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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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, 1998 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 24, 1999, 46,645,964 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 $812,007,000.
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 25, 1999 (the "1999 Proxy
Statement").
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TOWER AUTOMOTIVE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
BACKGROUND OF COMPANY
Tower Automotive, Inc. and its subsidiaries (collectively referred to as
the "Company" or "Tower Automotive") is a leading designer and producer of
structural components and assemblies used by the major automotive original
equipment manufacturers ("OEMs"), including Ford, Chrysler, General Motors,
Honda, Toyota, Nissan, Auto Alliance, Fiat, BMW, Volkswagen and Mercedes. The
Company's current products include large structural stampings and assemblies,
such as body pillars, full frame assemblies, chassis, suspension and floor pan
components and engineered assemblies, such as hood and deck lid hinges and brake
components. The Company believes it is the largest independent supplier of
structural components and assemblies to the automotive market (based on net
revenues).
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 five years, the Company has successfully
completed seven acquisitions and established joint ventures 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
$1.8 billion in 1998, representing a compound annual growth rate of
approximately 83%. The Company's North American content per vehicle has
increased from $6.23 in 1993 to $112.62 in 1998.
The Company operates in the large and highly fragmented structural segment
of the automotive supply industry, which has continued 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 seven strategic acquisitions and established two joint
ventures.
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IMAR AND OSLAMT. In July 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 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.
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. This investment (i) provided
the Company with a substantial manufacturing presence in one of the fastest
growing automotive markets in the world and (ii) added Volkswagen and Mercedes
as new customers. The Company has the option through the first quarter of 2000
to purchase the remaining 60 percent equity interest in Caterina. The Company
paid approximately $48 million for its initial equity interest.
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"), an Italian automotive parts manufacturer, 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. SIMES generated revenues of approximately $70.0
million during its last fiscal year, with Fiat representing substantially all of
such revenues.
APC. In April 1997, the Company acquired Automotive Products Company
("APC") from A.O. Smith Corporation 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 Company believes that
the acquisition of APC provided it with several strategic benefits, including:
(i) expanded product offerings and modular product opportunities; (ii) increased
customer penetration within each of the three major North American OEMs and
within certain foreign OEMs with manufacturing operations in North America
("Transplants"); (iii) increased penetration in the light truck segment and
other key models; (iv) complementary new technology; (v) opportunities to reduce
costs and improve operational efficiency; and (vi) 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. APC had revenues of $863.0 million in
1996.
MSTI. In May 1996, the Company acquired MascoTech Stamping Technologies,
Inc. ("MSTI") from MascoTech, Inc. ("MascoTech") for approximately $79 million,
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,
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painting and welding; and (iii) increased the Company's content per vehicle
on key light truck and sport utility vehicles such as the Ford F-Series,
Explorer and Windstar and the Chrysler Ram and Dakota as well as on high
volume passenger cars such as the Ford Taurus/Sable. MSTI had revenues of
$152.9 million in 1995.
TRYLON. In January 1996, the Company acquired Trylon Corporation ("Trylon")
from MascoTech for approximately $25 million in cash. The acquisition of Trylon:
(i) broadened the Company's product offerings to include small, precision metal
stampings and assemblies, which were previously outsourced to third parties;
(ii) established a relationship between the Company and General Motors; and
(iii) increased content on Ford models, primarily the Villager. Trylon generated
$47.9 million in revenues in 1995.
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.
HINGE BUSINESS. In August 1998, the Company sold its 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 completed an initial public offering (the "IPO") of its Common
Stock in August 1994, the sale of an additional 4,465,800 shares in June 1996
and an additional 17,000,000 shares in April 1997. 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-
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service capabilities to its customers. In some cases, the Company places
design engineers at customer facilities to coordinate its product design
efforts with those of its OEM customers.
EFFICIENT MANUFACTURING/CONTINUOUS IMPROVEMENT PROGRAMS. In response to
OEMs' increasingly stringent demands, the Company has implemented manufacturing
practices designed to maximize product quality and timeliness of delivery and
eliminate waste and inefficiency. The Company has continued to upgrade its
manufacturing equipment and processes through substantial investment in new
equipment, maintenance of existing equipment and utilization of manufacturing
engineering personnel.
GLOBAL PRESENCE. The Company strives to offer manufacturing and support
services to its customers on a global basis through a combination of
international wholly owned facilities and by entering into joint ventures and
partnerships with foreign suppliers. Since 1993, in furtherance of its global
expansion strategy, the Company has opened a European sales and engineering
office to service U.K. and German OEM customers and has established an
industrial partnership with The Kirchhoff Group ("Kirchhoff") in Germany. The
Company also has relocated certain technical personnel resources to locations
where OEMs are developing "world cars."
DECENTRALIZED, PARTICIPATIVE CULTURE. The Company's decentralized approach
to managing its manufacturing facilities encourages decision making and employee
participation in areas such as manufacturing processes and customer service. The
Company's 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
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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 Focus 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.
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
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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, roof rails, 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 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 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 22% of this
market in 1998. The Company currently supplies its products primarily to
Ford, DaimlerChrysler, General Motors, Honda, Toyota, Nissan, Auto
Alliance, Fiat, BMW and Volkswagen.
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OEMs typically award contracts that cover parts to be supplied for a
particular car model. Such contracts range from one year to over the life of the
model, which is generally three to 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, Econoline,
Escort, Crown Victoria, Grand Marquis, Villager, Windstar, Medium Trucks,
Probe, Continental Expedition/Navigator
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 Sienna
Nissan Sentra Quest, Pick-up
Isuzu Rodeo, Amigo
Fiat Marea, Punto, Bravo
Volkswagen Jetta
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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." 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
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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 also has full-service design capability for chassis components.
GLOBAL INITIATIVES
The Company has formed, or is in the process of forming, strategic
alliances with other suppliers throughout the world, including 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.
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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 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 Knupp-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 Aetna Industries, Active Tool & Die Co., AG Simpson Ltd.,
Oxford Automotive, Inc. and L&W Engineering 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 49% of the Company's revenues in 1998.
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Ford, Honda and Chrysler currently purchase all of the steel used by the
Company for their models directly from steel producers. As a result, the
Company has minimal exposure to changes in steel prices for parts supplied to
Ford, Honda and Chrysler, which collectively represented 69% of the Company's
revenues in 1998.
The Company expects that the content level of metal in cars and light
trucks will remain constant or increase slightly due to the trend toward
increased vehicle size and a greater emphasis on metal recycling. Although the
search for improved fuel economy and weight reduction has resulted in attempts
to reduce the sheet metal content of light vehicles, an efficient,
cost-effective substitute for steel used in the Company's structural products
has not been found. While various polymers have been used recently for fenders,
hoods and decks, such products do not have the inherent strength or structural
integrity on a cost-effective basis to be used for structural components. The
Company 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, 1998, the Company had approximately 9,000 employees, of
whom approximately 5,413 are covered under collective bargaining agreements.
These collective bargaining agreements expire between 1999 and 2003. 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) DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this
Form 10-K or incorporated by reference herein, including without limitation the
statements under "Business" 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 (the "Exchange Act").
When used in this Form 10-K, 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; (vii) the highly competitive nature of the
automotive supply industry; and (viii) such other factors noted in this Form
10-K with respect to the Company's businesses. All subsequent written and oral
forward-looking statements
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<PAGE>
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by such cautionary statements.
ITEM 2. PROPERTIES
FACILITIES
The following table provides information regarding Tower Automotive's
principal facilities. The Company maintains several manufacturing facilities
located in close proximity to many of the high-volume vehicle assembly plants of
its customers. The Company's facilities are geographically located in such a way
as to enable the Company to optimize its management and logistical capabilities
on a regional basis.
<TABLE>
<CAPTION>
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
- --------------------------------- ------------- ------------- -----------------------------------
<S> <C> <C> <C>
Milwaukee, Wisconsin 3,527,000 Owned Manufacturing
Milan, Tennessee 533,000 Owned Manufacturing
Granite City, Illinois 458,000 Owned Manufacturing
Turin, Italy (3 locations) 315,000 Owned Manufacturing
Bardstown, Kentucky 240,000 Owned Manufacturing
Kalamazoo, Michigan 222,000 Mixed Manufacturing/Warehouse/Office
(2 locations)
Plymouth, Michigan 221,000 Leased Manufacturing
Traverse City, Michigan 220,000 Owned Manufacturing
(4 locations)
Roanoke, Virginia 185,000 Owned Manufacturing
Greenville, Michigan 160,000 Owned Manufacturing/Office
Corydon, Indiana 155,000 Leased Manufacturing
Rockford, Illinois 140,000 Leased Manufacturing
Auburn, Indiana 132,000 Owned Manufacturing/Office
Kendallville, Indiana 132,000 Owned Manufacturing
Bluffton, Ohio 102,000 Owned Manufacturing
Rochester Hills, Michigan 89,000 Leased Office/Engineering/Design
Belcamp, Maryland 68,000 Owned Manufacturing
Bellevue, Ohio 66,000 Owned Manufacturing
Upper Sandusky, Ohio 56,000 Owned Manufacturing
Farmington Hills, Michigan 47,000 Leased Engineering/Design/Sales
Fenton, Missouri 40,000 Leased Warehouse
Barrie, Ontario 40,000 Leased Manufacturing
Bowling Green, Kentucky 39,000 Owned Manufacturing
Grand Rapids, Michigan 23,000 Leased Operating Headquarters
Minneapolis, Minnesota 5,700 Leased Corporate Headquarters
Yokohama, Japan 800 Leased Sales
Changchun, China 140,500 Leased(1) Manufacturing
</TABLE>
- ---------------------------------
(1) Facility is leased by a joint venture in which the Company holds a 60%
equity interest.
Management believes that substantially all of the Company's property and
equipment is in good condition. In order to increase efficiency, the Company
expects to continue to make capital expenditures for equipment upgrades at its
facilities as necessary.
The Company believes that its existing facilities will be adequate to meet
its production demands for the foreseeable future. The Company's facilities were
specifically designed for the
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<PAGE>
manufacturing of the Company's products. The utilization and capacity of such
facilities are dependent upon the mix of products being produced by the
Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material lawsuits. The Company
believes it maintains adequate insurance, including product liability coverage.
The Company historically has not been required to pay any material liability
claims.
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, MascoTech
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, MascoTech 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 an 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.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Stockholders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has traded on the New York Stock Exchange under the symbol
TWR since February 19, 1997. Prior to February 19, 1997, the Common Stock traded
on the Nasdaq National Market under the symbol TWER. The following table sets
forth, for the periods indicated, the low and high closing sale prices for
Common Stock as reported on the New York Stock Exchange and Nasdaq National
Market:
<TABLE>
<CAPTION>
1997 Low High
----- --- ----
<S> <C> <C>
First Quarter 14 7/8 22 17/32
Second Quarter 16 7/8 21 1/2
Third Quarter 19 7/16 23 1/8
Fourth Quarter 18 3/32 24 9/32
1998
-----
First Quarter 17 23 27/32
Second Quarter 20 31/32 27 1/8
Third Quarter 15 13/16 24 13/16
Fourth Quarter 16 3/16 25 1/16
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for Tower Automotive presented
below for and as of the end of each of the years in the five-year period
ended December 31, 1998, is derived from Tower Automotive, Inc.'s
Consolidated Financial Statements which have been audited by Arthur Andersen
LLP, independent public accountants. The consolidated financial statements at
December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998 and the report of independent public accountants
thereon are included elsewhere in this report. The consolidated financial
statements at and for the years ended December 31, 1994, 1995 and 1996 are
not included herein. This selected consolidated financial data should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and Tower Automotive's Consolidated
Financial Statements and Notes to Consolidated Financial Statements, included
elsewhere in this report.
-15-
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $165,526 $222,801 $399,925 $1,235,829 $1,836,479
Cost of sales 142,986 185,388 338,290 1,058,720 1,562,167
S,G & A expense 7,435 14,308 20,004 57,869 85,169
Amortization expense 803 1,185 2,191 9,537 13,472
Operating income 14,302 21,920 39,440 109,703 175,671
Interest expense, net 1,899 1,799 5,103 28,962 40,318
Provision for income taxes 5,042 8,050 13,700 32,290 54,143
Net income 7,361 12,071 20,637 46,244 88,040
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.47 $ 0.56 $ 0.81 $ 1.14 $ 1.91
Diluted earnings per share $ 0.43 $ 0.52 $ 0.77 $ 1.09 $ 1.68
<CAPTION>
Dec. 31, Dec. 31,
1997 1998
---- ----
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ 140,592 $ 106,936
Total assets 1,680,088 1,936,167
Long-term debt 743,934 542,349
Stockholders' investment 515,279 606,796
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This discussion should be read in conjunction with Tower Automotive's
Consolidated Financial Statements and Notes to Consolidated Financial Statements
included elsewhere in this report.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997
REVENUES. Revenues for the year ended December 31, 1998 were $1.8 billion, a
48.6% increase, compared to $1.2 billion for the year ended December 31, 1997.
The increase is due to the acquisitions of Automotive Products Company ("APC")
in April 1997, Societa Meccanica e Stampaggio S.p.A. ("SIMES") in May 1997 and
IMAR, s.r.l. ("IMAR") and OSLAMT S.p.A. ("OSLAMT") in July 1998, which totaled
approximately $352.9 million, and new business awards, which totaled
approximately $310.5 million, including business relating to the Ford Ranger,
Explorer, F-Series and Econoline, Dodge Durango, Dakota and Ram Club Cab
pick-ups, Honda Accord and the Chrysler LH line. These increases were offset by
a decline in production of certain models served by the Company of approximately
$38.7 million. In addition, the General Motors strike had the effect of reducing
revenues by approximately $24.7 million during 1998.
COST OF SALES. Cost of sales as a percentage of revenues for the year ended
December 31, 1998 was 85.1% compared to 85.7% for the year ended December 31,
1997. The increase in gross margin was due to operating efficiencies and
productivity initiatives of approximately $12.6 million implemented particularly
at certain of the Company's business units acquired from A.O. Smith Corporation
in 1997 as well as increased production volumes on models served by the Company.
These increases were partially offset by a higher proportion of components
purchased
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<PAGE>
from outside suppliers as a result of the APC acquisition and launch
costs associated with new business totaling approximately $1.8 million.
S, G & A EXPENSES. Selling, general and administrative expenses increased to
$85.2 million, or 4.6% of revenues, for the year ended December 31, 1998
compared to $57.9 million, or 4.7% of revenues, for the year ended December 31,
1997. Approximately $4.8 million of the increase relates to a charge taken to
mark to market an interest rate agreement. The remaining increase was due
primarily to incremental costs associated with the Company's acquisitions of
APC, SIMES, IMAR and OSLAMT as well as increased engineering and program
development costs related to new business.
AMORTIZATION EXPENSE. Amortization expense for the year ended December 31, 1998
was $13.5 million compared to $9.5 million for the year ended December 31, 1997.
The increase was due to amortization related to the costs associated with (i)
the July 1997 sale of $200 million of 5% Convertible Subordinated Notes (the
"Notes"), (ii) 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 APC, SIMES, IMAR and
OSLAMT.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1998 was
$40.3 million compared to $29.0 million for the year ended December 31, 1997.
Interest expense was affected by (i) increased borrowings incurred to fund the
acquisitions of APC, SIMES, IMAR and OSLAMT, (ii) increased borrowings incurred
to fund the Company's investments in its 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 17,000,000 shares of Common Stock at $17.50 per share
(the "Offering"), (v) the proceeds from the July 1997 sale of the Notes and (vi)
the proceeds from the June 1998 offering of Preferred Securities.
INCOME TAXES. The effective income tax rate was 40% for the year ended December
31, 1998 and 39.9% for the year ended December 31, 1997. 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 year ended December 31, 1998 represents the Company's share of the earnings
from its joint venture interests in Metalsa and Caterina and from Tower Golden
Ring.
MINORITY INTEREST. Minority interest for the year ended December 31, 1998
represents dividends, net of income tax benefits, on the Preferred Securities.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
REVENUES. Revenues for the year ended December 31, 1997 increased by $835.9
million to $1.2 billion compared to $399.9 million for the year ended December
31, 1996. Approximately $803.9 million of the increase in revenues over 1996 is
attributable to the acquisitions of MascoTech Stamping Technologies, Inc.
("MSTI") in May 1996, APC and SIMES. 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.
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<PAGE>
COST OF SALES. Cost of sales as a percentage of revenues for the year ended
December 31, 1997 was 85.7% compared to 84.6% for the year ended December 31,
1996. The decrease in gross margin was due to a higher proportion of components
purchased from outside suppliers as a result of the MSTI and APC acquisitions
and launch costs associated with new business. These decreases were partially
offset by operating efficiencies and enhanced productivity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $57.9 million, or 4.7% of revenues, for the
year ended December 31, 1997 compared to $20.0 million, or 5.0% of revenues, for
the year ended December 31, 1996. The increased expense was due primarily to
incremental costs associated with the Company's acquisitions of MSTI in 1996 and
APC and SIMES in 1997.
AMORTIZATION EXPENSE. Amortization expense for the year ended December 31, 1997
was $9.5 million compared to $2.2 million for the year ended December 31, 1996.
The increase was due to incremental goodwill amortization related to the
acquisitions of MSTI, APC and SIMES.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1997 was
$29.0 million and $5.1 million for the year ended December 31, 1996. Interest
expense was affected by increased borrowings incurred to fund the acquisitions
of MSTI, APC and SIMES, offset by more favorable terms related to the Company's
borrowings under the new credit agreement entered into in April 1997, the
application of the proceeds from the June 1996 offering of 4,465,800 shares of
common stock at $12.25 per share, the proceeds from the April 1997 offering of
17,000,000 shares of Common Stock at $17.50 per share and the proceeds from the
July 1997 sale of the Notes. In addition, interest expense for the year ended
December 31, 1997 includes a $2 million non-cash charge related to the
recognition of a loss position on an interest rate contract.
INCOME TAXES. The effective income tax rate was 39.9% for the years ended
December 31, 1997 and 1996. The effective rates differed from the statutory
rates primarily as a result of state taxes and non-deductible goodwill
amortization.
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 December 31, 1998, 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 6.8% for the year ended December 31, 1998.
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
December 31, 1998 and 1997, the Company was in compliance with all debt
covenants.
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<PAGE>
<TABLE>
<CAPTION>
INTEREST COVERAGE DEBT/CAPITAL LEVERAGE SENIOR LEVERAGE
PERIODS RATIO (1) RATIO (2) RATIO (3) RATIO (4)
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
4/18/97 - 12/30/1998 2.50 to 1.00 65% 4.50 to 1.00 3.50 to 1.00
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.
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
nonperfomance is unlikely to occur given the financial resources of the
counterparty.
During the fourth quarter of 1997, the Company entered into an interest rate
contract in a notional amount of $75 million in anticipation of financing that
did not materialize. Accordingly, the Company has adjusted the interest contract
to market as of December 31, 1998 and 1997. The write-down to fair value of
approximately $6.4 million and $2.0 million, respectively, has been recorded as
expense in the accompanying consolidated statements of operations. Subsequent to
December 31, 1998, the Company settled the $75 million contract with a cash
payment of approximately $7 million.
In certain instances, the Company is committed under existing agreements to
supply product to its customers at selling prices which are not sufficient to
cover the direct costs to produce such
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<PAGE>
parts. The Company is obligated to supply these products to its customers for
the life of the related vehicles, three to ten years. Accordingly, the
Company recognizes losses at the time these losses are probable and
reasonably estimable at an amount equal to the minimum amount necessary to
fulfill its obligations to its customers. The reserves established in
connection with these recognized losses are reversed as the product is
shipped to the customers. Such amounts reversed during the years ended
December 31, 1998, 1997 and 1996 were $9.7 million, $4.6 million and $3.5
million, respectively.
Effective July 1, 1998, the Company acquired IMAR and 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.
On June 9, 1998, Tower Automotive Capital Trust (the "Issuer"), a wholly
owned statutory business trust of the Company, completed the offering of
$258.8 million of its 6 3/4% 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 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 net proceeds of
the offering were used to repay outstanding indebtedness.
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.
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 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. This investment added Volkswagen
and Mercedes-Benz as new customers in Brazil.
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-Benz. 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 amount to be paid during the first quarter of 1999
related to the net earnings of Metalsa in 1998 is approximately $9.0 million.
The investment in Metalsa was financed with proceeds from borrowings under the
Company's revolving credit facility.
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<PAGE>
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 the
Company's Common Stock at a conversion price of $25.88 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.
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 April 18, 1997, the Company acquired 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 credit facility. APC 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 general and payroll related costs primarily for planned employee
termination activities. At December 31, 1998, liabilities of approximately $18.5
million for facility-related costs and $3.2 million in excess payroll costs
remained on the consolidated balance sheets.
In connection with its May 1996 acquisition of MSTI, the Company financed the
cash portion of the purchase price 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.
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.
During the year ended December 31, 1998, the Company generated $221.1 million of
cash from operations as compared to $100.9 million 1997. Cash provided by net
income, depreciation and amortization of $175.4 million in 1998 and $94.2
million 1997, was benefited by a decrease in working capital requirements of
$7.8 million in 1998 and was partially offset by an increase in working capital
requirements of $20.7 million in 1997.
Net cash used in investing activities was $267.4 million during the year ended
December 31, 1998 as compared to $1.0 billion in 1997. Net capital expenditures
totaled $185.1 million in 1998 primarily for equipment and dedicated tooling
purchases related to new or replacement programs with an additional $124.4
million spent for the acquisitions of IMAR and OSLAMT, the investment in
Caterina and the additional consideration paid to MascoTech during 1998. These
cash uses were offset by $36.9 million in proceeds from the sale of the Hinge
Business.
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<PAGE>
This compares with net capital expenditures of $117.4 million and $892.5
million spent on the acquisitions of APC and SIMES and the investment in
Metalsa during 1997.
Net cash provided by financing activities totaled $49.7 million for the year
ended December 31, 1998 compared with $866.4 million in 1997. Approximately
$46.3 million of cash was provided through net borrowings and proceeds from the
issuance of the Preferred Securities in June 1998.
At December 31, 1998, the Company had unused borrowing capacity of $465 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 $150 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 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.
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 December 31, 1998, Tower Automotive had debt totaling $560.5 million,
interest rate swaps with a notional value of $300 million and an interest rate
cap agreement with a notional amount of $75 million, which was settled
subsequent to year-end with a cash payment of approximately $7 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. At December 31, 1998, 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 or 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 December 31, 1998, the Company had fixed rate debt, after giving effect to
the interest rate swap, of $500 million and variable rate debt of $60.5
million. Holding other variables constant (such as foreign exchange rates and
debt levels) a one percentage point increase in interest rates would result
in a net increase to the unrealized fair market value of the fixed rate debt
by 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 would be approximately $605,000, holding other variables constant.
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<PAGE>
FOREIGN CURRENCY TRANSACTIONS
A portion of Tower Automotive's 1998 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 at December 31, 1998 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.
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.
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. The 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
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<PAGE>
make its products, which could result in delayed shipments to customers and
lost sales and profits for the Company.
The Company has spent approximately $1.1 million on Y2K activities to date and
anticipates that it will incur additional future costs not to exceed $1.0
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 is currently in the process of
assessing the impact of adopting SOP 98-5 and will adopt this new pronouncement
in the first quarter of 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk" and Foreign Currency Transactions" sections of Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Tower Automotive are hereby
incorporated by reference to Exhibit 99.1.
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<PAGE>
Management of the Company is responsible for the financial information and
representations contained in the consolidated financial statements and other
sections of the 1998 Annual Report. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
therefore include certain amounts based on management's best estimates and
judgments. The financial information contained elsewhere in the 1998 Annual
Report is consistent with that in the consolidated financial statements.
The Company maintains internal accounting control systems which management
believes provide reasonable assurance that the Company's assets are properly
safeguarded and accounted for, that the Company's books and records properly
reflect all transactions, and that the Company's policies and procedures are
implemented by qualified personnel. Reasonable assurance is based upon the
recognition that the cost of an internal control system should not exceed the
related benefits.
The Audit Committee of the Board of Directors meets with representatives of
management and Arthur Andersen LLP, the Company's independent public
accountants, on financial reporting matters and the evaluation of internal
accounting controls. The independent public accountants have free access to meet
with the Audit Committee, without the presence of management, to discuss any
appropriate matters.
Arthur Andersen LLP is engaged to express an opinion as to whether the
consolidated financial statements present fairly, in all material respects and
in accordance with generally accepted accounting principles, the financial
position, results of operations and cash flows of the Company. Solely for
purposes of planning and performing their audit of the Company's 1998 financial
statements, Arthur Andersen LLP obtained an understanding of, and selectively
tested, certain aspects of the Company's system of internal controls.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS OF THE REGISTRANT
The information required by Item 10 with respect to the directors is
incorporated herein by reference to the section labeled "Election of Directors"
which appears in the Company's 1999 Proxy Statement.
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<PAGE>
B. EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers as of December 31,1998:
<TABLE>
<CAPTION>
Name Age Position
---- --- ---------
<S> <C> <C>
S.A. Johnson..............................58 Chairman and Director
Adrian VanderStarre.......................66 Vice Chairman and Director
Dugald K. Campbell........................52 President, Chief Executive Officer and
Director
James R. Lozelle..........................53 Executive Vice President and Director
Ronald E. Gavalis.........................61 Vice President
Anthony A. Barone.........................49 Vice President and Chief Financial Officer
Scott D. Rued.............................42 Vice President, Corporate Development
and Director
Paul D. Rysenga...........................57 Vice President
Luigi Candusso............................49 Vice President
Tommy G. Pitser...........................51 Vice President
Richard S. Burgess........................44 Vice President
Paul W. Jones, Jr.........................53 Vice President
</TABLE>
S.A. (TONY) JOHNSON has served as Chairman and a Director of the Company
since April 1993. Mr. Johnson is the founder, Chief Executive Officer and
President of Hidden Creek Industries ("Hidden Creek"), a private industrial
management company based in Minneapolis which has provided certain management
and other services to the Company. Mr. Johnson is also the managing partner of
J2R Partners ("J2R"), an investment partnership that participated in the
acquisition of R.J. Tower. Prior to forming Hidden Creek, Mr. Johnson served
from 1985 to 1989 as Chief Operating Officer of Pentair, Inc., a diversified
industrial company. From 1981 to 1985, Mr. Johnson was President and Chief
Executive Officer of Onan Corp., a diversified manufacturer of electrical
generating equipment and engines for commercial, defense and industrial markets.
Mr. Johnson currently serves as Chairman and a director of Dura Automotive
Systems, Inc., a manufacturer of mechanical assemblies and integrated systems
for the automotive industry, and served as Chairman and a director of Automotive
Industries Holding, Inc., a supplier of automotive interior trim components,
from May 1990 until its sale to Lear Corporation in August 1995.
ADRIAN VANDERSTARRE has served as Vice Chairman and a Director of the
Company since April 1993. Mr. VanderStarre served as President, Chief Executive
Officer and a director of the Predecessor from 1978 to 1993. Mr. VanderStarre
originally joined the Predecessor in 1965 as Controller and later served as
Treasurer from 1974 to 1978.
DUGALD K. CAMPBELL has served as President, Chief Executive Officer and a
Director of the Company since December 1993. From 1991 to 1993, Mr. Campbell
served as a consultant to Hidden Creek. From 1988 to 1991, he served as Vice
President and General Manager of the Sensor Systems Division of Siemens
Automotive, a manufacturer of engine management systems and components. From
1972 to 1988, he held various executive, engineering and marketing positions
with Allied Automotive, a manufacturer of vehicle systems and components and a
subsidiary of AlliedSignal, Inc.
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<PAGE>
JAMES R. LOZELLE has served as Executive Vice President of the Company,
with responsibility for the Company's operations in Milwaukee, Wisconsin and
Roanoke, Virginia since April 1997. From the Company's acquisition of Edgewood
in May 1994 until March 1997, Mr. Lozelle served at the Tower Automotive
Technical Centers, with responsibility for advanced product development and
customer service. Mr. Lozelle has also served as a Director of the Company since
May 1994. Mr. Lozelle served as President of Edgewood from 1982 until it was
acquired by the Company. Mr. Lozelle joined Edgewood in 1970 and served as Vice
President from 1971 to 1982. Mr. Lozelle is chairman of the Near Zero Stamping
research project of the Autobody Consortium.
RONALD E. GAVALIS has served as Vice President of the Company, with
responsibility for the Company's operations in Greenville, Kalamazoo and
Traverse City, Michigan since April 1997 and for capacity planning, quality
operating systems and QS-9000 certification, since April 1995. From June 1994 to
April 1995, Mr. Gavalis had responsibility for the Company's Greenville,
Michigan operations. Mr. Gavalis joined the Predecessor in 1983 as Director of
Manufacturing, and served as the Predecessor's Vice President, Manufacturing,
from 1985 until 1989 and as its Vice President, Operations, from 1989 until June
1994.
ANTHONY A. BARONE has served as Vice President and Chief Financial Officer
of the Company since May 1995. From 1984 to 1995, Mr. Barone served as Chief
Financial Officer of O'Sullivan Corporation, a manufacturer of interior trim
components for the automotive industry.
SCOTT D. RUED has served as Vice President, Corporate Development, and a
Director of the Company since April 1993. Mr. Rued served as Vice President,
Chief Financial Officer and a director of Automotive Industries Holding, Inc.
from April 1990 until its sale to Lear Corporation in August 1995. Mr. Rued, a
partner of J2R, has also served as Executive Vice President and Chief Financial
Officer of Hidden Creek since January 1994 and served as its Vice President -
Finance and Corporate Development from June 1989 through 1993. Mr. Rued is also
a director of The Rottlund Company, Inc., a corporation engaged in the
development and sale of residential real estate.
PAUL D. RYSENGA has served as Vice President of the Company, with
responsibility for the Company's joint venture investment in Metalsa since
October 1997, the Company's operations in Auburn, Indiana, Bellevue, Ohio,
Belcamp, Maryland and Rockford, Illinois since April 1997 and the Company's
operations in Kendallville, Indiana and Bluffton and Upper Sandusky, Ohio, since
August 1996. From August 1996 to April 1997, Mr. Rysenga had responsibility for
the Company's operations in Traverse City, Michigan. From October 1995 to August
1996, Mr. Rysenga had responsibility for the Company's operations in Greenville,
Romulus, and Traverse City, Michigan. From June 1994 to October 1995, Mr.
Rysenga had responsibility for the Company's operations in Auburn, Indiana. From
July 1991 to June 1994, Mr. Rysenga served as Executive Vice President and
General Manager at Kalamazoo. From 1988 to July 1991, Mr. Rysenga was Executive
Director of Eastman Sterling Pharmaceutical, a division of Eastman Kodak.
LUIGI CANDUSSO has served as Vice President of the Company, with
responsibility for the Company's operations in Bowling Green, Kentucky, Corydon,
Indiana, Granite City, Illinois and Milan, Tennessee since April 1997, Turin,
Italy since May 1997 and Bardstown, Kentucky since April 1995. From April 1995
to April 1997, Mr. Candusso had responsibility for the Company's operations in
Kalamazoo, Michigan. From August 1996 to April 1997, Mr. Candusso had
responsibility for the Company's
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<PAGE>
operations in Romulus, Michigan. From October 1995 to August 1996, Mr.
Candusso also had responsibility for the Company's operations in Auburn,
Indiana. From 1990 to April 1995, Mr. Candusso served as Vice President and
General Manager of the Sensor Systems Division of Siemens Automotive, a
manufacturer of engine management systems and components. From 1988 to 1990,
Mr. Candusso served as Vice President of Operations at Fabricated Steel
Products (FABCO), a division of Indal Canada.
TOMMY G. PITSER has served as Vice President, with responsibility for the
Company's joint venture investment in China and its operations in Barrie,
Ontario, Plymouth, Michigan and Yokohama, Japan and South America since April
1997 and Romulus, Manchester and Farmington Hills, Michigan, since May 1996.
Prior to joining the Company, Mr. Pitser served in various sales and marketing
capacities at MSTI. Prior to joining MSTI, Mr. Pitser served as Market
Director-Automotive at AE Goetze North America. From 1969 to 1992, Mr. Pitser
was an employee of Borg-Warner Corporation, most recently as General
Manager-Marine & Industrial Transmissions.
RICHARD S. BURGESS has served as Vice President of the Company with
responsibility for colleague growth and development since January 1996. From
June 1994 to January 1996, Mr. Burgess served as the colleague growth and
development leader for the Bardstown, Kentucky start-up facility. From October
1991 to June 1994, Mr. Burgess filled various rolls in Colleague growth and
development at the Predecessor.
PAUL W. JONES, JR. has served as Vice President of the Company since April
of 1998, with responsibility for Platform Leadership and the launch of new
products for Tower Automotive worldwide. From 1995 to 1998 Paul served as the
Senior Vice President of Operations for Rollerblade and NordicTrack in
Minnesota. From 1987 to 1995 Paul served as Corporate Director of Procurement
for Steelcase in Grand Rapids, Michigan. Prior to Steelcase, Paul served from
1984 to 1987 as Vice President of Technology for a Division of PepsiCo and prior
to PepsiCo he served in various leadership ositions with General Electric from
1967 to 1984.
C. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information required by Item 10 with respect to compliance with
reporting requirements is incorporated herein by reference to the section
labeled "Section 16(a) Beneficial Ownership Reporting Compliance" which appears
in the Company's 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the sections labeled "Compensation of Directors" and "Executive Compensation"
which appear in the Company's 1999 Proxy Statement, excluding information under
the headings "Compensation Committee Report on Executive Compensation" and
"Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section labeled "Security Ownership" which appears in the Company's 1999
Proxy Statement.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section labeled "Certain Relationships and Related Transactions" which
appears in the Company's 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS:
- Report of Independent Public Accountants
- Consolidated Balance Sheets as of December 31, 1998
and 1997
- Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Stockholders' Investment
for the Years Ended December 31, 1998, 1997 and
1996
- Consolidated Statement of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996
- 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
- Financial Statement Schedule II - Valuation and
Qualifying Accounts
(3) EXHIBITS: See "Exhibit Index" beginning on page 31.
(b) REPORTS ON FORM 8-K
(1) During the fourth quarter of 1998, the Company filed the
following Form 8-K Current Reports with the Securities and
Exchange Commission:
- The Company's Current Report on Form 8-K, dated
October 16, 1998 (Commission File No. 1-12733).
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TOWER AUTOMOTIVE, INC.
Date: March 2, 1999 By /s/ S.A. Johnson
-------------------------------------------------
S.A. Johnson, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------ -----
<S> <C> <C>
/s/ S.A. Johnson Chairman and Director March 2, 1999
- ------------------------------------
S.A. Johnson
/s/ Adrian VanderStarre Vice Chairman and March 2, 1999
- ------------------------------------ Director
Adrian VanderStarre
/s/ Dugald K. Campbell President, Chief Executive March 2, 1999
- ------------------------------------ Officer (Principal Executive
Dugald K. Campbell Officer) and Director
/s/ James R. Lozelle Executive Vice President March 2, 1999
- ------------------------------------ and Director
James R. Lozelle
/s/ Scott D. Rued Vice President, Corporate March 2, 1999
- ------------------------------------ Development and Director
Scott D. Rued
/s/ W.H. Clement Director March 2, 1999
- ------------------------------------
W.H. Clement
/s/ Eric J. Rosen Director March 2, 1999
- ------------------------------------
Eric J. Rosen
/s/ Matthew O. Diggs, Jr. Director March 2, 1999
- ------------------------------------
Matthew O. Diggs, Jr.
/s/ F.J. Loughrey Director March 2, 1999
- ------------------------------------
F.J. Loughrey
/s/ Kim B. Clark Director March 2, 1999
- ------------------------------------
Kim B. Clark
/s/ Enrique Zambrano Director March 2, 1999
- ------------------------------------
Enrique Zambrano
/s/ Anthony A. Barone Vice President and Chief March 2, 1999
- ------------------------------------ Financial Officer (Principal
Anthony A. Barone Accounting Officer)
</TABLE>
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<PAGE>
TOWER AUTOMOTIVE, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Page Number in
Sequential
Numbering
of all Form 10-K
Exhibit and Exhibit Pages
- ------- -----------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Registrant, *
incorporated by reference to Exhibit 3.1 of the Registrant's Form S-1,
Registration No. 33-80320 filed under the Securities Act of 1933 (the
"S-1").
3.2 Amended and Restated By-laws of the Registrant, incorporated by *
reference to Exhibit 3.2 of the S-1.
4.1 Form of Common Stock Certificate, incorporated by reference to *
Exhibit 4.1 of the S-1.
10.1 Form of Stock Subscription Agreement between the Company and *
certain management employees, incorporated by reference to Exhibit 10.3 of the S-1.
10.2 Registration Agreement dated as of April 15, 1993 between the
Registrant and certain investors; and First Amendment to Registration *
Agreement dated as of May 4, 1994 by and among the Registrant and
certain investors, incorporated by reference to Exhibit 10.4 of the
S-1.
10.3 Stock Option and Indemnification Agreement dated as of April 15, 1993 *
by and between the Registrant and Onex U.S. Investments, Inc., incorporated by
reference to Exhibit 10.7 of the S-1.
10.4** Employment and Consulting Agreement dated as of April 15, 1993 between *
R.J. Tower Corporation and Adrian Vander Starre, incorporated by
reference to Exhibit 10.9 of the S-1.
10.5 Form of Management Stock Pledge Agreement, incorporated by reference *
to Exhibit 10.10 of the S-1.
10.6 Form of Convertible Promissory Note dated as of May 4, 1994 of the
Registrant, incorporated by reference to Exhibit 10.12 of the S-1. *
10.7** Stock Option Agreement dated May 4, 1994 by and between the Registrant *
and James R. Lozelle incorporated by reference to Exhibit 10.14 of
the S-1.
10.8 Lease Agreement dated March 1, 1988 between 8900 Inkster Associates *
and Edgewood Tool and Manufacturing Company; and Amendment to Lease
dated as of March 1, 1994 between 8900 Inkster Associates and Edgewood
Tool and Manufacturing Company, incorporated by reference to Exhibit
10.16 of the S-1.
10.9** 1994 Key Employee Stock Option Plan, incorporated by reference to Exhibit *
10.18 of the S-1.
10.10** Form of Salary Continuation Agreement between the Registrant and
certain employees, incorporated by reference to Exhibit 10.19 of the *
S-1.
10.11 Form of Subscription Agreement between the Registrant and certain *
stockholders, incorporated by reference to Exhibit 10.20 of the S-1.
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<PAGE>
<S> <C> <C>
10.12 Stock Purchase Agreement by and among the Registrant and certain other *
parties, dated June 10, 1994, incorporated by reference to Exhibit
10.21 of the S-1.
10.13 Amended and Restated Security Agreement, dated as of May 31, 1996, *
made by Trylon Corporation, a Michigan corporation, in favor of
Comerica Bank, as agent, incorporated by reference to Exhibit 4.9 of
the May 8-K.
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<PAGE>
<S> <C> <C>
10.14 Form of Second Amended and Restated Mortgage, dated as of May 31, 1996, *
made by each of R.J. Tower Corporation, a Michigan corporation, R.J.
Tower Corporation, an Indiana corporation, Kalamazoo Stamping and Die
Company, a Michigan corporation, Edgewood Manufacturing Corp., a
Delaware corporation, in favor of Comerica Bank, as agent, incorporated
by reference to Exhibit 4.10 of the May 8-K.
10.15 Second Amended and Restated Security Agreement (Third Party Pledge), *
dated as of May 31, 1996, made by Tower Automotive, Inc., a Delaware
corporation, in favor of Comerica Bank, as agent, incorporated by
reference to Exhibit 4.11 of the May 8-K.
10.16 Intercreditor and Collateral Agency Agreement, dated as of May 31, *
1996, among Comerica Bank, Bank of America Illinois, First Bank
National Association, Teachers Insurance and Annuity Association of
America, Northern Life Insurance Company, Northwestern National Life
Insurance Company, Bankers Security Life Insurance Society,
Jefferson-Pilot Life Insurance Company and Alexander Hamilton Life
Insurance Company of America, incorporated by reference to Exhibit 4.12
of the May 8-K.
10.17 Form of R.J. Tower Corporation Note Agreement, dated as of May 31, *
1996, between R.J. Tower Corporation and each of Teachers Insurance and
Annuity Association of America, Northern Life Insurance Company,
Northwestern National Life Insurance Company, Bankers Security Life
Insurance Society, Jefferson-Pilot Life Insurance Company and Alexander
Hamilton Life Insurance Company of America, incorporated by reference
to Exhibit 4.13 of the May 8-K.
10.18 Form of 7.65% Senior Secured Notes, Series A, due June 1, 2006, issued *
by R.J. Tower Corporation to (i) Teachers Insurance and Annuity
Association of America in the principal amount of $10 million, (ii)
Northern Life Insurance Company in the principal amount of $8.5
million, (iii) Northwestern National Life Insurance Company in the
principal amount of $4.0 million, (iv) Bankers Security Life Insurance
Society in the principal amount of $2.5 million, (v) Jefferson-Pilot
Life Insurance Company in the principal amount of $7.5 million and (vi)
Alexander Hamilton Life Insurance Company of America in the principal
amount of $7.5 million, incorporated by reference to Exhibit 4.14 of
the May 8-K.
10.19 7.82% Senior Secured Note, Series B, due June 1, 2008, issued by R.J. Tower *
Corporation to Teachers Insurance and Annuity Association of America in the
principal amount of $25 million, incorporated by reference to Exhibit 4.15
of the May 8-K.
10.20 Subsidiaries Guaranty, dated as of May 31, 1996, made by Trylon *
Corporation, a Michigan corporation, R.J. Tower Corporation, a
Kentucky corporation, R.J. Tower Corporation, an Indiana corporation,
Kalamazoo Stamping and Die Company, a Michigan corporation, Edgewood
Manufacturing Corp., a Delaware corporation and MascoTech Stamping
Technologies, Inc., a Delaware corporation, in favor of Teachers
Insurance and Annuity Association of America, Northern Life Insurance
Company, Northwestern National Life Insurance Company, Bankers Security
Life Insurance Society, Jefferson-Pilot Life Insurance Company and
Alexander Hamilton Life Insurance Company of America, incorporated by
reference to Exhibit 4.16 of the May 8-K.
10.21 Registration Rights and Voting Agreement dated as of May 31, 1996, *
between Tower Automotive, Inc. and MascoTech, Inc., incorporated
by reference to Exhibit 4.17 of the May 8-K.
10.22 $5 million Promissory Note, dated as of May 31, 1996, issued by R.J. *
Tower Corporation to MascoTech, Inc., incorporated by reference to
Exhibit 4.18 of the May 8-K.
10.23 Stock Purchase Warrant, dated as of May 31, 1996, issued by Tower *
Automotive, Inc. to MascoTech, Inc., incorporated by reference to
Exhibit 4.19 of the May 8-K.
-33-
<PAGE>
<S> <C> <C>
10.24 Second Amended and Restated Guaranty (Tower-Michigan Debt), dated as *
of May 30, 1996, made by R.J. Tower Corporation, an Indiana
corporation, Edgewood Manufacturing Corp., a Delaware corporation, R.J.
Tower Corporation, a Kentucky corporation, Kalamazoo Stamping and Die
Company, a Michigan corporation, Trylon Corporation, a Michigan
corporation and MascoTech Stamping Technologies, Inc., a Delaware
corporation, in favor of Comerica Bank, as agent, incorporated by
reference to Exhibit 4.5 of the Registrant's Form 8-K/A No. 1 dated
June 4, 1996, filed under the Securities Exchange Act of 1934.
10.25 Fourth Amended and Restated Credit Agreement dated as of September 6, *
1996 by and between R.J. Tower Corporation and Comerica Bank,
incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1996,
filed under the Securities Exchange Act of 1934, as amended.
12.1 Statement and Computation of Ratio of Earnings to Fixed Charges filed __
herewith.
21.1 List of Subsidiaries filed herewith. __
23.1 Consent of Independent Public Accountants filed herewith. __
27.1 Financial Data Schedule filed herewith. __
99.1 Consolidated Financial Statements of Tower Automotive, Inc. for the Year __
Ended December 31, 1998 together with Report of Independent Public
Accountants filed herewith.
</TABLE>
- ------------------
* Incorporated by reference.
** Indicates compensatory arrangement.
-34-
<PAGE>
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the consolidated balance sheets of Tower Automotive, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statement of operations, stockholders' investment and cash flows for each of the
three years in the period ended December 31, 1998, and have issued our
unqualified report thereon dated January 22, 1999.
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
and Schedule II - Valuation and Qualifying Accounts of Registrant are the
responsibility of the Company's management and are 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 22, 1999
S-1
<PAGE>
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
ASSETS
Investment in consolidated subsidiaries $ 713,958 $1,056,202
Debt issue costs, net of accumulated amortization of $344
and $1,450 5,571 13,502
---------- ----------
$ 719,529 $1,069,704
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Accrued liabilities $ 4,250 $ 4,158
Convertible subordinated notes 200,000 200,000
6 3/4% convertible subordinated debentures payable to
trust subsidiary -- 258,750
---------- -----------
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; 45,975,490 and 46,281,880 shares issued
and outstanding 460 463
Warrants to acquire common stock 2,000 2,000
Additional paid-in capital 423,403 426,471
Retained earnings 89,394 177,434
Accumulated other comprehensive income -
cumulative translation adjustment 22 428
---------- ----------
Total stockholders' investment 515,279 606,796
---------- ----------
$ 719,529 $1,069,704
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
S-2
<PAGE>
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Amortization expense $ - - $ 344 $ 1,106
---------- --------- --------
Operating loss -- (344) (1,106)
Interest expense -- 4,250 19,769
---------- --------- --------
Loss before income taxes and equity in earnings
of consolidated subsidiaries -- (4,594) (20,875)
Income tax benefit -- 1,838 8,354
Equity in earnings of consolidated subsidiaries 20,637 49,000 100,561
---------- --------- --------
Net income $ 20,637 $ 46,244 $ 88,040
---------- --------- --------
---------- --------- --------
</TABLE>
The accompanying notes are an integral part of the condensed statements.
S-3
<PAGE>
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Warrants to Other Total
------------------------- Paid-in Retained Acquire Comprehensive Stockholders'
Shares Amount Capital Earnings Common Stock Income Investment
------ ------ ------- -------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 21,660,778 $ 217 $ 62,855 $ 22,513 $ -- $ -- $ 85,585
--
Conversion of Edgewood notes 821,058 8 2,484 -- -- -- 2,492
Exercise of options 13,250 -- 48 -- -- -- 48
Sales of stock under Employee Stock
Discount Purchase Plan 36,700 -- 263 -- -- -- 263
Collection of common stock
subscriptions receivable -- -- 322 -- -- -- 322
Public offering of common stock, net 4,465,800 45 51,252 -- -- -- 51,297
Issuance of shares and warrants in
acquisition of MSTI 1,570,000 16 19,217 -- 2,000 -- 21,233
Net income -- -- -- 20,637 -- --
Total comprehensive income 20,637
------------ ------ -------- --------- --------- -------- ----------
BALANCE, DECEMBER 31, 1996 28,567,586 286 136,441 43,150 2,000 -- 181,877
Conversion of Edgewood notes 225,502 2 682 -- -- -- 684
Exercise of options 52,600 1 234 -- -- -- 235
Sales of stock under Employee
Stock Discount Purchase Plan 129,802 1 1,575 -- -- -- 1,576
Collection of common stock
subscriptions receivable -- -- 78 -- -- -- 78
Public offering of common stock, net 17,000,000 170 284,393 -- -- -- 284,563
Net income
-- -- -- 46,244 -- --
Other comprehensive income - foreign
currency translation adjustment -- -- -- -- -- 22
Total comprehensive income 46,266
------------ ------ -------- --------- --------- -------- ----------
BALANCE, DECEMBER 31, 1997 45,975,490 460 423,403 89,394 2,000 22 515,279
Conversion of Edgewood notes 62,000 1 188 -- -- -- 189
Exercise of options 112,300 1 467 -- -- -- 468
Sales of stock under Employee Stock
Discount Purchase Plan 132,090 1 2,344 -- -- -- 2,345
Collection of common stock
subscriptions receivable -- -- 69 -- -- -- 69
Net income -- -- -- 88,040 -- --
Other comprehensive income - foreign
currency translation adjustment -- -- -- -- -- 406 88,446
Total comprehensive income
------------ ------ -------- --------- --------- -------- ----------
BALANCE, DECEMBER 31, 1998 46,281,880 $ 463 $ 426,471 $ 177,434 $ 2,000 $ 428 $ 606,796
------------ ------ -------- --------- --------- -------- ----------
------------ ------ -------- --------- --------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed statements.
S-4
<PAGE>
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $ 20,637 $ 46,244 $ 88,040
Amortization expense -- 344 1,106
Equity in earnings of consolidated subsidiaries (20,637) (49,000) (100,561)
Change in current operating items - accrued liabilities -- 4,250 (42)
------------- ----------- -----------
Net cash provided by (used in) operating activities -- 1,838 (11,507)
------------- ---------- ---------
Investing Activities:
Dividends received from consolidated subsidiaries -- 5,915 19,861
Additional investment in consolidated subsidiaries (51,560) (488,290) (260,949)
----------- --------- ---------
Net cash provided by (used for) investing activities (51,560) (482,375) (241,088)
----------- --------- --------
Financing Activities:
Net proceeds from issuance of common stock 51,560 286,452 2,882
Net proceeds from 6 3/4% convertible subordinated
debentures payable to trust subsidiary -- -- 249,713
Net proceeds from issuance of convertible
subordinated notes -- 194,085 --
------------ --------- -----------
Net cash provided by financing activities 51,560 480,537 252,595
---------- --------- ---------
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 $ -- $ -- $ 19,861
------------ ---------- ------------
------------ ---------- ------------
Income taxes $ -- $ -- $ --
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed statements.
S-5
<PAGE>
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 assemblies and modules for vehicle body structures and
suspension systems for the global automotive industry. The Company has
facilities in the United States, Canada, Italy and Japan, in China
through its joint venture investment in China, in Brazil through its
joint venture interest in Caterina and 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, $194.1 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 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 $284.6 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. 6 3/4% CONVERTIBLE SUBORDINATED DEBENTURES
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
S-6
<PAGE>
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.
NOTE 5. 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, 1998, approximately $68 million of the 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 6.8 percent for the year
ended December 31, 1998.
RESTRICTIONS ON 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 3)), 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, 1998, the Subsidiaries could have paid up to approximately $67.1
million to the Parent Company under the exception described in item (i)
above.
S-7
<PAGE>
TOWER AUTOMOTIVE, INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS BALANCE AT END OF
DESCRIPTION BEGINNING OF YEAR AND EXPENSES ACCOUNTS (1) (2) YEAR
- ----------------------------- ----------------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
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.
S-8
<PAGE>
EXHIBIT 12.1
TOWER AUTOMOTIVE, INC.
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes and extraordinary
item . . . . . . . . . . . . $ 12,403 $ 20,121 $ 34,337 $ 80,741 $ 135,353
Net fixed charges (1). . . . . 2,351 2,501 8,551 44,385 52,217
--------- --------- --------- ---------- ----------
Total earnings . . . . . . . . $ 14,754 $ 22,622 $ 42,888 $ 125,126 $ 187,570
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
Fixed charges:
Interest expense . . . . . . . $ 1,956 $ 2,027 $ 7,636 $ 36,651 $ 42,506
Capitalized interest.. . . . . -- 1,157 -- 3,409 3,732
Interest factor of rental
expense (2). . . . . . . . . 271 311 660 6,255 7,352
Amortization of debt
expense. . . . . . . . . . . 124 163 255 1,479 2,359
Dividends on trust
preferred securities . . . . -- -- -- -- 9,800
--------- --------- --------- ---------- ----------
Total fixed charges... . . . . $ 2,351 $ 3,658 $ 8,551 $ 47,794 $ 65,749
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
Earnings to fixed charges. . . 6.3 6.2 5.0 2.6 2.9
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
</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>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
R.J. Tower Corporation (a Michigan corporation)
R.J. Tower Corporation (an Indiana corporation)
R.J. Tower Corporation (a Kentucky corporation)
Edgewood Manufacturing Corp. (a Delaware corporation)
Kalamazoo Stamping and Die Company (a Michigan corporation)
Trylon Corporation (a Michigan corporation)
Tower Automotive Delaware, Inc. (a Delaware corporation)
Tower Automotive Products Company, Inc. (a Delaware corporation)
Tower Automotive Export, Inc. (a Barbados, West Indies corporation)
Tower Automotive Limited (a United Kingdom corporation)
Changchun Tower Gold Ring Automotive Products Company, Ltd. (a China
corporation)
Tower Automotive Canada, Inc. (a Canada corporation)
Tower Automotive do Brasil Ltda (a Brazil corporation)
Tower Automotive Mexico, S. de R.L. de C.V. (a Mexico corporation)
Tower do Brasil Ltda (a Brazil corporation)
Tower Italia, S.r.L. (an Italy corporation)
Tower Automotive, S.r.L. (an Italy corporation)
Tower Automotive Services and Technology, Inc. (a Delaware corporation)
Oslamt, S.p.A. (an Italy corporation)
Tower Automotive International, Inc. (a Delaware corporation)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-91578, 333-13589,
333-17355, 333-21943, 333-38827 and 333-39523.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOUND IN THE COMPANY'S
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,434
<SECURITIES> 0
<RECEIVABLES> 239,888
<ALLOWANCES> 0
<INVENTORY> 76,913
<CURRENT-ASSETS> 436,094
<PP&E> 957,938
<DEPRECIATION> (136,065)
<TOTAL-ASSETS> 1,936,167
<CURRENT-LIABILITIES> 329,158
<BONDS> 0
0
0
<COMMON> 463
<OTHER-SE> 606,333
<TOTAL-LIABILITY-AND-EQUITY> 1,936,167
<SALES> 1,836,479
<TOTAL-REVENUES> 1,836,479
<CGS> 1,562,167
<TOTAL-COSTS> 1,562,167
<OTHER-EXPENSES> 98,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,506
<INCOME-PRETAX> 135,353
<INCOME-TAX> 54,143
<INCOME-CONTINUING> 88,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,040
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.68
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tower Automotive, Inc.:
We have audited the accompanying consolidated balance sheets of Tower
Automotive, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tower Automotive, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 22, 1999
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,434 $ --
Accounts receivable 239,888 219,256
Inventories 76,913 73,809
Prepaid tooling and other 115,859 78,217
------------- -----------
Total current assets 436,094 371,282
------------- -----------
Property, Plant and Equipment, net 821,873 698,511
Restricted Cash 2,677 7,902
Deferred Income Taxes -- 14,108
Investments in Joint Ventures 209,625 147,188
Goodwill, net of accumulated amortization of $20,308 and $11,837 421,700 408,048
Other Assets, net of accumulated amortization of $7,123 and $4,512 44,198 33,049
------------- -----------
$ 1,936,167 $ 1,680,088
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current maturities of long-term debt and capital lease obligations $ 18,191 $ 5,004
Accounts payable 214,194 143,902
Accrued liabilities 96,773 81,784
------------- -----------
Total current liabilities 329,158 230,690
------------- -----------
Long-Term Debt, net of current maturities 316,579 513,653
Obligations Under Capital Leases, net of current maturities 25,770 30,281
Convertible Subordinated Notes 200,000 200,000
Deferred Income Taxes 20,376 --
Other Noncurrent Liabilities 178,738 190,185
------------- -----------
Total noncurrent liabilities 741,463 934,119
------------- -----------
Commitments and Contingencies (Notes 3, 5 and 10)
Mandatorily Redeemable Trust Convertible Preferred Securities 258,750 --
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; 46,281,880 and 45,975,490 shares issued and
outstanding 463 460
Additional paid-in capital 426,471 423,403
Retained earnings 177,434 89,394
Warrants to acquire common stock 2,000 2,000
Accumulated other comprehensive income - cumulative translation
adjustment 428 22
------------- -----------
Total stockholders' investment 606,796 515,279
------------- -----------
$1,936,167 $1,680,088
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $ 1,836,479 $ 1,235,829 $ 399,925
Cost of sales 1,562,167 1,058,720 338,290
------------ --------------- -----------
Gross profit 274,312 177,109 61,635
Selling, general and administrative expenses 85,169 57,869 20,004
Amortization expense 13,472 9,537 2,191
------------ --------------- -----------
Operating income 175,671 109,703 39,440
Interest expense 42,506 36,651 7,636
Interest income (2,188) (7,689) (2,533)
------------ --------------- -----------
Income before provision for income taxes, equity
in earnings of joint ventures and minority interest 135,353 80,741 34,337
Provision for income taxes 54,143 32,290 13,700
------------ --------------- -----------
Income before equity in earnings of joint
ventures and minority interest 81,210 48,451 20,637
Equity in earnings of joint ventures 12,708 227 --
Minority interest - dividends on trust preferred
securities, net (5,878) -- --
------------ --------------- -----------
Income before extraordinary item 88,040 48,678 20,637
Extraordinary loss on early extinguishment
of debt, net -- 2,434 --
------------ --------------- -----------
Net income $ 88,040 $ 46,244 $ 20,637
------------ --------------- -----------
------------ --------------- -----------
Basic earnings per share (Note 5):
Income before extraordinary loss $ 1.91 $ 1.20 $ 0.81
Extraordinary loss -- (.06) --
------------ --------------- -----------
Net income $ 1.91 $ 1.14 $ 0.81
------------ --------------- -----------
------------ --------------- -----------
Diluted earnings per share (Note 5):
Income before extraordinary loss $ 1.68 $ 1.14 $ 0.77
Extraordinary loss -- (.05) --
------------ --------------- -----------
Net income $ 1.68 $ 1.09 $ 0.77
------------ --------------- -----------
------------ --------------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-2-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Warrants to Other Total
----------------- Paid-in Retained Acquire Comprehensive Stockholders'
Shares Amount Capital Earnings Common Stock Income Investment
------ ------ ------- -------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 21,660,778 $ 217 $ 62,855 $ 22,513 $ -- $ -- $ 85,585
Conversion of Edgewood notes 821,058 8 2,484 -- -- -- 2,492
Exercise of options 13,250 -- 48 -- -- -- 48
Sales of stock under Employee Stock
Discount Purchase Plan 36,700 -- 263 -- -- -- 263
Collection of common stock
subscriptions receivable -- -- 322 -- -- -- 322
Public offering of common stock, net 4,465,800 45 51,252 -- -- -- 51,297
Issuance of shares and warrants in
acquisition of MSTI 1,570,000 16 19,217 -- 2,000 -- 21,233
Net income -- -- -- 20,637 -- --
Total comprehensive income 20,637
---------- ----- --------- -------- ------- ------ --------
BALANCE, DECEMBER 31, 1996 28,567,586 286 136,441 43,150 2,000 -- 181,877
Conversion of Edgewood notes 225,502 2 682 -- -- -- 684
Exercise of options 52,600 1 234 -- -- -- 235
Sales of stock under Employee
Stock Discount Purchase Plan 129,802 1 1,575 -- -- -- 1,576
Collection of common stock
subscriptions receivable -- -- 78 -- -- -- 78
Public offering of common stock, net 17,000,000 170 284,393 -- -- -- 284,563
Net income -- -- -- 46,244 -- --
Other comprehensive income - foreign
currency translation adjustment -- -- -- -- -- 22
Total comprehensive income 46,266
---------- ----- --------- -------- ------- ------ --------
BALANCE, DECEMBER 31, 1997 45,975,490 460 423,403 89,394 2,000 22 515,279
Conversion of Edgewood notes 62,000 1 188 -- -- -- 189
Exercise of options 112,300 1 467 -- -- -- 468
Sales of stock under Employee Stock
Discount Purchase Plan 132,090 1 2,344 -- -- -- 2,345
Collection of common stock
subscriptions receivable -- -- 69 -- -- -- 69
Net income -- -- -- 88,040 -- --
Other comprehensive income - foreign
currency translation adjustment -- -- -- -- -- 406
Total comprehensive income 88,446
---------- ----- --------- -------- ------- ------ --------
BALANCE, DECEMBER 31, 1998 46,281,880 $ 463 $426,471 $177,434 $ 2,000 $ 428 $ 606,796
---------- ----- --------- -------- ------- ------ --------
---------- ----- --------- -------- ------- ------ --------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 88,040 $ 46,244 $ 20,637
Adjustments required to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 87,372 47,966 12,754
Deferred income tax provision 37,847 24,980 6,326
Extraordinary loss on extinguishment of debt -- 2,434 --
Change in other operating items:
Accounts receivable (5,808) (32,620) 5,967
Inventories (728) 13,052 (693)
Prepaid tooling and other (36,509) (8,122) (1,091)
Accounts payable and accrued liabilities 71,017 31,765 (3,354)
Other assets and liabilities (20,133) (24,795) (10,497)
------------- ------------ -----------
Net cash provided by operating activities 221,098 100,904 30,049
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net (185,138) (117,379) (16,253)
Acquisitions, net of cash acquired (61,939) (765,063) (76,223)
Acquisition of joint venture interests and other (62,437) (127,438) --
Net proceeds from sale of Hinge Business 36,888 -- --
Change in restricted cash 5,225 2,931 3,552
-------------- ------------- ------------
Net cash used for investing activities (267,401) (1,006,949) (88,924)
------------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,245,165 1,122,044 197,813
Repayments of debt (1,448,618) (733,873) (152,229)
Net proceeds from issuance of common stock 3,071 286,139 51,560
Net proceeds from issuance of convertible debt -- 194,892 --
Net proceeds from issuance of preferred securities 249,713 -- --
Cash portion of extraordinary loss on
extinguishment of debt -- (3,010) --
Other, net 406 257 370
-------------- ------------- ------------
Net cash provided by financing activities 49,737 866,449 97,514
------------ ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,434 (39,596) 38,639
CASH AND CASH EQUIVALENTS, beginning of period -- 39,596 957
--------------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 3,434 $ -- $ 39,596
------------- ------------ -----------
------------- ------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for-
Interest, net of amounts capitalized $ 41,390 $ 25,394 $ 7,372
------------- ------------ -----------
------------- ------------ -----------
Income taxes $ 4,420 $ 10,661 $ 6,091
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-4-
<PAGE>
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Tower Automotive, Inc. and subsidiaries (the "Company") produces a
broad range of assemblies and modules for vehicle body structures and
suspension systems for the global automotive industry. The Company has
facilities in the United States, Canada, Italy and Japan, in China
through its joint venture investment in China (see Note 2), in Brazil
through its joint venture interest in Caterina (see Note 5), and in
Mexico through its joint venture investment in Metalsa (see Note 5).
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts
of Tower Automotive, Inc. and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
As part of the acquisition of Automotive Products Company ("APC") (see
Note 5), the Company acquired a 60% joint venture interest to produce
certain parts in China. This investment is accounted for using the
equity method since all significant business decisions require the
approval of 80% of the joint venture partners. The remaining 40% of the
joint venture is owned by unrelated third parties. The Company's
investments in Metalsa and Caterina (see Note 5) are also accounted for
using the equity method.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. Cash equivalents are stated
at cost which approximates fair value.
INVENTORIES:
Inventories are valued at the lower of first-in, first-out ("FIFO")
cost or market.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 26,787 $ 14,601
Work-in-process 27,734 38,763
Finished goods 22,392 20,445
---------- ----------
$ 76,913 $ 73,809
---------- ----------
---------- ----------
</TABLE>
-5-
<PAGE>
CUSTOMER TOOLING AND OTHER DESIGN COSTS:
Customer tooling represents costs incurred by the Company in the
development of new tooling used in the manufacture of the Company's
products. Once customer approval is obtained for the manufacture of a
new product, the Company is reimbursed by its customers for the cost of
certain of the tooling, at which time the tooling becomes the property
of the customers.
In addition, the Company has certain other tooling and design costs
related to previously proven product designs which are reimbursed by
the Company's customers as the related product is sold through an
incremental increase in each product's unit selling price. Such costs
are capitalized and amortized using the unit of production method over
the life of the related product. Amounts capitalized and included in
other assets were $8.1 million at December 31, 1998 and $8.5 million at
December 31, 1997. If the Company forecasts that the amount of
capitalized tooling and design costs exceeds the amount to be realized
through the sale of product, a loss is recognized currently.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Land $ 5,872 $ 5,696
Buildings and improvements 144,797 126,664
Machinery and equipment 656,189 548,304
Construction in progress 151,080 81,929
--------- -----------
957,938 762,593
Less-Accumulated depreciation (136,065) (64,082)
---------- ------------
Net property, plant and equipment $ 821,873 $ 698,511
---------- ------------
---------- ------------
</TABLE>
Property, plant and equipment acquired in the acquisitions discussed in
Note 5 was recorded at its fair value, determined based on appraisals,
as of the respective acquisition dates. Additions to property, plant
and equipment following the acquisitions are stated at cost. For
financial reporting purposes, depreciation and amortization are
provided using the straight-line method over the following estimated
useful lives:
Buildings and improvements 15 to 40 years
Machinery and equipment 3 to 20 years
Accelerated depreciation methods are used for tax reporting purposes.
Interest is capitalized during the construction of major facilities and
is amortized over their estimated useful lives. Interest of $3.7
million was capitalized during the year ended December 31, 1998 and
$3.4 million was capitalized during the year ended December 31, 1997.
No interest was capitalized during the year ended December 31, 1996.
Maintenance and repairs are charged to expense as incurred. Major
betterments and improvements which extend the useful life of the
related item are capitalized and
-6-
<PAGE>
depreciated. The cost and accumulated depreciation of property,
plant and equipment retired or otherwise disposed of are removed
from the related accounts, and any residual values after
considering proceeds are charged or credited to income.
OTHER ASSETS:
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired and is being amortized on a
straight-line basis over 40 years. Debt issue costs are amortized on a
straight-line basis over the term of the related obligations.
The Company periodically evaluates whether events and circumstances
have occurred which may affect the estimated useful life or the
recoverability of the remaining balance of its goodwill and other
long-lived assets. If such events or circumstances were to indicate
that the carrying amount of these assets were not recoverable, the
Company would estimate the future cash flows expected to result from
the use of the assets and their eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges)
were less than the carrying amount of goodwill, the Company would
recognize an impairment loss.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and revolving credit facilities approximates fair
value because of the short maturity of these instruments. The carrying
amount of the Company's long-term debt approximates fair value because
of the variability of the interest cost associated with these
instruments. The fair value of the Company's Convertible Subordinated
Notes and Preferred Securities, based on Portal market quote activity
as of yearend, approximated carrying value.
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 a
fixed-rate of approximately 6.75%. This interest rate swap contract was
executed to balance the Company's fixed-rate and floating-rate debt
portfolios. Under the 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 the 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.
During the fourth quarter of 1997, the Company entered into an interest
rate contract in a notional amount of $75 million in anticipation of
financing that did not materialize. Accordingly, the Company has
adjusted the interest contract to market as of December 31, 1998 and
1997. The write-down to fair value of approximately $6.4 million and
$2.0 million, respectively, has been recorded as expense in the
accompanying consolidated statements of operations. Subsequent to
December 31, 1998, the Company settled the $75 million contract with a
cash payment of approximately $7 million.
-7-
<PAGE>
REVENUE RECOGNITION AND SALES COMMITMENTS:
The Company recognizes revenue as its products are shipped to its
customers. The Company enters into agreements to produce products for
its customers at the beginning of a given vehicle's life. Once such
agreements are entered into by the Company, fulfillment of the
customers' purchasing requirements is the obligation of the Company for
the entire production life of the vehicle, with terms of three to ten
years and the Company has no provisions to terminate such contracts. In
certain instances, the Company may be committed under existing
agreements to supply product to its customers at selling prices which
are not sufficient to cover the direct cost to produce such product. In
such situations, the Company records a liability for the estimated
future amount of such losses. Such losses are recognized at the time
that the loss is probable and reasonably estimable and is recorded at
the minimum amount necessary to fulfill the Company's obligations to it
customers. Losses are discounted at 4% and are estimated based upon
information available at the time of the estimate, including future
production volume estimates, length of the program and selling price
and production cost information.
INCOME TAXES:
The Company accounts for income taxes following the provision of
Statement of Financial Accounting Standards ("SFAS") No. 109, which
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities
using currently enacted tax rates.
COMPREHENSIVE INCOME:
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. The Company has chosen to disclose
comprehensive income in the consolidated statements of stockholders'
investment and prior years have been restated.
SEGMENT REPORTING:
During 1998, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." SFAS No. 131
supersedes SFAS No. 14 replacing the "industry segment" approach with
the "management" approach. The management approach designates the
internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The
adoption of SFAS No. 131 did not affect results of operations or
financial position but did affect the disclosure of segment information
(see Note 8).
-8-
<PAGE>
STOCK OPTIONS:
The Company accounts for stock options under the provisions of
Accounting Principles Board Opinion ("APB") No. 25, under which no
compensation expense is recognized when the stock options are granted.
The pro forma effects had the Company followed the provisions of SFAS
No. 123 are included in Note 3.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The ultimate results could
differ from those estimates.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of the Company's foreign operations are
translated using the year-end rates of exchange. Results of operations
are translated using the average rates prevailing throughout the
period. Translation gains or losses are accumulated as a component of
accumulated other comprehensive income in the accompanying consolidated
statements of stockholders' investment.
RECLASSIFICATIONS:
Certain amounts previously reported in the 1997 and 1996 consolidated
financial statements have been reclassified to conform to the 1998
presentation. These reclassifications had no effect on previously
reported net income or stockholders' investment.
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
-9-
<PAGE>
Company is currently in the process of assessing the impact of
adopting SOP 98-5 and will adopt this new pronouncement in the
first quarter of 1999.
3. STOCKHOLDERS' INVESTMENT:
STOCK SPLIT:
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.
PUBLIC OFFERINGS OF COMMON STOCK:
During 1996, the Company completed an offering of 4,465,800 shares of
its Common Stock at an offering price of $12.25 per share (the "1996
Offering") resulting in net proceeds of approximately $51.3 million.
Proceeds from the 1996 Offering were used by the Company to retire
borrowings under its secured credit agreement and for general corporate
purposes.
During 1997, the Company issued 17,000,000 shares of Common Stock in a
public offering at an offering price of $17.50 per share (the
"Offering"). Net proceeds to the Company, after underwriting discounts
and offering expenses, were approximately $285 million. Proceeds from
the Offering were used by the Company to partially fund the acquisition
of APC.
-10-
<PAGE>
EARNINGS PER SHARE:
Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during the year.
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 (as
defined in Note 4) were converted upon issuance on June 9, 1998 as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $ 88,040 $ 46,244 $ 20,637
Interest expense on Edgewood notes, net of tax 60 104 128
Interest expense on Convertible Subordinated
Notes, net of tax 6,508 2,834 --
Dividends on Preferred Securities, net of tax 5,878 -- --
------------ ----------------- ------------
Net income applicable to common
stockholders - diluted $ 100,486 $ 49,182 $ 20,765
------------ ----------------- ------------
------------ ----------------- ------------
Weighted average number of common
shares outstanding 46,204 40,720 25,364
Dilutive effect of outstanding stock
options and warrants after application
of the treasury stock method 504 498 276
Dilutive effect of Edgewood notes,
assuming conversion 547 764 1,206
Dilutive effect of Convertible Subordinated
Notes, assuming conversion 7,729 3,220 --
Dilutive effect of Preferred Securities,
assuming conversion 4,727 -- --
------------ ----------------- ------------
Diluted shares outstanding 59,711 45,202 26,846
------------ ----------------- ------------
------------ ----------------- ------------
Basic earnings per share $ 1.91 $ 1.14 $ 0.81
------------ ----------------- ------------
------------ ----------------- ------------
Diluted earnings per share $ 1.68 $ 1.09 $ 0.77
------------ ----------------- ------------
------------ ----------------- ------------
</TABLE>
STOCK OPTION PLAN:
The Company sponsors the 1994 Key Employee Stock Option Plan (the
"Stock Option Plan"), under which any person who is a full-time,
salaried employee of the Company (excluding non-management directors)
is eligible to participate in the Stock Option Plan (an "Employee
Participant"). A committee of the board of directors selects the
Employee Participants and determines the terms and conditions of the
options. The Stock Option Plan provides for the issuance of options up
to 3,000,000 shares of Common Stock at exercise prices equal to the
stock market price on the date of grant to
-11-
<PAGE>
Employee Participants, subject to certain adjustments reflecting
changes in the Company's capitalization. Information regarding the
Stock Option Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average Fair
Shares Average Value of Exercisable
Under Exercise Exercise Options At End of
Option Price Price Granted Year
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding, Dec. 31, 1995 241,500 $4.00-5.00 $ 4.09 $ 2.12 --
Granted 278,000 7.56 7.56
Exercised (13,250) 4.00 4.00
Forfeited (9,750) 4.00-7.56 5.10
------------ --------- -----------
Outstanding, Dec. 31, 1996 496,500 4.00-7.56 6.02 4.76 55,250
Granted 382,500 18.94 18.94
Granted 8,000 20.50 20.50
Exercised (52,600) 4.00-7.56 5.10
Forfeited (30,250) 4.00-18.94 8.56
----------- -------------- -----------
Outstanding, Dec. 31, 1997 804,150 4.00-20.50 12.19 13.35 138,650
Granted 666,000 22.97 22.97
Granted 8,000 22.88 22.88
Granted 20,000 25.75 25.75
Granted 491,000 17.123 17.13
Exercised (112,300) 4.00-18.94 5.96
Forfeited (23,500) 4.00-22.97 18.93
------------ -------------- ----------
Outstanding, Dec. 31, 1998 1,853,350 $4.00-25.75 $ 17.89 $ 10.43 252,100
------------ --------- -----------
------------ --------- -----------
</TABLE>
The weighted average exercise price of options exercisable at end of
year was $11.27 at December 31, 1998 and $5.48 at December 31, 1997.
As of December 31, 1998, the outstanding stock options granted in 1998
have a remaining contractual life of 10 years, the outstanding stock
options granted in 1997 have a remaining contractual life of 9 years
and the outstanding stock options granted in 1996 have a remaining
contractual life of 8 years.
INDEPENDENT DIRECTOR STOCK OPTION PLAN:
In February 1996, the Company's board of directors approved the Tower
Automotive, Inc. Independent Director Stock Option Plan (the "Director
Option Plan" that provides for the issuance of options to Independent
Directors, as defined, to acquire up to 200,000 shares of the Company's
Common Stock, subject to certain adjustments reflecting changes in the
Company's capitalization. The option exercise price must be at least
equal to the fair value of the Common Stock at the time the option is
issued. Vesting is determined by the board of directors at the date of
grant and in no event can be less than six months from the date of
grant. Information regarding the Director Option Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average Exercisable
Under Exercise Exercise At End of
Option Price Price Year
------------------------------ --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Outstanding, Dec. 31, 1995 -- $ -- $ -- --
Granted 45,000 7.56 7.56
---------- -------------- -------------
Outstanding, Dec. 31, 1996 45,000 7.56 7.56 --
Granted 60,000 18.94 18.94
---------- -------------- -------------
Outstanding, Dec. 31, 1997 105,000 7.56-18.94 14.06 15,000
Granted 18,000 22.97 22.97
---------- -------------- -------------
Outstanding, Dec. 31, 1998 123,000 $7.56-22.97 $ 15.37 49,800
---------- -------------- -------------
---------- -------------- -------------
</TABLE>
-12-
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN:
The Company also sponsors an employee stock discount purchase plan
which provides for the sale of up to 1,000,000 shares of the Company's
Common Stock at discounted purchase prices, subject to certain
limitations. The cost per share under this plan is 85% of the market
value of the Company's Common Stock at the date of purchase, as
defined. During the year ended December 31, 1998, 132,104 shares of
Common Stock were issued to employees pursuant to this plan, 129,802
shares of Common Stock were issued during the year ended December 31,
1997, and 36,700 shares of Common Stock were issued during the year
ended December 31, 1996. The weighted average fair value of shares sold
in 1998, 1997 and 1996 were $17.76, $12.10 and $7.16.
STOCK-BASED COMPENSATION PLANS:
As discussed above, the Company has two stock option plans, the Stock
Option Plan and the Independent Director Stock Option Plan, and the
Employee Stock Purchase Plan. The Company has elected to continue to
account for these plans under APB No. 25, under which no compensation
cost has been recognized. Had compensation cost for these plans been
determined as required under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net income and pro forma
earnings per share would have been as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net income As Reported $ 88,040 $ 46,244 $ 20,637
Pro Forma 86,787 45,722 20,483
Basic earnings per share As Reported $ 1.91 $ 1.14 $ 0.81
Pro Forma 1.88 1.12 0.81
Diluted earnings per share As Reported $ 1.68 $ 1.09 $ 0.77
Pro Forma 1.66 1.08 0.77
</TABLE>
The effect of the stock issued under the Employee Stock Purchase Plan
was not material for 1998, 1997 and 1996.
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted average assumptions: Risk free interest rates of 4.81% to
5.75% in 1998, 6.39% in 1997 and 5.67% in 1996; expected life of seven
years for 1998, 1997 and 1996; expected volatility of 37% to 40% in
1998, 67% in 1997 and 56% in 1996; expected dividends of zero.
OTHER COMMON STOCK EQUIVALENTS:
In connection with the acquisition of Edgewood Tool and Manufacturing
Company ("Edgewood") in May 1994, the Company issued options to acquire
205,968 shares of Common Stock at an exercise price of $3.28 per share.
These options are fully exercisable through 2004. As of December 31,
1998, all of these options were exercisable.
-13-
<PAGE>
In connection with the acquisition of MSTI in May 1996, the Company
issued warrants to MascoTech to acquire 400,000 shares of Common
Stock at an exercise price of $9 per share. The warrants expire in
2006.
In addition, the Company has Convertible Subordinated Notes outstanding
as discussed in Note 6.
DIVIDENDS:
The Company has not declared or paid any cash dividends in the past. As
discussed in Note 6, the Company's debt agreements restrict the amount
of dividends the Company can declare or pay. As of December 31, 1998,
under the most restrictive debt covenants, the Company could not have
paid any cash dividends.
4. MANDATORILY REDEEMABLE TRUST CONVERTIBLE PREFERRED SECURITIES:
On June 9, 1998, Tower Automotive Capital Trust (the "Issuer"), a
wholly owned statutory business trust of the 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 $249.7 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 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 net proceeds of the offering were used to repay
outstanding indebtedness. Minority interest reflected in the
accompanying consolidated statements of operations represents dividends
on the Preferred Securities at a rate of 6 3/4%, net of income tax
benefits at the Company's incremental tax rate of 40%.
No separate financial statements of the Issuer have been included
herein. The Company does not consider that such financial statements
would be material to holders of Preferred Securities because (i) all of
the voting securities of the Issuer are owned, directly or indirectly,
by the Company, a reporting company under the Exchange Act, (ii) the
Issuer has no independent operations and exists for the sole purpose of
issuing securities representing undivided beneficial interests in the
assets of the Issuer and investing the proceeds thereof in 6 3/4%
Convertible Subordinated Debentures due June 30, 2018 issued by the
Company and (iii) the obligations of the Issuer under the Preferred
Securities are fully and unconditionally guaranteed by the Company.
5. ACQUISITIONS, INVESTMENT IN JOINT VENTURES AND DIVESTITURE:
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.
-14-
<PAGE>
On May 9, 1997, the Company acquired all of the outstanding common
stock of Societa Industria Meccanica e Stampaggio S.p.A. ("SIMES").
SIMES designs and manufactures structural metal components from two
facilities in Italy, principally for Fiat. The purchase price, which
consisted of $50.7 million in cash, 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 performance
targets are met by SIMES.
On April 18, 1997, the Company acquired and assumed substantially all
of the assets and liabilities of 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 (see Note 6). APC
designs and manufactures frames, frame components, engine cradles,
suspension components and modules for the North American automotive and
heavy truck industries.
On May 31, 1996, the Company acquired all of the outstanding common
stock of MascoTech Stamping Technologies, Inc. ("MSTI"), a wholly owned
subsidiary of MascoTech, Inc. ("MascoTech"). Consideration consisted of
$55 million in cash, 1,570,000 shares of the Company's Common Stock and
warrants to acquire 400,000 shares of the Company's Common Stock at an
exercise price of $9 per share. The Company also made additional
payments of $30 million to MascoTech as certain operating targets were
achieved by the MSTI facilities following the acquisition. MSTI
manufactures metal chassis and suspension components and assemblies for
the North American automotive industry from facilities in Ohio, Indiana
and Michigan.
On January 16, 1996, the Company acquired all of the outstanding common
stock of Trylon Corporation ("Trylon") for total consideration of
approximately $25 million. The acquisition was financed with the
proceeds of a $25 million term loan. Trylon manufactures metal
stampings and assemblies for the North American automotive industry
from a facility in Traverse City, Michigan.
These acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the assets acquired and liabilities
assumed have been recorded at fair value as of the dates of the
acquisitions. The assets and liabilities of IMAR and OSLAMT have been
recorded based upon preliminary estimates of fair value as of the dates
of acquisition. The Company does not believe the final allocations of
the purchase price will be materially different than the preliminary
allocations. The excess of the purchase price over the fair value of
the assets acquired and liabilities assumed has been recorded as
goodwill. Results of operations for these acquisitions have been
included in the accompanying consolidated financial statements since
the dates of acquisition. Additional purchase liabilities recorded in
conjunction with the acquisition of APC included approximately $19.1
million for costs associated with the shutdown and consolidation of
certain acquired facilities and $8.9 million for general and payroll
related costs primarily for planned employee termination activities. At
December 31, 1998, liabilities of approximately $18.5 million for
facility-related costs and $3.2 million in excess payroll costs
remained in the consolidated balance sheets.
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
-15-
<PAGE>
Company's revolving credit facility. This investment added
Volkswagen and Mercedes-Benz as new customers in Brazil.
On October 9, 1997, the Company became a 40% 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. 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-Benz. 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. Based upon Metalsa's 1998 net earnings, the
Company will pay Proeza approximately $9.0 million in additional
consideration during the first quarter of 1999. The investment in
Metalsa was financed with proceeds from borrowings under the Company's
revolving credit facility.
Summarized unaudited financial information for Metalsa and Caterina
from the dates of their respective investment are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Condensed Statements of Earnings
--------------------------------------
Revenues $ 269,280 $ 52,757
Operating income 60,047 8,405
Net income 28,972 3,297
Condensed Balance Sheets
--------------------------------------
Current assets $ 91,519 $ 59,718
Noncurrent assets 126,336 103,760
------------- ------------
$ 217,855 $ 163,478
------------- ------------
------------- ------------
Current liabilities $ 45,562 $ 25,243
Noncurrent liabilities 50,057 51,160
Stockholders' investment 122,236 87,075
------------- -------------
$ 217,855 $ 163,478
------------- ------------
------------- ------------
</TABLE>
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 results of
operations of the Hinge Business are not significant to the operating
results of the Company as a whole and have, therefore, been excluded
from the pro forma adjustments.
The accompanying unaudited consolidated pro forma results of operations
for the year ended December 31, 1998 give effect to the following as if
they were completed at the beginning of the year: (i) the acquisitions
of IMAR and OSLAMT, (ii) the investment in Caterina, and (iii) the
issuance of the Preferred Securities. The accompanying unaudited
consolidated pro forma results of operations for the year ended
December 31, 1997 give effect to the transactions described above and
the following as if they had been completed at the beginning of the
year: (i) the acquisitions of APC and SIMES and the investment in
Metalsa; (ii) the refinancing of the old credit agreement and the
-16-
<PAGE>
redemption of the Senior Notes (see Note 6); (iii) the Offering (as
defined in Note 3); and (iv) the sale of the Notes (as defined in Note
6). The unaudited pro forma financial information does not purport to
represent what the Company's results of operations would actually have
been if such transactions in fact had occurred at such date or to
project the Company's results of future operations (in thousands,
except per share data):
<TABLE>
<CAPTION>
Pro Forma for
the Years Ended 31
--------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $1,867,543 $1,582,931
Net income $ 84,582 $ 34,517
Basic earnings per share $ 1.83 $ 0.75
Diluted earnings per share $ 1.60 $ 0.55
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
<TABLE>
December 31,
1998 1997
---- ----
<S> <C> <C>
Revolving credit facility, due April 2003, interest at prime or LIBOR
plus a margin ranging from 17 to 50 basis points (5.785% at December 31,
1998 and 6.3% at December 31, 1997) $ 190,000 $ 414,200
Revolving credit facility, due April 2003, foreign currency annex
(3.711% at December 31, 1998 and 6.99% at December 31, 1997) 67,563 51,399
Industrial development revenue bonds, due in lump sum payments in
June 2024 and March 2025, interest payable monthly at a rate adjusted
weekly by the bond remarketing agent (5.58% at December 31, 1998 and
6.1% at December 31, 1997) 43,765 43,765
Convertible Edgewood notes, due May 2003, interest at 5.75% payable
quarterly 1,636 1,824
Italian stand alone borrowings, due on demand, interest set at
borrowing (4.47% at December 31, 1998) 10,889 --
Other 16,412 3,187
---------- ------------
330,265 514,375
Less-Current maturities (13,686) (722)
---------- ------------
$ 316,579 $ 513,653
---------- ------------
---------- ------------
</TABLE>
Future maturities of long-term debt as of December 31, 1998 are as
follows (in thousands):
<TABLE>
<S> <C>
1999 $ 13,686
2000 718
2001 --
2002 --
2003 259,199
Thereafter 56,662
-----------
$ 330,265
-----------
-----------
</TABLE>
-17-
<PAGE>
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 December 31, 1998, 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 6.8% for the
year ended December 31, 1998.
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 December 31, 1998 and 1997 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>
4/18/97 - 12/30/1998 2.50 to 1.00 65% 4.50 to 1.00 3.50 to 1.00
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.
In July 1997, the Company completed the offering of $200 million of
Convertible Subordinated Notes (the "Notes"). The Notes bear interest
at 5%, are unsecured, due on August 1, 2004 and are convertible into
Common Stock at a conversion price of $25.88
-18-
<PAGE>
per share. The Company may make optional redemptions of the Notes
after August 1, 2000 at amounts ranging from 102.857% to 100.714%
of face value. In the event of a change in control (as defined) the
holders of the Notes may require the Company to redeem the Notes at
face value plus accrued interest. Proceeds from the Notes were used
to repay outstanding indebtedness under the revolving credit
facility.
In 1994 and 1995, the Company issued $25.0 million and $20.0 million,
respectively, of industrial development revenue bonds related to the
construction and equipping of a manufacturing facility in Bardstown,
Kentucky. The bonds are collateralized by letters of credit. The
undispersed proceeds from these bonds are invested in treasury
securities and reflected as restricted cash in the accompanying
consolidated balance sheets.
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, with interest rates of 7.65% and 7.82%
and final maturities of 2006 and 2008. The Senior Notes were retired in
April 1997. 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.
7. INCOME TAXES:
The income tax provision consisted of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable $ 16,296 $ 7,310 $ 7,374
Deferred income tax provision 37,847 24,980 6,326
---------- --------------- ---------------
Total $ 54,143 $ 32,290 $ 13,700
---------- --------------- ---------------
---------- --------------- ---------------
</TABLE>
The deferred income tax provision consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Depreciation lives and methods $ 41,305 $ 24,893 $ 3,348
Accrued compensation costs 74 (1,539) (915)
Other reserves and accruals (3,532) 1,626 3,893
------------ ------------ ----------
Net deferred income tax provision $ 37,847 $ 24,980 $ 6,326
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
A reconciliation of income taxes computed at the statutory rates to the
reported income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Taxes at federal statutory rates $ 47,438 $ 28,339 $ 12,018
State income taxes, net of federal benefit 3,692 2,227 1,199
Effect of permanent differences,
primarily goodwill amortization 3,013 1,724 483
----------- ------------ ------------
Provision for income taxes $ 54,143 $ 32,290 $ 13,700
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
-19-
<PAGE>
A summary of deferred income tax assets (liabilities) is as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Current deferred tax assets:
Accrued compensation costs $ 7,927 $ 8,448
Inventory valuation adjustments 2,971 4,486
Other reserves and accruals not currently deductible
for tax purposes 3,140 4,467
--------- -----------
Net current deferred tax assets $ 14,038 $ 17,401
--------- -----------
--------- -----------
Noncurrent deferred tax assets (liabilities):
Depreciation lives and methods $(100,984) $(59,679)
Postretirement benefit obligations 39,429 38,982
Other reserves and accruals not currently deductible
for tax purposes 41,179 34,805
---------- ----------
Net noncurrent deferred tax assets (liabilities) $ (20,376) $ 14,108
--------- -----------
--------- -----------
</TABLE>
The Company has an alternative minimum tax ("AMT") credit carryforward
of approximately $21 million which can be used to offset regular income
taxes payable in future years. The AMT credit has an indefinite
carryforward period.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of its foreign joint venture operations as all
such earnings are deemed to be indefinitely reinvested in those
operations. If the earnings of such joint ventures were not
indefinitely reinvested, a deferred liability would have been required
which would not have been material as of December 31, 1998 or 1997.
Undistributed amounts, if remitted in the future, may not result in
additional U.S. income taxes because of the use of available foreign
tax credits at that time.
8. GEOGRAPHIC AND PRODUCT LINE INFORMATION:
The Company adopted SFAS No. 131 in 1998. The Company produces a broad
range of assemblies and modules for vehicle body structures and
suspension systems for the global automotive industry and operates in a
single reportable business segment, automotive products. However,
because of the similar economic characteristics of the operations,
including the nature of products, production processes and customers,
those operations have been aggregated for segment reporting purposes.
The following is a summary of revenues and long-lived assets by
geographic location (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------
1998 1997
---- ----
Long-Lived Long-Lived
Revenues Assets Revenues Assets
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
North America $1,752,149 $ 785,720 $1,194,196 $ 693,896
Other foreign countries 84,330 47,356 41,633 20,203
------------- ----------- ------------- -----------
$1,836,479 $ 833,076 $1,235,829 $ 714,099
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
</TABLE>
-20-
<PAGE>
Revenues are attributed to geographic locations based on the location
of specific production.
The following is a summary of the approximate composition by product
category of the Company's revenues:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Structural components $1,520,498 $1,080,599
Suspension components 179,935 133,229
Modular assemblies 136,046 22,001
------------ ------------
$1,836,479 $1,235,829
------------ ------------
------------ ------------
</TABLE>
The Company sells its products directly to automotive manufacturers.
Following is a summary of customers that accounted for more than 10% of
consolidated revenues in any of the three years in the period ended
December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Ford 40% 48% 67%
DaimlerChrysler 27 19 10
General Motors 10 13 2
</TABLE>
Receivables from these customers represented 60% of total accounts
receivable at December 31, 1998 and 65% of total accounts receivable at
December 31, 1997.
9. EMPLOYEE BENEFIT PLANS:
The Company sponsors various pension and other postretirement benefit
plans for its employees. The Company has adopted SFAS No. 132 -
Employers' Disclosures about Pensions and Other Postretirement Benefits
(SFAS No. 132). SFAS No. 132 is intended to standardize certain
footnote disclosure requirements for pensions and other retirement
benefits.
RETIREMENT PLANS:
The Company contributes to a union sponsored multi-employer pension
plan providing defined benefits to certain Michigan hourly employees.
Contributions to the pension plan are based on rates set forth in the
Company's union contracts. The expense related to this plan was
$698,000 for the year ended December 31, 1998, $762,000 for the year
ended December 31, 1997 and $852,000 for the year ended December 31,
1996. The plan was substantially fully funded as of the latest
valuation date.
The Company also has a qualified profit sharing retirement plan and
401(k) employee savings plan covering certain salaried and hourly
employees. The expense related to these plans was $5,108,000 during
1998, $4,310,000 during 1997 and $2,803,000 during 1996.
The Company sponsors a 401(k) employee savings plan covering certain
union employees. The Company matches a portion of the employee
contributions made to this
-21-
<PAGE>
plan. The expense under this plan in each of the three years in the
period ended December 31, 1998 was not material.
The Company's UAW Retirement Income Plan covers substantially all union
employees at its Kalamazoo and Bluffton facilities. The Company's Tower
Automotive Pension Plan covers substantially all of the employees at
its APC facilities. Benefits under the plans are based on years of
services. Contributions by the Company are intended to provide not only
for benefits attributed to service to date, but also for those benefits
expected to be earned in the future. The Company's funding policy is to
contribute annually the amounts sufficient to meet the higher of the
minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974 or the minimum funding requirements under
the Company's union contracts.
The following tables provide a reconciliation of the changes in the
benefit obligations and fair value of assets for the defined benefit
pension plans (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
--------------------------------------------
Fair value of plan assets at the beginning of the year $ 3,502 $ 3,147
Actual return on plan assets 1,143 318
Employer contributions 4,712 192
Benefits paid (261) (155)
------------ ------------
Fair value of plan assets at the end of the year $ 9,096 $ 3,502
------------ ------------
------------ ------------
CHANGE IN BENEFIT OBLIGATIONS:
------------------------------
Benefit obligations at the beginning of the year $ 8,376 $ 3,031
Service cost 6,899 4,757
Interest cost 1,065 250
Plan amendments 18,786 --
Actuarial gains 2,928 493
Benefits paid (261) (155)
-------------- -------------
Benefit obligations at the end of the year $ 37,793 $ 8,376
-------------- -------------
-------------- -------------
FUNDED STATUS RECONCILIATION: 1998 1997
---------------------------- ---- ----
Funded status $ (28,697) $ (4,874)
Unrecognized transition asset (160) (191)
Unrecognized prior service cost 19,345 951
Unrecognized actuarial (gain) losses 1,861 (187)
-------------- -------------
Net amount recognized $ (7,651) $ (4,301)
-------------- -------------
-------------- -------------
AMOUNTS RECOGNIZED IN THE BALANCE SHEET AS OF EACH YEAR END:
-----------------------------------------------------------
Prepaid benefit cost $ 264 $ --
Accrued benefit liability (26,585) (4,374)
Intangible asset 18,670 73
-------------- -------------
Net amount recognized $ (7,651) $ (4,301)
-------------- -------------
-------------- -------------
</TABLE>
-22-
<PAGE>
The Tower Automotive Pension Plan was the only pension plan with an
accumulated benefit obligation in excess of plan assets. The plan's
accumulated benefit obligation was $31.5 million at December 31, 1998
and $3.9 million at December 31, 1997. The fair value of the assets was
$4.9 million at December 31, 1998 and $0 at December 31, 1997. The Plan
was amended effective October 21, 1998 to reflect certain benefit level
changes negotiated in connection with the Smith Steel Workers Union
contract. The effect of the change on the pension benefit obligation is
an increase of $18,786 of unrecognized prior service cost. The
unrecognized prior service cost will be amortized into expense over the
remaining working lifetime of the participants affected.
The following table provides the components of net periodic benefit
cost for the plans for the years ended December 31, 1998, 1997 and 1996
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ 6,899 $ 4,757 $ 219
Interest cost 1,065 250 219
Expected return on plan assets (263) (237) (337)
Amortization of transition asset (31) (31) --
Amortization of prior-service cost 393 69 136
Amortization of net gain (1) (2) --
--------------- ------------- ------------
Net periodic benefit cost $ 8,062 $ 4,806 $ 237
--------------- ------------- ------------
--------------- ------------- ------------
</TABLE>
The assumptions used in the measurement of the Company's benefit
obligation are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Weighted-average assumptions of each year end:
Discount rate 7.0% 7.5%
Expected return on plan assets 8.0% 8.0%
Rate of compensation increase 4.5% 4.5%
</TABLE>
POSTRETIREMENT PLANS:
The Company provides certain medical insurance benefits for retired
employees. Certain employees of the Company are eligible for these
benefits if they remain employed until age 55 or 59 and fulfill other
eligibility requirements specified by the plans. Certain retirees
between the ages of 55 and 62 must contribute 100% of the group rate
for active employees. No contributions are required for retirees 62 or
older. Benefits are continued for dependents of eligible retiree
participants after the death of the retiree.
-23-
<PAGE>
The following tables provide a reconciliation of the changes in the
benefit obligations and fair value of assets for the retiree medical
plans, (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
---------------------------------------------
Fair value of plan assets at the beginning of the year $ -- $ --
Employer contributions 7,564 4,423
Benefits paid (7,564) (4,423)
------------- ------------
Fair value of plan assets at the end of the year $ -- $ --
------------- ------------
------------- ------------
CHANGE IN BENEFIT OBLIGATIONS:
------------------------------
Benefit obligations at the beginning of the year $ 95,466 $ 10,692
Service cost 1,609 1,178
Interest cost 6,963 4,876
Plan amendments -- 82,236
Actuarial gains 8,261 907
Benefits paid (7,564) (4,423)
------------- ------------
Benefit obligations at the end of the year $ 104,735 $ 95,466
------------- ------------
------------- ------------
FUNDED STATUS RECONCILIATION:
-----------------------------
Funded status $(104,735) $ (95,466)
Unrecognized actuarial (gain) losses 6,110 (2,282)
------------- ------------
Net amount recognized $ (98,625) $ (97,748)
------------- ------------
------------- ------------
AMOUNTS RECOGNIZED IN THE BALANCE SHEET AS OF EACH YEAR END:
------------------------------------------------------------
Accrued benefit liability $ (98,625) $ (97,748)
------------- ------------
------------- ------------
</TABLE>
The following table provides the components of net periodic benefit
cost for the plans for years ended December 31, 1998, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ 1,609 $ 1,178 $ 174
Interest cost 6,963 4,876 826
Amortization of net (gain) loss (81) (132) (119)
-------------- ------------ --------
Net periodic benefit cost $ 8,491 $ 5,922 $ 881
-------------- ------------ --------
-------------- ------------ --------
</TABLE>
The discount rate used to measure the Company's post retirement medical
benefit obligation was 7.0% in 1998 and 7.5% in 1997.
For measurement purposes, an 8.5% annual rate of increase in per capita
cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.5% for 2005 and remain at that level
thereafter.
-24-
<PAGE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the post retirement medical plans. A 1% change in
assumed health care costs trend rates would have the following effects:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
<S> <C> <C>
Effect on total service and interest cost components $ 319 $ (257)
Effect of the accumulated benefit obligation $ 4,664 $ (3,645)
</TABLE>
10. COMMITMENTS:
LEASES:
The Company leases office and manufacturing space and certain equipment
under lease agreements which require it to pay maintenance, insurance,
taxes and other expenses in addition to annual rentals. Future annual
rental commitments at December 31, 1998 under these leases are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR OPERATING CAPITAL
---- --------- ----------
<S> <C> <C>
1999 $ 17,901 $ 6,501
2000 11,519 6,424
2001 7,252 6,346
2002 3,936 8,291
2003 3,315 9,124
Thereafter 11,162 --
---------- -------------
Total minimum lease payments $ 55,085 36,686
---------- -------------
----------
Less-amount representing interest 6,411
-------------
Present value of minimum lease
payments $ 30,275
-------------
-------------
</TABLE>
Total rent expense for all operating leases totaled $19.0 million,
$20.7 million and $1.5 million in 1998, 1997 and 1996, respectively.
Rent commitments associated with acquired facilities which will not be
utilized by the Company have been excluded from the above amounts and
will be provided for in the recording of the related acquisition, as
discussed in Note 5.
LITIGATION:
The Company is party to certain claims arising in the ordinary course
of business. In the opinion of management, based upon the advice of
legal counsel, the outcomes of such claims are not expected to be
material to the Company's financial position and statements of
operations.
11. RELATED PARTY TRANSACTIONS:
The Company has made payments to Hidden Creek Industries, an affiliate
of the Company, for certain acquisition related and other management
services totaling $2.9 million during 1998, $3.3 million during 1997
and $750,000 during 1996.
-25-
<PAGE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a condensed summary of quarterly results of operations
for 1998 and 1997. The sum of the per share amounts for the quarters do
not equal the total for the years due to the effects of rounding (in
thousands except per share amounts):
<TABLE>
<CAPTION>
Basic Diluted
Gross Operating Net Earnings Earnings
Revenues Profit Income Income Per Share Per Share
--------- ------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998:
First $ 457,129 $ 63,189 $ 38,785 $ 18,820 $ 0.41 $ 0.37
Second 465,874 70,854 46,720 23,746 0.51 0.46
Third 444,851 66,989 39,525 18,266 0.40 0.36
Fourth 468,625 73,280 50,641 27,208 0.59 0.50
----------- ----------- ----------- ---------- ---------- -----------
$1,836,479 $ 274,312 $ 175,671 $ 88,040 $ 1.91 $ 1.68
----------- ----------- ----------- ---------- ---------- -----------
----------- ----------- ----------- ---------- ---------- -----------
1997:
First $ 125,117 $ 19,012 $ 12,540 $ 6,718 $ 0.23 $ 0.23
Second 327,272 46,129 28,763 10,747 0.25 0.25
Third 349,507 47,189 27,416 11,828 0.26 0.25
Fourth 433,933 64,779 40,984 16,951 0.37 0.34
----------- ----------- ----------- ---------- ---------- -----------
$ 1,235,829 $ 177,109 $ 109,703 $ 46,244 $ 1.14 $ 1.09
----------- ----------- ----------- ---------- ---------- -----------
----------- ----------- ----------- ---------- ---------- -----------
</TABLE>
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