (to the extent that such breach results in
a claim being made within five years after the acquisition and subject to a
$500,000 cap); and (ii) each known environmental condition identified on a
schedule to the acquisition agreement, including the replacement of
underground storage tanks at the Traverse City facilities. In connection
with the acquisition of MSTI, MasoTech agreed to indemnify the Company for
all losses (including reasonable legal expenses) resulting from: (i) a breach
of its representation set forth in the acquisition agreement relating to
environmental and safety matters (to the extent that such breach results in a
claim being made within five years after the acquisition and subject to a
$1.5 million threshold for all losses resulting from breaches of
representation and warranties contained in the acquisition agreement); (ii)
MSTI's non-compliance with applicable federal, state, local and foreign
statutes, regulations, ordinances and similar provisions have the force or
effect of law, judicial orders and common law concerning public health and
safety, worker health and safety and pollution or protection of the
environment prior to the acquisition; and (iii) any remediation that may be
required at the Kendallville facility.
In connection with the acquisition of APC, A.O. Smith 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 closing date of the acquisition of APC. 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, offsite
disposal of hazardous substances prior to the acquisition of APC.
-13-
<PAGE>
PART IV
Item 14 set forth in the Form 10-K is hereby amended and restated in its
entirety to read as follows:
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 1997 Annual Report:
- Report of Independent Public Accountants
- Consolidated Balance Sheets as of December 31, 1997 and 1996
- Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995
- Consolidated Statements of Stockholders' Investment for the
Years Ended December 31, 1997, 1996 and 1995
- Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
- Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES:
- Report of Independent Public Accountants - S-1*
- Financial Statement Schedule I - Condensed Financial
Information of the Registrant - S-2*
----------------
* Filed herewith.
(3) EXHIBITS: See "Exhibit Index" beginning on page 21.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1997.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 2 to Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
TOWER AUTOMOTIVE, INC.
Date: October 16, 1998 By /s/ S.A. Johnson
------------------------------------
S.A. Johnson, Chairman
-15-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the consolidated balance sheets of Tower Automotive, Inc. and
Subsidiaries as of December 31, 1997 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, 1997, and have issued our
unqualified report thereon dated January 23, 1998.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule I - Condensed Financial
Information of Registrant is presented for purposes of additional analysis
and is not a required part of the basic financial statements. This
information has been subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 23, 1998 (except with respect to Note 5,
as to which the date is June 3, 1998)
S-1
<PAGE>
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
ASSETS
Investment in consolidated subsidiaries $181,877 $713,614
Debt issue costs, net of accumulated amortization of
-- and $344 -- 5,915
---------- -----------
$181,877 $719,529
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Accrued liabilities $ -- $ 4,250
Convertible subordinated notes -- 200,000
---------- -----------
Commitments and contingencies
Stockholders' investment:
Preferred stock, par value $1; 5,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock, par value $.01; 200,000,000 shares
authorized; 28,567,586 and 45,975,490 shares issued
and outstanding 286 460
Warrants to acquire common stock 2,000 2,000
Additional paid-in capital 136,441 423,425
Retained earnings 43,150 89,394
---------- -----------
Total stockholders' investment 181,877 515,279
---------- -----------
$181,877 $719,529
---------- -----------
---------- -----------
The accompanying notes are an integral part of these condensed balance sheets.
</TABLE>
S-2
<PAGE>
SCHEDULE I
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Amortization expense $ -- $ -- $ 344
---------- ---------- ----------
Operating loss -- -- (344)
Interest expense -- -- 4,250
---------- ---------- ----------
Loss before income taxes and equity in earnings
of consolidated subsidiaries -- -- (4,594)
Income tax benefit -- -- 1,838
Equity in earnings of consolidated subsidiaries 12,071 20,637 49,000
---------- ---------- ----------
Net income $ 12,071 $ 20,637 $ 46,244
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of the condensed statements.
</TABLE>
S-3
<PAGE>
SCHEDULE I
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL WARRANTS TO
------------------------------ PAID-IN RETAINED ACQUIRE
SHARES AMOUNT CAPITAL EARNINGS COMMON STOCK
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 21,652,492 $216 $ 62,481 $10,442 $ --
Sales of stock under Employee Stock
Discount Purchase Plan 8,286 1 33 -- --
Collection of common stock
subscriptions receivable -- -- 341 -- --
Net income -- -- -- 12,071 --
-------------- --------- ---------- ---------- ---------
BALANCE, DECEMBER 31, 1995 21,660,778 217 62,855 22,513 --
Conversion of Edgewood notes 821,058 8 2,484 -- --
Exercise of options 13,250 -- 48 -- --
Sales of stock under Employee Stock
Discount Purchase Plan 36,700 -- 263 -- --
Collection of common stock
subscriptions receivable -- -- 322 -- --
Public offering of common stock, net 4,465,800 45 51,252 -- --
Issuance of shares and warrants in
acquisition of MSTI 1,570,000 16 19,217 -- 2,000
Net income -- -- -- 20,637 --
-------------- --------- ---------- ---------- ---------
BALANCE, DECEMBER 31, 1996 28,567,586 286 136,441 43,150 2,000
Conversion of Edgewood notes 225,502 2 682 -- --
Exercise of options 52,600 1 234 -- --
Sales of stock under Employee
Stock Discount Purchase Plan 129,802 1 1,575 - --
Collection of common stock
subscriptions receivable -- -- 78 -- --
Public offering of common stock, net 17,000,000 170 284,393 -- --
Cumulative translation adjustment -- -- 22 -- --
Net income -- -- -- 46,244 --
-------------- --------- ---------- ---------- ---------
BALANCE, DECEMBER 31, 1997 45,975,490 $460 $423,425 $89,394 $2,000
-------------- --------- ---------- ---------- ---------
-------------- --------- ---------- ---------- ---------
The accompanying notes are an integral part of these condensed statements.
</TABLE>
S-4
<PAGE>
SCHEDULE I
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Operating Activities:
Net income $ 12,071 $ 20,637 $ 46,244
Equity in earnings of consolidates subsidiaries (12,071) (20,637) (49,000)
Change in current operating items -- accrued liabilities -- -- 4,250
---------- ----------- ----------
Net cash provided by operating activities -- -- 1,494
---------- ----------- ----------
Investing Activities:
Dividends received from consolidated subsidiaries -- -- 5,108
Additional investment in consolidated subsidiaries (34) (51,560) (487,633)
---------- ----------- ----------
Net cash used for investing activities (34) (51,560) (482,525)
---------- ----------- ----------
Financing Activities:
Net proceeds from issuance of common stock 34 51,560 286,139
Net proceeds from issuance of convertible
subordinated notes -- -- 194,892
---------- ----------- ----------
Net cash provided by financing activities 34 51,560 481,031
---------- ----------- ----------
Net change in cash and cash equivalents -- -- --
Cash and cash equivalents:
Beginning of period -- -- --
---------- ----------- ----------
End of period $ -- $ -- $ --
---------- ----------- ----------
---------- ----------- ----------
Supplemental Cash Flow Information:
Cash paid for -
Interest $ -- $ -- $ --
---------- ----------- ----------
---------- ----------- ----------
Income taxes $ -- $ -- $ --
---------- ----------- ----------
---------- ----------- ----------
The accompanying notes are an integral part of these condensed statements.
</TABLE>
S-5
<PAGE>
SCHEDULE I
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND OPERATIONS
Tower Automotive, Inc. (the "Parent Company") and its consolidated
subsidiaries (the "Subsidiaries"), collectively the Company, produces a
broad range of stamped and welded assemblies for vehicle body structures
and suspension systems for the global automotive industry. The Company
has 35 locations in the United States, Canada, Italy and Japan, a
facility in China through its joint venture investments in China and two
in Mexico through its joint venture investment in Metalsa.
The Notes to Consolidated Financial Statements of Tower Automotive, Inc.
and Subsidiaries should be read in conjunction with this Schedule I.
NOTE 2. CONVERTIBLE SUBORDINATED NOTES
In July 1997, the Parent Company completed the offering of $200 million of
Convertible Subordinated Notes (the "Notes"). The net proceeds from the
Notes, $194.9 million, were contributed as an additional investment in the
Subsidiaries. The Notes bear interest at 5 percent, are unsecured, are due
on August 1, 2004 and are convertible into Common Stock of the Parent
Company at a conversion price of $25.88 per share. The Parent Company may
make optional redemptions of the Notes after August 1, 2000 at amounts
ranging from 102.857 percent to 100.714 percent of face value. In the
event of a change in control (as defined), the holders of the Notes may
require the Parent Company to redeem the Notes at face value plus accrued
interest.
NOTE 3. STOCKHOLDERS' INVESTMENT
In April 1997, the Parent Company completed an offering of
17,000,000 shares of Common Stock in a public offering at an offering
price of $17.50 per share. The net proceeds of approximately
$286.1 million were contributed as an additional investment in the
Subsidiaries.
On May 19, 1998, the Parent Company's Board of Directors approved a
two-for-one stock split, which was effected as a stock dividend. On
July 15, 1998, stockholders were issued one additional share of Common
Stock for each share of Common Stock held on the record date of June 30,
1998. All references to the number of common shares and per share
amounts have been adjusted to reflect the stock split on a retroactive
basis.
NOTE 4. GUARANTEES AND RESTRICTIONS
GUARANTEE OF SUBSIDIARIES' DEBT
In April 1997, the Subsidiaries entered into a revolving credit facility
that provides for borrowings of up to $750 million on an unsecured basis.
The Parent Company provided a guarantee for this debt. Under the terms of
the credit facility, the equivalent of up to $85 million in borrowings can
be denominated in foreign currency. As of December 31,
S-6
<PAGE>
SCHEDULE I
1997, approximately $51.4 million of the $465.6 million outstanding
borrowings were denominated in Italian lira. The amount available under
the revolving credit facility reduces to $675 million in April 2000, $600
million in April 2001 and $500 million in April 2002. The credit facility
has a final maturity of April 2003. Interest on the credit facility is at
the prime rate or LIBOR plus a margin ranging from 17 to 50 basis points
depending upon the ratio of the consolidated indebtedness of the Company
to its total capitalization. The weighted average interest rate for such
borrowings was 6.5 percent for the year ended December 31, 1997.
RESTRICTIONS ON THE ABILITY OF THE SUBSIDIARIES TO MAKE DISTRIBUTIONS TO
THE PARENT COMPANY
Under the terms of the revolving credit facility described above, the
Subsidiaries are restricted in their ability to dividend, loan or otherwise
distribute assets, properties, cash, rights, obligations or securities to
the Parent Company. These restrictions are subject to a number of important
exceptions, including the ability of the Subsidiaries to: (i) declare or
pay cash dividends to the Parent Company in an aggregate amount equal to
50% of the net income of the Company arising after December 31, 1996 and
computed on a cumulative basis (provided that no event of default exists
after giving effect to such action); (ii) declare and pay dividends to the
Parent Company to be used to pay taxes and other expenses of the Parent
Company and the Subsidiaries on a consolidated basis; and (iii) declare and
pay dividends to the Parent Company to enable the Parent Company to make
regularly scheduled interest payments or the payment of principal at
maturity of any unsecured indebtedness issued by the Parent Company
(including the Notes and the Debentures (See Note 5)), the proceeds of
which are applied to the prepayment of the revolving loans, in each case
(a) has no scheduled principal payments before April 18, 2004; (b) has no
guaranty obligation by the borrower under the revolving credit facility
and (c) has terms and conditions which are acceptable to the principal
lender under the revolving credit facility. As of December 31, 1997, the
Subsidiaries could have paid up to approximately $23.1 million to the
Parent Company under the exception described in item (i) above.
NOTE 5. SUBSEQUENT EVENT
On June 9, 1998, Tower Automotive Capital Trust (the "Issuer"), a wholly
owned statutory business trust of the Parent Company, completed the
offering of $258.8 million of its 6 3/4% Trust Convertible Preferred
Securities ("Preferred Securities"), resulting in net proceeds of
approximately $251.3 million. The Preferred Securities are redeemable, in
whole or in part, on or after June 30, 2001 and all Preferred Securities
must be redeemed no later than June 30, 2018. The Preferred Securities are
convertible, at the option of the holder, into Common Stock of the
Parent Company at a rate of 1.6280 shares of Common Stock for each
Preferred Security, which is equivalent to a conversion price of
$30.713 per share. The obligations of the Issuer under the Preferred
Securities are fully and unconditionally guaranteed by the Parent Company.
Concurrently with the issuance of the Preferred Securities, the Issuer
acquired $258.8 million of the Parent Company's 6 3/4% Convertible
Subordinated Debentures ("Debentures") for net proceeds of $251.3 million.
Interest is payable quarterly and the notes mature on June 30, 2018. The
net proceeds received from the issuance of the Debentures by the Parent
Company were contributed as an additional investment in the Subsidiaries.
S-7
