<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, 1999
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, 1999 was 46,888,364 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, 1999 and
1998
Condensed Consolidated Balance Sheets at March 31, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended March 31, 1999 and
1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Market Risk & Foreign Currency Transactions"
Sections of Management Discussion & Analysis
PART II OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
SIGNATURE
-2-
<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,
-------------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues $ 498,572 $ 457,129
Cost of sales 419,125 393,940
---------------- ---------------
Gross profit 79,447 63,189
Selling, general and administrative expenses 22,420 21,140
Amortization expense 3,450 3,264
---------------- ---------------
Operating income 53,577 38,785
Interest expense, net 7,267 11,915
---------------- ---------------
Income before provision for income taxes 46,310 26,870
Provision for income taxes 18,524 10,748
---------------- ---------------
Income before equity in earnings of joint
ventures and minority interest 27,786 16,122
Equity in earnings of joint ventures 2,913 2,698
Minority interest - dividends on trust
preferred securities, net (2,623) --
---------------- ---------------
Net income $ 28,076 $ 18,820
================ ===============
Basic earnings per share $ 0.60 $ 0.41
================ ===============
Diluted earnings per share $ 0.51 $ 0.37
================ ===============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
-3-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
Assets 1999 1998
---- ----
- ------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,982 $ 3,434
Accounts receivable 296,589 239,888
Inventories 84,104 76,913
Prepaid tooling and other 97,907 115,859
--------------- ----------------
Total current assets 483,582 436,094
--------------- ----------------
Property, plant and equipment, net 852,481 821,873
Restricted cash 2,705 2,677
Investments in joint ventures 212,537 209,625
Goodwill and other assets, net 460,030 465,898
--------------- ----------------
$ 2,011,335 $ 1,936,167
=============== ================
Liabilities and Stockholders' Investment
- ------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt and capital lease
obligations $ 21,309 $ 18,191
Accounts payable 209,337 214,194
Accrued liabilities 104,468 96,773
--------------- ----------------
Total current liabilities 335,114 329,158
--------------- ----------------
Long-term debt, net of current maturities 374,155 316,579
Obligations under capital leases, net of current maturities 24,611 25,770
Convertible subordinated notes 200,000 200,000
Deferred income taxes 20,376 20,376
Other noncurrent liabilities 159,035 178,738
--------------- ----------------
Total non-current liabilities 778,177 741,463
--------------- ----------------
Mandatorily redeemable trust convertible preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 469 463
Warrants to acquire common stock 2,000 2,000
Additional paid-in capital 433,695 426,471
Retained earnings 205,510 177,434
Accumulated other comprehensive income - cumulative
translation adjustment (2,380) 428
--------------- ----------------
Total stockholders' investment 639,294 606,796
--------------- ----------------
$ 2,011,335 $ 1,936,167
=============== ================
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
-4-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 28,076 $ 18,820
Adjustments to reconcile net income to net cash provided by (used
in)
operating activities -
Depreciation and amortization 24,377 20,895
Changes in other operating items (66,250) (32,739)
--------------- ---------------
Net cash provided by (used in) operating activities (13,797) 6,976
-------------- ---------------
INVESTING ACTIVITIES:
Acquisitions and investment in joint venture -- (49,491)
Capital expenditures, net (51,535) (34,596)
Change in restricted cash (28) (91)
-------------- ---------------
Net cash used in investing activities (51,563) (84,178)
-------------- ---------------
FINANCING ACTIVITIES:
Proceeds from borrowings 369,842 242,000
Repayment of debt (310,305) (165,835)
Proceeds from issuance of stock 7,371 1,163
Other, net -- 151
-------------- ---------------
Net cash provided by financing activities 66,908 77,479
-------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,548 277
CASH AND CASH EQUIVALENTS:
Beginning of period 3,434 --
-------------- ---------------
End of period $ 4,982 $ 277
============== ===============
</TABLE>
Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash paid for -
Interest $ 9,042 $ 14,127
Income taxes 3,347 758
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
-5-
<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 Annual Report on Form 10-K for
the year ended December 31, 1998.
Revenues and operating results for the three months ended March 31, 1999
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, 1999 DECEMBER 31,
1998
--------------- ---------------
<S> <C> <C>
Raw materials $ 29,440 $ 26,787
Work in process 25,487 27,734
Finished goods 29,177 22,392
--------------- ---------------
$ 84,104 $ 76,913
=============== ===============
</TABLE>
3. On May 19, 1998, the 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.
4. 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, (ii) the Convertible Subordinated Notes were converted upon
issuance on July 29, 1997, and (iii) the Preferred Securities were
converted upon issuance on June 9, 1998 as follows (in thousands, except
per share data):
-6-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net income $ 28,076 $ 18,820
Interest expense on Edgewood notes,
net of tax 10 10
Interest expense on Convertible
Subordinated Notes, net of tax 1,624 1,627
Dividends on Preferred Securities,
net of tax 2,623 --
------------ ------------
Net income applicable to common
stockholders -- diluted $ 32,333 $ 20,457
============ ============
Weighted average number of
common shares outstanding 46,567 46,082
Dilutive effect of outstanding stock
options and warrants after application
of the treasury stock method 668 478
Dilutive effect of Edgewood notes,
assuming conversion 400 568
Dilutive effect of Convertible
Subordinated Notes,
assuming conversion 7,730 7,730
Dilutive effect of Preferred
Securities, assuming conversion 8,424 --
------------ ------------
Diluted shares outstanding 63,789 54,858
============ ============
Basic earnings per share $ 0.60 $ 0.41
============ ============
Diluted earnings per share $ 0.51 $ 0.37
============ ============
</TABLE>
5. Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Revolving credit facility $ 317,858 $ 257,563
Industrial development revenue bonds 43,765 43,765
Edgewood notes 969 1,636
Italian Stand Alone Demand Borrowings 11,095 10,889
Other 17,213 16,412
----------------- -----------------
390,900 330,265
Less-current maturities (16,745) (13,686)
----------------- -----------------
Total long-term debt $ 374,155 $ 316,579
================= =================
</TABLE>
The Company has a Credit Agreement, as defined, which includes a revolving
credit facility that provides for borrowings of up to $750 million on an
unsecured basis with a letter of credit sublimit of $75 million. In
addition, under the terms of the revolving credit facility, the equivalent
of up to $85 million in borrowings can be denominated in foreign currency.
As of March 31, 1999, approximately $68 million of the outstanding
borrowings are 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 Agreement
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 6.3% for the three months ended March 31, 1999.
-7-
<PAGE>
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage, maximum
debt/capital, maximum leverage and maximum senior leverage ratio. As of
March 31, 1999 the Company was in compliance with all debt covenants.
6. Effective January 1, 1998, the Company adopted the provisions of 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 $25.7 million and $18.8 million for the three
months ended March 31, 1999 and 1998, respectively.
In April 1998, the Financial Accounting Standards Board issued Statement of
Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities,"
effective for fiscal years beginning after December 15, 1998. SOP 98-5
requires the expensing of start-up activities as incurred, versus
capitalizing and expensing them over a period of time. The Company adopted
SOP 98-5 during the first quarter of 1999 and has determined its effect is
not material to the results of operations.
-8-
<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, 1999 TO THE THREE MONTHS ENDED
MARCH 31, 1998
REVENUES -- Revenues for the first quarter of 1999 were $498.6 million, compared
to $457.1 million for the prior period. The increase is due to incremental new
business of approximately $46.4 million, including business relating to the Ford
F-Series, Ranger, Dodge Durango, Dakota, and the Chrysler LH line, the
acquisitions of IMAR and OSLAMT of $15.0 million, offset by a decline of $20.0
million relating primarily to the sale of the Hinge Business.
COST OF SALES -- Cost of sales as a percentage of revenues for the first quarter
of 1999 was 84.1% compared to 86.2% for the prior period. The improvement in
gross profit was primarily due to increased production volumes and product mix
on light truck, sport utility and other models served by the Company.
S, G & A EXPENSES -- Selling, general and administrative expenses increased to
$22.4 million, or 4.5% of revenues, for the first quarter of 1999 compared to
$21.1 million, or 4.6% of revenues for the prior period. This increase was due
primarily to incremental costs associated with the Company's acquisitions of
IMAR, s.r.l. ("IMAR") and OSLAMT S.p.A. ("OSLAMT") in July 1998 of $0.6 million
and increased engineering and program development costs related to new business
of approximately $2.1 million. This increase was offset partially by the
realization of a gain of $1.4 million on the cash settlement of amounts due
under the interest rate agreement during February 1999.
AMORTIZATION EXPENSE -- Amortization expense for the first quarter of 1999 was
$3.5 million compared to $3.3 million for the prior period. The increase was due
to amortization related to the costs associated with the June 1998 offering of
$258.8 million of 6 3/4% Trust Convertible Preferred Securities ("Preferred
Securities") and incremental goodwill amortization related to the acquisitions
of IMAR and OSLAMT.
INTEREST EXPENSE -- Interest expense for the first quarter of 1999 was $7.3
million compared to $11.9 million for the prior period. Interest expense was
affected by (i) increased borrowings incurred to fund the Company's joint
venture interest in Metalurgica Caterina S.A. ("Caterina") in March 1998, (ii)
increased borrowings incurred to fund the Company's acquisition of IMAR and
OSLAMT in July 1998, and (iii) the proceeds from the June 1998 offering of
Preferred Securities, which were used to reduce borrowings under the Company's
revolving credit facility.
INCOME TAXES -- The effective income tax rate was 40% for the first quarter of
1999 and 1998. The effective rates differed from the statutory rates primarily
as a result of state taxes and non-deductible goodwill amortization.
EQUITY IN EARNINGS OF JOINT VENTURES -- Equity in earnings of joint ventures for
the first quarter of 1999 and 1998 represents the Company's share of the
earnings from its joint venture interests in Metalsa, Caterina and Tower Golden
Ring.
MINORITY INTEREST -- Minority interest for the 1999 represents dividends, net of
income tax benefits, on the Preferred Securities.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit agreement which includes a revolving credit facility
that provides for borrowings of up to $750 million on an unsecured basis, with a
letter of credit sublimit of $75 million. In addition, under the terms of the
credit facility, the equivalent of up to $85 million in borrowings can be
denominated in foreign currency. As of March 31, 1999 approximately $68 million
of the $317.9 million outstanding borrowings under the revolving credit facility
are 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 6.3% for the first
quarter of 1999.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage, maximum debt/capital,
maximum leverage and maximum senior leverage ratio as detailed below. As of
March 31, 1999 the Company was in compliance with all debt covenants.
<TABLE>
<CAPTION>
INTEREST COVERAGE DEBT/CAPITAL LEVERAGE SENIOR LEVERAGE
PERIODS RATIO (1) RATIO (2) RATIO (3) RATIO (4)
<S> <C> <C> <C> <C>
12/31/98 - 12/30/1999 2.50 to 1.00 60% 4.50 to 1.00 3.50 to 1.00
12/31/99 - 12/30/2000 2.75 to 1.00 55% 4.25 to 1.00 3.25 to 1.00
12/31/2000 - thereafter 3.00 to 1.00 50% 4.00 to 1.00 3.00 to 1.00
------------------------
</TABLE>
(1) Interest Coverage Ratio means the ratio of EBIT (as defined) to
consolidated interest expense.
(2) Debt/Capital Ratio means the ratio of total indebtedness of the
Company to the sum of the Company's stockholders' investment plus
total indebtedness of the Company.
(3) Leverage Ratio means the ratio of total indebtedness of the
Company to EBITDA (as defined).
(4) Senior Leverage Ratio means the ratio of total indebtedness of
the Company, excluding subordinated indebtedness and the
Convertible Notes and Debentures, to EBITDA (as defined).
The Credit Agreement also contains certain negative covenants that restrict,
among other things, the ability of the Company to: (i) incur any liens and other
encumbrances; (ii) sell, assign, lease or transfer assets; (iii) consolidate or
merge with another person; (iv) make loan or make any investment in any person;
(v) incur any additional indebtedness; (vi) engage in transactions with
affiliates; (vii) incur any contingent obligations; (viii) enter into any joint
venture; (ix) enter into any obligations for the payment of rent for any
property under a lease or agreement to lease; declare or make any dividend
payment or other distribution of assets, properties, cash, rights, obligations
or securities on account of any shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any subordinated indebtedness or any
shares of its capital stock; (x) engage in a prohibited transaction or violation
of the fiduciary responsibility rules with respect to any employee benefit plan
qualified under ERISA which has resulted or could reasonably be expected to
result in liability in an aggregate amount in excess of 10% of the Company's
tangible net worth; and (xi) engage in any material line of business
substantially different from their existing lines of business.
Effective July 1, 1998, the Company acquired IMAR, s.r.l. ("IMAR") and OSLAMT
S.p.A. ("OSLAMT"). IMAR designs and manufactures structural parts and assemblies
from two facilities in Italy, primarily for Fiat. OSLAMT designs and
manufactures tools and assemblies for the automotive market from its facility in
Turin, Italy. The purchase price consisted of approximately $32.5 million in
cash plus the assumption of approximately $17 million of indebtedness with an
additional amount of up to $15 million payable if IMAR achieves certain
operating targets following the acquisition.
-10-
<PAGE>
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 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.
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 has the
right to acquire the remaining 60 percent of the equity of Caterina. The Company
paid approximately $48 million for its initial equity interest which was
financed with borrowings under the Company's revolving credit facility. This
investment added Volkswagen and Mercedes-Benz as new customers in Brazil.
On August 31, 1998, the Company sold its hinge business (the "Hinge Business")
to Dura Automotive Systems, Inc. for net proceeds of approximately $36.9 million
which approximated the book value of the net assets sold. The net proceeds were
used to repay outstanding indebtedness under the revolving credit facility.
The Company is a 40% partner in Metalsa S. de R.L. ("Metalsa") with Promotora de
Empresas Zano, S.A. de C.V. ("Proeza"). The partnership agreement provides
additional amounts of up to $45 million payable based upon net earnings of
Metalsa during 1998, 1999, and 2000. Based upon Metalsa's 1998 net earnings, the
Company will pay Proeza approximately $9.0 million in additional consideration
during the second quarter of 1999.
During the first quarter of 1999, the Company used $13.8 million of cash in
operations compared with cash generated of $7.0 million in 1998. Cash provided
by net income, depreciation and amortization of $52.5 million in 1999 and $39.7
million 1998, was partially offset by cyclical increases in working capital
requirements and other operating items of $66.3 million and $32.7 million,
respectively.
Net cash used in investing activities was $51.6 million during the first quarter
of 1999 as compared to $84.2 million in the prior period. Net capital
expenditures totaled $51.5 million in the first quarter of 1999 for equipment
and dedicated tooling purchases related to new or replacement programs. This
compares with net capital expenditures of $34.6 for the prior period.
Net cash provided by financing activities totaled $66.9 million for the first
quarter of 1999 compared with $77.5 million in 1998.
At March 31, 1999, the Company had unused borrowing capacity of $432.1 million,
under its most restrictive debt covenant. The Company believes the borrowing
availability under its credit agreement, together with funds generated by
operations, should provide liquidity and capital resources to pursue its
business strategy for the foreseeable future, with respect to working capital,
capital expenditures, and other operating needs. The Company estimates its 1999
capital expenditures will approximate $180 million. 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 affected
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.
-11-
<PAGE>
MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company's policy is not to enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company enters into financial instruments to manage and reduce the impact of
changes in interest rates.
At March 31, 1999, Tower Automotive had debt totaling $590.9 million and
interest rate swaps with a notional value of $300 million. Interest rate swaps
are entered into as a hedge of underlying debt instruments to effectively change
the characteristics of the interest rate without actually changing the debt
instrument. The Company's interest rate swap agreements convert outstanding
floating rate debt to fixed rate debt for a period of time. For fixed rate debt,
interest rate changes affect the fair market value but do not impact earnings
and cash flows. Conversely for floating rate debt, interest rate changes
generally do not affect the fair market value but do impact future earnings and
cash flows, assuming other factors are held constant.
At March 31, 1999, the Company had fixed rate debt, after giving effect to the
interest rate swap, of $500 million and variable rate debt of $90.9 million.
Holding other variables constant (such as foreign exchange rates and debt
levels) a one percentage point increase in interest rates would have a net
increase in the unrealized fair market value of the fixed rate debt of
approximately $5.7 million. The pre-tax earnings and cash flows impact for the
next year resulting from a one percentage point increase in interest rates on
variable rate debt would be approximately $0.9 million, holding other variables
constant.
FOREIGN CURRENCY TRANSACTIONS
A portion of Tower Automotive's revenues was derived from manufacturing
operations in Europe. The results of operations and financial position of the
Company's operations in Europe are principally measured in its respective
currency and translated into U. S. dollars. The effects of foreign currency
fluctuations in Europe are somewhat mitigated by the fact that expenses are
generally incurred in the same currency in which revenues are generated. The
reported income of these subsidiaries will be higher or lower depending on a
weakening or strengthening of the U. S. dollar against the respective foreign
currency.
A portion of Tower Automotive's assets is based in its foreign operations and is
translated into U. S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected as a
separate component of stockholders' investment. Accordingly, the Company's
consolidated stockholders' investment will fluctuate depending upon the
weakening or strengthening of the U. S. dollar against the respective foreign
currency.
The Company's strategy for management of currency risk relies primarily upon
conducting its operations in a country's respective currency and may, from time
to time, engage in hedging programs intended to reduce the Company's exposure to
currency fluctuations. There are no foreign currency hedges outstanding during
the periods presented.
YEAR 2000
The Company is currently working to resolve the potential impact of the year
2000 ("Y2K") on the processing of date-sensitive information by the Company's
computerized and embedded systems. Any of the Company's programs that have
date-sensitive software may recognize the year "00" as 1900 rather than the year
2000. This could result in miscalculations, classification errors or system
failures.
Based on the information available to date, none of the Company's products
contain software or embedded date related logic. Therefore, the Company does not
anticipate any significant readiness problems with respect to its products.
-12-
<PAGE>
Most of the Company's facilities have completed the inventory and assessment of
their internal information technology ("IT") and non-IT systems (including
business, operating, facilities and factory floor systems). Much of the
remediation required was completed during 1998. Remediation may include repair,
replacement, upgrading or retirement of specific systems and components, with
priorities based on a business risk assessment. The Company expects that
remediation activities for its internal systems will be substantially completed
during the second quarter of 1999, and contingency plans, as needed, will be
completed before the end of 1999.
The Company is currently assessing Y2K issues associated with its suppliers by
working with the Automotive Industry Action Group ("AIAG"), an industry trade
association. As the critical supplier assessments are completed, the Company
will develop contingency plans, where feasible and needed, to address the risks
which are identified. Although such plans have not been developed yet, they
might include resourcing materials or building inventory banks.
The most reasonably likely worst case scenario that the Company currently
anticipates with respect to Y2K is the failure of some of its suppliers,
including utilities suppliers, to be ready. This could cause a temporary
interruption of materials or services that the Company needs to make its
products, which could result in delayed shipments to customers and lost sales
and profits for the Company.
The Company has spent approximately $1.2 million on Y2K activities to date and
anticipates that it will incur additional future costs not to exceed $0.9
million in total in addressing Y2K issues.
The outcome of the Company's Y2K program is subject to a number of risks and
uncertainties, some of which (such as the availability of qualified personnel
and the Y2K preparation of third parties) are beyond its control. Therefore,
there can be no assurances that the Company will not incur material remediation
costs beyond the above anticipated future costs, or that the Company's business,
financial condition, or results of operations will not be significantly impacted
if Y2K problems with its systems, or with the products or systems of other
parties with whom it does business, are not resolved in a timely manner.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
becomes effective for the years beginning after June 15, 1999. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. The
Company has not yet quantified the impact of adopting SFAS No. 133 and has not
yet determined the timing of adoption.
In April 1998, the Financial Accounting Standards Board issued Statement of
Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities,"
effective for fiscal years beginning after December 15, 1998. SOP 98-5 requires
the expensing of start-up activities as incurred, versus capitalizing and
expensing them over a period of time. The Company adopted SOP 98-5 during the
first quarter of 1999 and has determined its effect is not material to the
results of operations.
-13-
<PAGE>
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Form 10-Q, the words "anticipate," "believe,"
"estimate," "expect," "intends," and similar expressions, as they relate to the
Company, are intended to identify 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. Various economic and competitive
factors could cause actual results to differ materially from those discussed in
such forward-looking statements, including factors which are outside the control
of the Company, such as risks relating to: (i) the degree to which the Company
is leveraged; (ii) the Company's reliance on major customers and selected
models; (iii) the cyclicality and seasonality of the automotive market; (iv) the
failure to realize the benefits of recent acquisitions and joint ventures; (v)
obtaining new business on new and redesigned models; (vi) the Company's ability
to continue to implement its acquisition strategy; and (vii) the highly
competitive nature of the automotive supply industry. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by such
cautionary statements.
-14-
<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:
12.1 Statement and Computation of Ratio of Earnings to Fixed
Charges.
27.1 Financial Data Schedule.
(b) During the quarter for which this report is filed, the Company
filed the following Form 8-K Current Reports with the Securities
and Exchange Commission:
1. The Company's current report on Form 8-K dated February 1999
(Commission File No. 1-12733).
-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 14, 1999 By /s/ Anthony A. Barone
-----------------------------------------
Anthony A. Barone
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
-16-
<PAGE>
EXHIBIT 12.1
TOWER AUTOMOTIVE, INC.
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31 March 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes and extraordinary
item .................. $ 12,403 $ 20,121 $ 34,337 $ 80,741 $135,353 $ 46,310
Net fixed charges (1) ... 2,351 2,501 8,551 44,385 52,217 9,496
-------- -------- -------- -------- -------- --------
Total earnings .......... $ 14,754 $ 22,622 $ 42,888 $125,126 $187,570 $ 55,806
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Fixed charges:
Interest expense ........ $ 1,956 $ 2,027 $ 7,636 $ 36,651 $ 42,506 $ 7,446
Capitalized interest .... -- 1,157 -- 3,409 3,732 1,600
Interest factor of rental
expense (2) ........... 271 311 660 6,255 7,352 1,470
Amortization of debt
expense ............... 124 163 255 1,479 2,359 580
Dividends on trust
preferred securities .. -- -- -- -- 9,800 4,366
-------- -------- -------- -------- -------- --------
Total fixed charges ..... $ 2,351 $ 3,658 $ 8,551 $ 47,794 $ 65,749 $ 15,462
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Earnings to fixed charges 6.3 6.2 5.0 2.6 2.9 3.6
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
- ----------
(1) Net fixed charges represents total fixed charges less capitalized
interest and dividends on trust preferred securities.
(2) The interest factor of rental expense has been calculated using the
rate implied pursuant to the terms of the rental agreements. For the
periods presented, the interest factor ranged from 30% to 55% of total
rental expense.
<PAGE>
TOWER AUTOMOTIVE, INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO COSTS CHARGED TO END OF YEAR/
YEAR AND EXPENSES OTHER ACCOUNTS(1) DEDUCTIONS PERIOD
DESCRIPTION (2)
<S> <C> <C> <C> <C> <C>
Three Months Ending March 31, 1999
- -----------------------------------
Liability for loss contract
commitments assumed with
acquired businesses $ 22,799 --- --- $ 2,495 $ 20,304
Reorganization/restructuring
liabilities of acquired
businesses 24,736 --- --- 809 23,927
1998
- ----
Liability for loss contract
commitments assumed with
acquired businesses $ 32,874 --- $ 229 $10,304 (3) $ 22,799
Reorganization/restructuring
liabilities of acquired
businesses 31,702 --- --- 6,966 24,736
1997
- ----
Liability for loss contract
commitments assumed with
acquired businesses $ 7,250 --- $ 30,175 $ 4,551 $ 32,874
Reorganization/restructuring
liabilities of acquired
businesses 8,072 --- 37,461 13,831 31,702
1996
- ----
Liability for loss contract
commitments assumed with
acquired businesses $ 3,010 --- $ 7,722 $ 3,482 $ 7,250
Reorganization/restructuring
liabilities of acquired
businesses 2,366 --- 8,190 2,484 8,072
</TABLE>
1) Recorded via allocation of purchase price to fair value of assets and
liabilities of acquired businesses.
2) Utilization of previously recorded balances.
3) Represents utilization of $9,704 plus adjustment of $600.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS FOUND ON PAGES 4 AND 5
OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,982
<SECURITIES> 0
<RECEIVABLES> 296,589
<ALLOWANCES> 0
<INVENTORY> 84,104
<CURRENT-ASSETS> 483,582
<PP&E> 1,009,473
<DEPRECIATION> 156,992
<TOTAL-ASSETS> 2,011,335
<CURRENT-LIABILITIES> 335,114
<BONDS> 0
0
0
<COMMON> 469
<OTHER-SE> 638,825
<TOTAL-LIABILITY-AND-EQUITY> 2,011,335
<SALES> 498,572
<TOTAL-REVENUES> 498,572
<CGS> 419,125
<TOTAL-COSTS> 419,125
<OTHER-EXPENSES> 25,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,267
<INCOME-PRETAX> 46,310
<INCOME-TAX> 18,524
<INCOME-CONTINUING> 27,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,076
<EPS-PRIMARY> .60
<EPS-DILUTED> .51
</TABLE>
