<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-12733
TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4508 IDS CENTER 55402
MINNEAPOLIS, MINNESOTA (Zip Code)
(Address of principal executive offices)
(612) 342-2310
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at April 15, 1998 was 23,064,087 shares.
<PAGE>
TOWER AUTOMOTIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 1998 and 1997
Consolidated Balance Sheets (unaudited) at March 31, 1998 and
December 31, 1997
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
SIGNATURE
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<PAGE>
ITEM 1 - FINANCIAL INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS - UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues $ 457,129 $ 125,117
Cost of sales 393,940 106,105
---------- ----------
Gross profit 63,189 19,012
Selling, general and administrative expenses 21,140 5,812
Amortization expense 3,264 660
---------- ----------
Operating income 38,785 12,540
Interest expense, net 11,915 1,348
---------- ----------
Income before provision for income taxes 26,870 11,192
Provision for income taxes 10,748 4,474
---------- ----------
Income before equity in earnings of joint ventures 16,122 6,718
Equity in earnings of joint ventures 2,698 -
---------- ----------
Net income $ 18,820 $ 6,718
---------- ----------
---------- ----------
Basic earnings per share $ 0.82 $ 0.47
---------- ----------
---------- ----------
Basic shares outstanding 23,041 14,338
---------- ----------
---------- ----------
Diluted earnings per share $ 0.75 $ 0.45
---------- ----------
---------- ----------
Diluted shares outstanding 27,429 14,977
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated statements.
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<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1998 1997
- -------------------------------------------------- ----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 277 $ -
Accounts receivable 285,397 219,256
Inventories 79,151 73,809
Prepaid tooling and other 85,175 78,217
---------- ----------
Total current assets 450,000 371,282
Property, plant and equipment, net 715,476 698,511
Restricted cash 7,993 7,902
Deferred income taxes 14,108 14,108
Investments in joint ventures 198,813 147,188
Goodwill and other assets, net 441,924 441,097
---------- ----------
$1,828,314 $1,680,088
---------- ----------
---------- ----------
Liabilities and Stockholders' Investment
- --------------------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 5,004 $ 5,004
Accounts payable 193,063 143,902
Accrued liabilities 89,932 81,784
---------- ----------
Total current liabilities 287,999 230,690
Long-term debt, net of current maturities 590,920 513,653
Obligations under capital leases, net of current
maturities 29,179 30,281
Convertible subordinated notes 200,000 200,000
Other noncurrent liabilities 184,758 190,185
---------- ----------
Stockholders' investment:
Preferred stock - -
Common stock 231 230
Warrants to acquire common stock 2,000 2,000
Additional paid-in capital 425,013 423,655
Retained earnings 108,214 89,394
---------- ----------
Total stockholders' investment 535,458 515,279
---------- ----------
$1,828,314 $1,680,088
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
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<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 18,820 $ 6,718
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization 20,895 4,250
Changes in other operating items (32,739) (7,894)
--------- --------
Net cash provided by operating activities 6,976 3,074
--------- --------
INVESTING ACTIVITIES:
Acquisitions and investment in joint venture (49,491) -
Capital expenditures, net (34,596) (10,522)
Change in restricted cash (91) (14)
--------- --------
Net cash used in investing activities (84,178) (10,536)
--------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings 242,000 -
Repayment of debt (165,835) (19)
Proceeds from issuance of stock 1,163 1,073
Other, net 151 119
--------- --------
Net cash provided by financing activities 77,479 1,173
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 277 (6,289)
CASH AND CASH EQUIVALENTS:
Beginning of period - 39,596
--------- --------
End of period $ 277 $ 33,307
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated statements.
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<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared by Tower Automotive, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
The information furnished in the condensed consolidated financial
statements includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Company's 1997 Annual
Report to Stockholders.
Revenues and operating results for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the full
year.
2. Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
--------- ----------
<S> <C> <C>
Raw materials $ 21,642 $ 14,601
Work in process 35,868 38,763
Finished goods 21,641 20,445
--------- ----------
$ 79,151 $ 73,809
--------- ----------
--------- ----------
</TABLE>
3. Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during the respective
quarters. Diluted earnings per share were determined on the assumptions:
(i) the Edgewood notes were converted at the beginning of the respective
periods, and (ii) the Convertible Subordinated Notes were converted upon
issuance on July 29, 1997 as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 18,820 $ 6,718
Interest expense on Edgewood notes,
net of tax 10 35
Interest expense on Convertible
Subordinated Notes, net of tax 1,627 -
--------- --------
Net income applicable to common
stockholders -- diluted $ 20,457 $ 6,753
--------- --------
--------- --------
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<PAGE>
Weighted average number of
common shares outstanding 23,041 14,338
Dilutive effect of outstanding stock
options and warrants after application
of the treasury stock method 239 230
Dilutive effect of Edgewood notes,
assuming conversion 284 409
Dilutive effect of Convertible
Subordinated Notes,
assuming conversion 3,865 -
--------- --------
Diluted shares outstanding 27,429 14,977
--------- --------
--------- --------
Basic earnings per share $ 0.82 $ 0.47
--------- --------
--------- --------
Diluted earnings per share $ 0.75 $ 0.45
--------- --------
--------- --------
</TABLE>
The Company adopted SFAS No. 128, "Earnings per Share," effective
December 15, 1997. As a result, the Company's reported earnings per
share (EPS) for three months ended March 31, 1997 have been restated
as follows:
<TABLE>
<S> <C>
Primary EPS as reported $0.45
Effect of SFAS No. 128 0.02
-----
Basic EPS as restated $0.47
-----
-----
Fully diluted EPS as reported $0.45
Effect of SFAS No. 128 -
-----
Diluted EPS as restated $0.45
-----
-----
</TABLE>
4. Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Revolving credit facility $ 543,050 $ 465,599
Industrial development revenue bonds 43,765 43,765
Edgewood notes 1,642 1,824
Other 3,185 3,187
---------- ----------
591,642 514,375
Less-current maturities (722) (722)
---------- ----------
Total long-term debt $ 590,920 $ 513,653
---------- ----------
---------- ----------
</TABLE>
On April 18, 1997, the Company entered into a new revolving credit facility
that provides for borrowings of up to $750 million on an unsecured basis.
Under the terms of the credit facility, the equivalent of up to $60 million
in borrowings can be denominated in foreign currency. As of March 31,
1998, approximately $49.7 million of the outstanding borrowings are
denominated in lira. The amount available under the revolving credit
facility reduces to
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<PAGE>
$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 6.8% at March 31, 1998. The new credit facility requires the
Company to meet certain financial covenants, including but not limited
to minimum interest coverage, minimum debt/capital and maximum leverage
ratio. The Company was in compliance with all covenants as of March 31,
1998.
On July 29, 1997, the Company completed the sale of $200 million of 5%
Convertible Subordinated Notes (the "Notes") pursuant to a private
placement. The Notes are due on August 1, 2004 and are convertible into
Tower Automotive Common Stock at a conversion price of $51.75 per share.
The Notes are unsecured and may not be redeemed until August 1, 2000,
except in the event of a change in control. Proceeds from the Notes were
used to repay outstanding indebtedness under the revolving credit facility.
5. On April 18, 1997, the Company completed the following transactions:
(a) Issued 8,500,000 shares of Common Stock in a public offering at an
offering price of $35 per share (the "Offering"). Net proceeds to the
Company, after underwriting discounts and offering expenses, were
approximately $285 million.
(b) Repaid outstanding senior notes with a principal balance of $65
million plus accrued interest. In connection with the repayment, the
Company paid prepayment penalties and wrote off deferred financing
costs which resulted in an extraordinary loss, net of income taxes, of
approximately $2.4 million.
(c) Acquired and assumed substantially all of the assets and liabilities
of Automotive Products Company ("APC"), a division of A.O. Smith
Corporation. The aggregate purchase price consisted of approximately
$700 million in cash and was financed with the proceeds from the
Offering and borrowings under the new credit facility. APC, which has
15 facilities, designs and manufactures frames, frame components,
engine cradles, suspension components and modules for the North
American automotive and heavy truck industries. This acquisition has
been accounted for using the purchase method of accounting and,
accordingly, APC's assets and liabilities have been recorded at fair
value as of the acquisition date, with the excess purchase price
recorded as goodwill. Additional purchase liabilities recorded
included approximately $19.1 million for costs associated with the
shutdown and consolidation of certain acquired facilities and $8.9
million for severance and related costs. At March 31, 1998,
liabilities of approximately $19.1 million for facility-related costs
and $4.6 million in severance costs remain on the condensed
consolidated balance sheet.
Following are unaudited pro forma condensed results of operations for the
three months ended March 31, 1997 as if the following were completed at the
beginning of the period: (i) the acquisition of APC; (ii) the refinancing
of the old credit agreement and the redemption of
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<PAGE>
outstanding senior notes; (iii) the Offering; and (iv) the sale of the
Notes (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1997
--------------
<S> <C>
Revenues $ 359,015
----------
----------
Operating income $ 32,748
----------
----------
Net income $ 14,585
----------
----------
Shares outstanding -
Basic 22,838
----------
----------
Diluted 27,342
----------
----------
Net income per share -
Basic $ 0.64
----------
----------
Diluted $ 0.60
----------
----------
</TABLE>
The unaudited pro forma financial information does not purport to represent
what the Company's results of operations would actually have been if such
transactions had occurred on such dates.
6. Effective October 1997, the Company is party to interest rate swap
contracts to hedge against interest rate exposures on certain floating-rate
indebtedness. These contracts, which expire in November 2002, have the
effect of converting the floating-rate interest related to a notional
amount of $300 million of borrowings outstanding under the revolving credit
facility into fixed-rate interest of approximately 6.75%. These interest
rate swap contracts were entered into in order to balance the Company's
fixed-rate and floating-rate debt portfolios. Under these interest rate
swaps, the Company agrees with the other party to exchange, at specified
intervals, the difference between fixed-rate and floating-rate interest
amounts calculated by reference to an agreed notional principal amount.
While the Company is exposed to credit loss on its interest rate swap in
the event of nonperformance by the counterparty to such swap, management
believes that such nonperformance is unlikely to occur given the financial
resources of the counterparty.
7. On May 9, 1997, the Company acquired Societa Industria Meccanica e
Stampaggio S.p.A. ("SIMES"). SIMES designs and manufactures structural
metal components in two facilities in Italy, principally for Fiat. The
purchase price consisted of $50.7 million in cash, plus an additional $3
million based upon the future operating performance of SIMES. The results
of operations of SIMES are not significant to the operating results of the
Company as a whole and have, therefore, been excluded from the pro forma
results included in Note 5.
8. On October 9, 1997, the Company completed an agreement to become a partner
in Metalsa S. de R.L. ("Metalsa") with Promotora de Empresas Zano, S.A. de
C.V. ("Proeza"). Metalsa is the largest supplier of vehicle frames and
structures in Mexico. Under the terms of the agreement, the Company
acquired a 40% equity interest in Metalsa. In addition, the parties have
entered into a technology sharing arrangement that will enable both
companies to utilize the latest available product and process technology.
Metalsa is headquartered in
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<PAGE>
Monterrey, Mexico and has manufacturing facilities in Monterrey and San
Luis Potosi, Mexico. Metalsa's customers include Chrysler, General
Motors, Ford, Nissan and Mercedes. In connection with this agreement,
the Company paid $120 million to Proeza, with an additional amount of up
to $45 million payable based upon future net earnings of Metalsa.
9. On March 11, 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.
10. Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement established standards for reporting
and display of comprehensive income and its components. Comprehensive
income reflects the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. For the Company, comprehensive income represents net income
adjusted for foreign currency translation adjustments. Comprehensive
income was approximately $18.8 million and $6.7 million for the quarters
ended March 31, 1998 and 1997, respectively.
11. During February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," effective for fiscal years beginning after December 31, 1997.
SFAS No. 132 revises certain of the disclosure requirements, but does not
change the measurement or recognition of those plans. SFAS No. 132
superceded SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The adoption of SFAS No. 132 will result in revised
and additional disclosures, but will have no effect on the financial
position, results of operations, or liquidity of the Company.
12. Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash paid for -
Interest $ 14,127 $ 759
Income taxes 758 2,540
</TABLE>
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<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED
MARCH 31, 1997
REVENUES -- Revenues for the three months ended March 31, 1998 were $457.1
million, a substantial increase compared to $125.1 million for the three months
ended March 31, 1997. Approximately $300 million of the increase in revenues
over 1997 is attributable to the acquisitions of Automotive Products Company
("APC") in April 1997 and Societa Industria Meccanica e Stampaggio S.p.A.
("SIMES") in May 1997. The remaining increase is due to new business awarded to
the Company, including business relating to the Ford Escort, Econoline and
Expedition, Dodge Durango, Dakota and Ram Club Cab pick-ups and Toyota Camry
offset by a decline in production of certain models served by the Company.
COST OF SALES -- Cost of sales as a percentage of revenues for the three
months ended March 31, 1998 was 86.2% compared to 84.8% for the three months
ended March 31, 1997. The decrease in gross margin was due to a higher
proportion of components purchased from outside suppliers as a result of the APC
acquisition and launch costs associated with new business. These decreases were
partially offset by operating efficiencies and productivity initiatives
implemented at many of the Company's larger facilities.
S, G & A EXPENSES -- Selling, general and administrative expenses increased to
$21.1 million, or 4.6% of revenues, for the three months ended March 31, 1998
compared to $5.8 million, or 4.6% of revenues, for the three months ended March
31, 1997. The increased expense was due primarily to incremental costs
associated with the Company's acquisitions of APC and SIMES as well as increased
engineering and program development costs related to new business.
AMORTIZATION EXPENSE -- Amortization expense for the three months ended March
31, 1998 was $3.3 million compared to $660,000 for the three months ended March
31, 1997. The increase was due to incremental goodwill amortization related to
the acquisitions of APC and SIMES.
INTEREST EXPENSE -- Interest expense for the three-month period ended March
31, 1998 was $11.9 million compared to $1.3 million for the three months ended
March 31, 1997. Interest expense was affected by (i) increased borrowings
incurred to fund the acquisitions of APC and SIMES, (ii) the acquisitions of the
Company's joint venture interests in Metalsa S. de R.L. ("Metalsa") in October
1997 and Metalurgica Caterina S.A. ("Caterina") in March 1998, (iii) more
favorable terms related to the Company's borrowings under the credit agreement
entered into in April 1997, (iv) the proceeds from the April 1997 offering of
8,500,000 shares of Common Stock at $35 per share (the "Offering"), and (v) the
proceeds from the July 1997 sale of $200 million of 5% Convertible Subordinated
Notes (the "Notes").
INCOME TAXES -- The effective income tax rate was 40% for the three months
ended March 31, 1998 and 1997. The effective rates differed from the statutory
rates primarily as a result of state taxes and non-deductible goodwill
amortization.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In April 1997, the Company entered into a new revolving credit facility that
provides for borrowings of up to $750 million on an unsecured basis. Under the
terms of the credit facility, the equivalent of up to $60 million in borrowings
can be denominated in foreign currency. As of March 31, 1998, approximately
$49.7 million of the $543.1 million outstanding borrowings are denominated in
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 6.8% at March 31, 1998.
In July 1997, the Company completed the sale of the Notes pursuant to a private
placement. The Notes are due on August 1, 2004 and are convertible into Tower
Automotive common stock at a conversion price of $51.75 per share. The Notes
are unsecured and may not be redeemed until August 1, 2000, except in the event
of a change in control. Proceeds from the Notes were used to repay outstanding
indebtedness under the revolving credit facility.
Effective October 1997, the Company is party to interest rate swap contracts to
hedge against interest rate exposures on certain floating-rate indebtedness.
These contracts, which expire in November 2002, have the effect of converting
the floating-rate interest related to a notional amount of $300 million of
borrowings outstanding under the revolving credit facility into fixed-rate
interest of approximately 6.75%. These interest rate swap contracts were
entered into in order to balance the Company's fixed-rate and floating-rate debt
portfolios. Under these interest rate swaps, the Company agrees with the other
party to exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount.
The Company financed the cash portion of the MSTI acquisition through the
issuance of two series of senior notes having an aggregate principal amount of
$65 million. The senior notes were retired in connection with the Offering and
the new revolving credit facility described above. In connection with the
retirement, the Company paid prepayment penalties and wrote off deferred
financing costs which resulted in an extraordinary loss, net of income taxes, of
approximately $2.4 million.
The debt agreements described above contain various restrictive covenants which,
among other matters, require the Company to maintain certain financial ratios,
including but not limited to interest coverage, debt to capital and total
leverage. The agreements also limit additional indebtedness, capital
expenditures and cash dividends. The Company was in compliance with all debt
covenants as of March 31, 1998.
On April 18, 1997, the Company acquired APC, a division of A.O. Smith
Corporation. The aggregate purchase price was approximately $700 million and
was financed with the proceeds from the Offering and borrowings under the new
credit facility. APC, which has 15 facilities, designs and manufactures frames,
frame components, engine cradles, suspension components and modules for the
North American automotive and heavy truck industries.
-12-
<PAGE>
On May 9, 1997, the Company acquired SIMES, headquartered in Turin, Italy.
SIMES designs and manufactures structural metal components in two facilities in
Italy, principally for Fiat. The purchase price was approximately $50.7 million
and was financed with borrowings under the Company's revolving credit facility.
The Company may pay an additional $3 million in the future if certain operating
targets are met by SIMES.
On October 9, 1997, the Company completed an agreement to become a partner in
Metalsa with Promotora de Empresas Zano, S.A. de C.V. ("Proeza"). Metalsa is
the largest supplier of vehicle frames and structures in Mexico. Under the
terms of the agreement, the Company acquired a 40 percent equity interest in
Metalsa. In addition, the parties have entered into a technology sharing
arrangement that will enable both companies to utilize the latest available
product and process technology. Metalsa is headquartered in Monterrey, Mexico
and has manufacturing facilities in Monterrey and San Luis Potosi, Mexico.
Metalsa's customers include Chrysler, General Motors, Ford, Nissan and Mercedes.
In connection with this agreement, the Company paid $120 million to Proeza, with
an additional amount of up to $45 million payable based upon the net earnings of
Metalsa in 1998, 1999 and 2000. The investment in Metalsa was financed with
proceeds from borrowings under the Company's revolving credit facility.
On March 11, 1998, the Company acquired a 40 percent equity interest in
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.
During the three months ended March 31, 1998, the Company generated $7.0 million
of cash from operations, which was used to partially fund capital expenditures.
The Company has made substantial investments in manufacturing technology and
product design capability to support its products. The Company made capital
expenditures of approximately $34.6 million for the three months ended March 31,
1998, primarily for equipment and dedicated tooling purchases related to new or
replacement programs.
The Company believes the borrowing availability under its credit agreement,
together with funds generated by operations, should provide the Company with the
liquidity and capital resources to pursue its business strategy through 1998,
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
effected the Company's business over the past 12 months. However, because
selling prices generally cannot be increased until a model changeover, the
effects of inflation must be offset by productivity improvements and volume from
new business awards.
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<PAGE>
YEAR 2000
The Company is in the process of modifying its computer systems to accommodate
the year 2000 and currently expects to complete this modification sufficiently
in advance of the year 2000 so as not to adversely affect its operations. The
Company does not expect to incur more than $5 million of total costs in
connection with these year 2000 modifications. Failure of the Company to make
required modifications on a timely basis or the inability of other companies
with which the Company does business to complete their year 2000 modifications
on a timely basis, could adversely effect the Company's operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1997, the Financial Accounting Standards Board released SFAS No.
131, "Disclosures about Segments of an Enterprise and related Information,"
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires disclosure of business and geographic segments in the consolidated
financial statements of the Company. The Company will adopt SFAS No. 131 in
1998 and is currently analyzing the impact it will have on the disclosures in
its financial statements.
During February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
effective for fiscal years beginning after December 31, 1997. SFAS No. 132
revises certain of the disclosure requirements, but does not change the
measurement or recognition of those plans. SFAS No. 132 superceded SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The adoption of SFAS No. 132 will result in revised and additional disclosures,
but will have no effect on the financial position, results of operations, or
liquidity of the Company.
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<PAGE>
PART II. OTHER INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None
Item 2. Change in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
None
(b) During the quarter for which this report is filed, the Company
filed no Form 8-K Current reports with the Securities and
Exchange Commission.
-15-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER AUTOMOTIVE, INC.
Date: May 11, 1998 By /s/ Anthony A. Barone
-------------------------------------
Anthony A. Barone
Vice President, Chief Financial Officer
(principal accounting and financial officer)
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 277
<SECURITIES> 0
<RECEIVABLES> 285,397
<ALLOWANCES> 0
<INVENTORY> 79,151
<CURRENT-ASSETS> 450,000
<PP&E> 798,434
<DEPRECIATION> (82,958)
<TOTAL-ASSETS> 1,828,314
<CURRENT-LIABILITIES> 287,999
<BONDS> 0
0
0
<COMMON> 231
<OTHER-SE> 535,227
<TOTAL-LIABILITY-AND-EQUITY> 1,828,314
<SALES> 457,129
<TOTAL-REVENUES> 457,129
<CGS> 393,940
<TOTAL-COSTS> 393,940
<OTHER-EXPENSES> 24,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,915
<INCOME-PRETAX> 26,870
<INCOME-TAX> 10,748
<INCOME-CONTINUING> 18,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,820
<EPS-PRIMARY> .82
<EPS-DILUTED> .75
</TABLE>
