<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-12733
TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4508 IDS CENTER 55402
MINNEAPOLIS, MINNESOTA (Zip Code)
(Address of principal executive offices)
(612) 342-2310
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at May 8, 2000 was 47,017,080 shares.
<PAGE> 2
TOWER AUTOMOTIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 2000 and 1999
Condensed Consolidated Balance Sheets at March 31, 2000
(unaudited) and December 31, 1999
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Market Risk" section of Item 2
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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<PAGE> 3
ITEM 1 - FINANCIAL INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Revenues $ 685,364 $ 498,572
Cost of sales 573,642 419,125
--------- ---------
Gross profit 111,722 79,447
Selling, general and administrative expenses 34,656 22,420
Amortization expense 5,099 3,450
--------- ---------
Operating income 71,967 53,577
Interest expense, net 13,197 7,267
--------- ---------
Income before provision for income taxes 58,770 46,310
Provision for income taxes 23,508 18,524
--------- ---------
Income before equity in earnings of joint
ventures and minority interest 35,262 27,786
Equity in earnings of joint ventures 4,480 2,913
Minority interest - dividends on trust
preferred securities, net (2,619) (2,623)
--------- ---------
Net income $ 37,123 $ 28,076
========= =========
Basic earnings per share $ 0.79 $ 0.60
========= =========
Diluted earnings per share $ 0.65 $ 0.51
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 4
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,727 $ 3,617
Accounts receivable, net 443,144 353,351
Inventories, net 127,790 110,897
Prepaid tooling and other 97,657 90,191
----------- -----------
Total current assets 670,318 558,056
----------- -----------
Property, plant and equipment, net 1,154,868 1,075,861
Investments in joint ventures 300,886 290,705
Goodwill and other assets, net 692,627 627,928
----------- -----------
$ 2,818,699 $ 2,552,550
=========== ===========
Liabilities and Stockholders' Investment
Current liabilities:
Current maturities of long-term debt and capital lease
obligations $ 21,807 $ 13,876
Accounts payable 323,144 276,673
Accrued liabilities 124,917 140,567
----------- -----------
Total current liabilities 469,868 431,116
----------- -----------
Long-term debt, net of current maturities 868,470 699,678
Obligations under capital leases, net of current maturities 20,211 21,543
Convertible subordinated notes 200,000 200,000
Deferred income taxes 61,212 50,736
Other noncurrent liabilities 173,219 163,592
----------- -----------
Total non-current liabilities 1,323,112 1,135,549
----------- -----------
Mandatorily redeemable trust convertible preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 472 469
Additional paid-in capital 445,330 437,210
Retained earnings 331,645 294,522
Warrants to acquire common stock 2,000 2,000
Deferred income stock plan (8,942) (4,484)
Accumulated other comprehensive loss - cumulative
translation adjustment (3,536) (2,582)
----------- -----------
Total stockholders' investment 766,969 727,135
----------- -----------
$ 2,818,699 $ 2,552,550
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 5
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 37,123 $ 28,076
Adjustments to reconcile net income to net cash provided by (used in)
operating activities -
Depreciation and amortization 35,838 24,377
Deferred income tax provision 10,476 --
Changes in other operating items (72,143) (66,250)
--------- ---------
Net cash provided by (used in) operating activities 11,294 (13,797)
--------- ---------
INVESTING ACTIVITIES:
Acquisitions and investment in joint ventures (102,364) --
Capital expenditures, net (57,273) (51,535)
Change in restricted cash -- (28)
--------- ---------
Net cash used in investing activities (159,637) (51,563)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 840,952 369,842
Repayment of debt (695,617) (310,305)
Proceeds from issuance of stock 1,118 7,371
--------- ---------
Net cash provided by financing activities 146,453 66,908
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,890) 1,548
CASH AND CASH EQUIVALENTS:
Beginning of period 3,617 3,434
--------- ---------
End of period $ 1,727 $ 4,982
========= =========
NON-CASH FINANCING ACTIVITIES:
Deferred income stock plan $ 4,458 $ 4,484
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
<PAGE> 6
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared by Tower Automotive, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of
such financial statements. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated financial
statements be read in conjunction with the audited financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Revenues and operating results for the three months ended March 31,
2000 are not necessarily indicative of the results to be expected for the
full year.
2. Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Raw materials $ 51,728 $ 47,231
Work in process 40,026 34,143
Finished goods 36,036 29,523
-------- --------
$127,790 $110,897
======== ========
</TABLE>
3. Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during the respective
quarters. Diluted earnings per share were determined on the assumptions:
(i) the Edgewood notes were converted at the beginning of the respective
periods, (ii) the Convertible Subordinated Notes were converted at the
beginning of the respective periods, and (iii) the Preferred Securities
were converted at the beginning of the respective periods (in thousands,
except per share data):
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<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
------- -------
<S> <C> <C>
Net income $37,123 $28,076
Interest expense on Edgewood notes,
net of tax 8 10
Interest expense on Convertible
Subordinated Notes, net of tax 1,626 1,624
Dividends on Preferred Securities,
net of tax 2,619 2,623
------- -------
Net income applicable to common
stockholders -- diluted $41,376 $32,333
======= =======
Weighted average number of
common shares outstanding 46,964 46,567
Dilutive effect of outstanding stock
options and warrants after application 274 668
of the treasury stock method
Dilutive effect of Edgewood notes,
assuming conversion 289 400
Dilutive effect of Convertible
Subordinated Notes,
assuming conversion 7,729 7,730
Dilutive effect of Preferred Securities, 8,425 8,424
assuming conversion
Dilutive effect of Deferred income stock 245 --
plan, assuming conversion
------- -------
Diluted shares outstanding 63,926 63,789
======= =======
Basic earnings per share $ 0.79 $ 0.60
======= =======
Diluted earnings per share $ 0.65 $ 0.51
======= =======
</TABLE>
4. Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ---------
<S> <C> <C>
Revolving credit facility $ 466,251 $ 321,679
Term credit facility 320,893 324,210
Industrial development revenue bonds 43,765 43,765
Edgewood notes 877 878
Other 50,838 11,644
--------- ---------
882,624 702,176
Less-current maturities (14,154) (2,498)
--------- ---------
Total long-term debt $ 868,470 $ 699,678
========= =========
</TABLE>
The Company has a Credit Agreement, as defined, which includes a
revolving credit facility that provides for borrowings of up to $750 million on
an unsecured basis with a letter of credit sublimit of $75 million. In addition,
under the terms of the revolving credit facility, the equivalent of up to $85
million in borrowings can be denominated in foreign currency. As of March 31,
2000, approximately $72 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 6.7% for the three months ended March 31, 2000.
-7-
<PAGE> 8
On August 23, 1999, the Company amended and restated its Credit
Agreement to include an additional term loan facility of $325 million. In
addition, under the terms of the term loan facility, the equivalent of up
to $120 million in borrowings can be denominated in foreign currency. As of
March 31, 2000, approximately $120 million of the outstanding borrowings
are denominated in Euro. The term loan facility matures in eight equal
repayments beginning September 2002 with final maturity in June 2004.
Interest on the term loan facility is at the prime rate or LIBOR plus a
margin ranging from 0 to 200 basis points depending on the Company's ratio
of consolidated indebtedness to its total capitalization. The weighted
average interest rates for the term loan facility dollar borrowings and
Euro borrowings were 7.2% and 4.7%, respectively, for the three months
ended March 31, 2000. The proceeds from the term facility were used to
repay outstanding indebtedness under the revolving facility incurred in
connection with the acquisition of Active on July 29, 1999.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to minimum interest coverage, maximum
debt/capital, maximum leverage and maximum senior leverage ratios. As of
March 31, 2000, the Company was in compliance with all debt covenants.
5. On July 29, 1999, the Company acquired all of the outstanding stock of
Active Tool and Manufacturing Company, Inc. and its affiliate Active
Products Corporation (collectively, "Active") for total consideration of
approximately $315 million. Active, which has five facilities, designs and
produces a variety of large unexposed structural stampings, exposed surface
panels, and modules to the North American automotive industry. Active's
main customers include DaimlerChrysler, Ford, General Motors, and Saturn.
Products offered by Active include body sides, pickup box sides, fenders,
floor pan assemblies, door panels, pillars, and heat shields. The
acquisition of Active enhances the Company's ability to manufacture large
and complex structures, as well as exposed surface panels. The acquisition
was financed with proceeds from the Company's revolving credit facility.
Effective January 1, 2000, the Company acquired all of the outstanding
shares of Dr. Meleghy GmbH & Co. KG Werkzeugbau und Presswerk, Bergisch
Gladbach ("Dr. Meleghy") for approximately $86.4 million. Dr. Meleghy
designs and produces structural stampings, assemblies, exposed surface
panels and modules to the European automotive industry. Dr. Meleghy also
designs and manufactures tools and dies for use in their production and for
the external market. Dr. Meleghy operates three facilities in Germany and
one facility in both Hungary and Poland. Dr. Meleghy's main customers
include DaimlerChrysler, Audi, Volkswagen, Ford, Opel and BMW. Products
offered by Dr. Meleghy include body side panels, floor pan assemblies and
miscellaneous structural stampings. The Company may pay an additional $38
million if certain operating targets are met. The acquisition was financed
with proceeds from the Company's revolving credit facility.
The acquisitions discussed above have been accounted for using the purchase
method of accounting and, accordingly, the assets acquired and liabilities
assumed have been recorded at the fair value as of the date of the
acquisitions. The assets and liabilities of both Active and Dr. Meleghy
have been recorded based on preliminary estimates of fair value as of the
date of acquisition. The excess of the purchase price over the fair value
of the assets acquired and liabilities assumed has been recorded as
goodwill. The Company is further evaluating the fair value of certain
assets acquired and liabilities assumed in connection with the Active and
Dr. Meleghy acquisitions and as a result, will likely result in adjustments
to the preliminary allocation of the purchase price.
-8-
<PAGE> 9
In conjunction with its acquisitions, the Company has established reserves
for certain costs associated with facility shutdown and consolidation
activities and for general and payroll related costs primarily for planned
employee termination activities. As of December 31, 1999, approximately
$13.8 million and $6.4 million were recorded for facility shutdown and
payroll related costs, respectively. Costs incurred and charged to such
reserves amounted to $1.0 million for facility shutdown costs and $1.5
million for payroll related termination costs for the three months ended
March 31, 2000. At March 31, 2000, liabilities of approximately $12.8
million for costs associated with facility shutdown and consolidation
activities and $4.9 million of costs for planned employee termination
activities remained. The timing of facility shutdown and consolidation
activities has been adjusted to reflect customer concerns with supply
interruption. These reserves have been utilized as originally intended and
management believes the liabilities recorded for shutdown and consolidation
activities are adequate but not excessive as of March 31, 2000.
6. On October 14, 1999, the Company loaned $30.0 million to J. L. French
Automotive Castings, Inc. ("J.L. French") in exchange for a convertible
subordinated promissory note due October 14, 2009. The note bears interest
at 7.5% annually with interest payable on the last day of each calendar
quarter beginning December 31, 1999. The Company can convert, at its
option, any portion of the outstanding principal of the note into Class A
Common Stock of J. L. French at a preset agreed upon conversion price.
7. On October 29, 1999, the Company invested $21 million for new shares
representing a 49% equity interest in Seojin Industrial Company Limited
("Seojin"). Seojin is a supplier of frames, modules and structural
components to the Korean automotive industry. The equity interest was
financed with proceeds from the Company's revolving credit facility. In
addition, the Company advanced $19 million to Seojin in exchange for
variable rate convertible bonds denominated in Korean Won (the "Bonds") due
October 30, 2009. The Bonds are unsecured and rank equally with all other
present and future obligations of Seojin. The Bonds bear interest at the
one year LIBOR plus a margin of 200 basis points. The initial interest rate
was set as of October 30, 1999. The rate is reset annually on the
anniversary date of the Bonds. At March 31, 2000, the interest rate on the
Bonds was 8.25%. Interest on the Bonds is payable annually beginning
October 30, 2000 and each October 30 thereafter until maturity. The Company
has the right to convert the Bonds into common stock of Seojin any time on
or after October 30, 2000. The conversion rate is based upon a
predetermined formula that would increase the Company's equity interest to
approximately 66%.
8. The Company is a 40% partner in Metalsa S. de R.L. ("Metalsa") with
Promotora de Empresas Zano, S.A. de C.V. ("Proeza"). The partnership
agreement provides additional amounts of up to $45 million payable based
upon net earnings of Metalsa during 1998, 1999, and 2000. Based upon
Metalsa's 1998 net earnings, the Company paid Proeza approximately $9.0
million in additional consideration during the second quarter of 1999.
Based upon Metalsa's 1999 net earnings, the Company paid Proeza
approximately $7.9 million in additional consideration during the first
quarter of 2000.
9. Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------- -------
<S> <C> <C>
Cash paid for -
Interest $17,473 $ 9,042
Income taxes 6,462 3,347
</TABLE>
-9-
<PAGE> 10
10. The following table presents comprehensive income, defined as changes in
the stockholders' investment of the Company, for the three months ended
March 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
<S> <C> <C>
Net income $ 37,123 $ 28,076
Change in cumulative
translation adjustment (954) (2,808)
-------- --------
Comprehensive income $ 36,169 $ 25,268
======== ========
</TABLE>
11. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, becomes effective for the years
beginning after June 15, 2000. 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 137.
12. On May 3, 2000, the Company acquired all of the outstanding common stock of
Algoods, Inc. ("Algoods") for total consideration of approximately $33
million. Algoods manufactures aluminum heat shields and impact discs for
the North American automotive industry from aluminum mini-mill and
manufacturing operations located in Toronto, Canada. Its primary customer
is DaimlerChrysler. The acquisition of Algoods represents a significant
investment in processing technology for lightweight materials which
complements the Company's existing heat shield capabilities and provides
opportunities for application in other vehicle structural products. The
acquisition was funded with proceeds from the Company's revolving credit
facility.
-10-
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED
MARCH 31, 1999
Revenues -- Revenues for the first quarter of 2000 were $685.4 million, a 37.5%
increase, compared to $498.6 million for the prior period. The increase is due
to incremental new business of approximately $37.9 million, including business
relating to the Ford Excursion, Focus, Lincoln LS/Jaguar S-Type, Dodge Durango,
Dakota, and the Chrysler LH line and the acquisitions of Active and Dr. Meleghy
of $148.9 million.
Cost of Sales -- Cost of sales as a percentage of revenues for the first quarter
of 2000 was 83.7% compared to 84.1% for the prior period. The improvement in
gross profit was primarily due to increased production volumes and product mix
on light truck, sport utility and other models served by the Company.
S, G & A Expenses -- Selling, general and administrative expenses increased to
$34.7 million, or 5.1% of revenues, for the first quarter of 2000 compared to
$22.4 million, or 4.5% of revenues for the prior period. This increase was due
primarily to incremental costs associated with the Company's acquisitions of
Active and Dr. Meleghy of $6.8 million and increased engineering and program
development costs related to new business of approximately $4.1 million. This
increase was also affected by the realization of a gain of $1.4 million on the
cash settlement of amounts due under the interest rate agreement during February
1999.
Amortization Expense -- Amortization expense for the first quarter of 2000 was
$5.1 million compared to $3.5 million for the prior period. The increase was due
to incremental goodwill amortization related to the acquisitions of Active and
Dr. Meleghy.
Interest Expense -- Interest expense for the first quarter of 2000 was $13.2
million compared to $7.3 million for the prior period. Interest expense was
affected by (i) increased borrowings incurred to fund the Company's acquisition
of Active in July 1999, and (ii) increased borrowings incurred to fund the
Company's acquisition of Dr. Meleghy in January 2000.
Income Taxes -- The effective income tax rate was 40% for the first quarters of
2000 and 1999. 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,
net of tax, was $4.5 million and $2.9 million for the first quarters of 2000 and
1999, respectively. These amounts represent the Company's share of the earnings
from its joint venture interests in Metalsa, Caterina, Tower Golden Ring, and
Seojin.
Minority Interest -- Minority interest for the first quarters of 2000 and 1999
represents dividends, net of income tax benefits, on the Preferred Securities.
-11-
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit agreement which includes a revolving credit facility
that provides for borrowings of up to $750 million on an unsecured basis, with a
letter of credit sublimit of $75 million. In addition, under the terms of the
credit facility, the equivalent of up to $85 million in borrowings can be
denominated in foreign currency. As of March 31, 2000 approximately $72 million
of the outstanding borrowings under the revolving credit facility are
denominated in Italian lira. The amount available under the revolving credit
facility reduces to $675 million in April 2000, $600 million in April 2001 and
$500 million in April 2002. The credit facility has a final maturity of April
2003. Interest on the credit facility is at the prime rate or LIBOR plus a
margin ranging from 17 to 50 basis points depending upon the ratio of the
consolidated indebtedness of the Company to its total capitalization. The
weighted average interest rate for such borrowings was 6.7% for the three months
ended March 31, 2000.
In August 1999, the Company amended and restated its Credit Agreement to include
an additional term loan facility of $325 million. In addition, under the terms
of the term loan facility, the equivalent of up to $120 million in borrowings
can be denominated in foreign currency. As of March 31, 2000, approximately $120
million of the outstanding borrowings are denominated in Euro. The term loan
facility matures in eight equal repayments beginning September 2002 with final
maturity in June 2004. Interest on the term loan facility is at the prime rate
or LIBOR plus a margin ranging from 0 to 200 basis points depending on the
Company's ratio of consolidated indebtedness to its total capitalization. The
weighted average interest rates for the term loan facility dollar borrowings and
Euro borrowings were 7.2% and 4.7%, respectively, for the three months ended
March 31, 2000. The proceeds from the term facility were used to repay
outstanding indebtedness under the revolving facility incurred in connection
with the acquisition of Active in July 1999.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to minimum interest coverage, maximum debt/capital,
maximum leverage and maximum senior leverage ratios. As of March 31, 2000, the
Company was in compliance with all debt covenants.
During the first quarter of 2000, the Company generated $11.3 million of cash
from operations compared with use of $13.8 million in the 1999 period. Cash
provided by net income, depreciation, amortization, and deferred income tax
provision of $83.4 million in 2000 and $52.5 million in 1999, was partially
offset by cyclical increases in working capital requirements and other operating
items of $72.1 million and $66.3 million, respectively.
Net cash used in investing activities was $159.6 million during the first
quarter of 2000 as compared to $51.6 million in the prior period. The increase
was due mainly to the acquisition of Dr. Meleghy during the first quarter of
2000. Net capital expenditures totaled $57.3 million in the first quarter of
2000 for equipment and dedicated tooling purchases related to new or replacement
programs. This compares with net capital expenditures of $51.5 million for the
prior period.
-12-
<PAGE> 13
Net cash provided by financing activities totaled $146.5 million for the first
quarter of 2000 compared with $66.9 million in 1999.
At March 31, 2000, the Company had unused borrowing capacity of approximately
$143 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 2000
capital expenditures will approximate $225 million. Under present conditions,
management does not believe access to funds will restrict its ability to pursue
its acquisition strategy.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating-rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Management believes that inflation has not significantly affected
the Company's business over the past 12 months. However, because selling prices
generally cannot be increased until a model changeover, the effects of inflation
must be offset by productivity improvements and volume from new business awards.
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.
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. Therefore, these interest rate swap agreements
convert outstanding floating rate debt to fixed rate debt for a period of time.
For fixed rate debt, interest rate changes affect the fair market value but do
not impact earnings and cash flows. Conversely for floating rate debt, interest
rate changes generally do not affect the fair market value but do impact future
earnings and cash flows, assuming other factors are held constant.
At March 31, 2000, the Company had total debt and obligations under capital
leases of $1.1 billion. The debt is comprised of fixed rate debt of $200 million
and floating rate debt of $910.5 million. The pre-tax earnings and cash flows
impact for the next year resulting from a one percentage point increase in
interest rates on variable rate debt would be approximately $9.1 million,
holding other variables constant. A one-percentage point increase in interest
rates would not materially impact the fair value of the fixed rate debt.
A portion of Tower Automotive's revenue was derived from manufacturing
operations in Europe. The results of operations and financial position of the
Company's operations in Europe are principally measured in its respective
currency and translated into U. S. dollars. The effects of foreign currency
fluctuations in Europe are somewhat mitigated by the fact that expenses are
generally incurred in the same currency in which revenues are generated. The
reported income of these subsidiaries will be higher or lower depending on a
weakening or strengthening of the U. S. dollar against the respective foreign
currency.
A portion of Tower Automotive's assets is based in its foreign operations and is
translated into U. S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected as a
separate component of stockholders' investment. Accordingly, the Company's
consolidated stockholders' investment will fluctuate depending upon the
weakening or strengthening of the U. S. dollar against the respective foreign
currency.
The Company's strategy for management of currency risk relies primarily upon
conducting its operations in a country's respective currency and may, from time
to time, engage in hedging programs intended to reduce the Company's exposure to
currency fluctuations. As of March 31, 2000, the Company held no foreign
currency hedge positions. Management believes the effect of a one percent change
in foreign currency rates would not materially affect the Company's financial
position or results of operations for the periods presented.
-13-
<PAGE> 14
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, becomes effective for the years beginning after June
15, 2000. 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 137.
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Form 10-Q, the words "anticipate," "believe,"
"estimate," "expect," "intends," and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements. Such
forward-looking statements are based on the beliefs of the Company's management
as well as on assumptions made by and information currently available to the
Company at the time such statements were made. Various economic and competitive
factors could cause actual results to differ materially from those discussed in
such forward-looking statements, including factors which are outside the control
of the Company, such as risks relating to: (i) the degree to which the Company
is leveraged; (ii) the Company's reliance on major customers and selected
models; (iii) the cyclicality and seasonality of the automotive market; (iv) the
failure to realize the benefits of recent acquisitions and joint ventures; (v)
obtaining new business on new and redesigned models; (vi) the Company's ability
to continue to implement its acquisition strategy; and (vii) the highly
competitive nature of the automotive supply industry. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by such
cautionary statements.
-14-
<PAGE> 15
PART II. OTHER INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None
Item 2. Change in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27.1 Financial Data Schedule.
(b) During the quarter for which this report is filed, the Company filed the
following Form 8-K Current Reports with the Securities and Exchange
Commission:
1. The Company's current report on Form 8-K dated February 16, 2000
(Commission File No. 1-12733).
-15-
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER AUTOMOTIVE, INC.
Date: May 15, 2000 By /s/ Anthony A. Barone
-------------------------------------
Anthony A. Barone
Vice President, Chief Financial
Officer (principal accounting and
financial officer)
-16-
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH.
</LEGEND>
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<NAME> TOWER AUTOMOTIVE, INC.
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