<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 September 30, 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)
<TABLE>
<S> <C>
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)
</TABLE>
(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 November 10, 2000 was 44,967,393 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 September 30, 2000 and 1999
Condensed Consolidated Statements of Operations (unaudited) for
the Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Balance Sheets at September 30, 2000
(unaudited) and December 31, 1999
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Nine Months Ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements (unaudited)
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 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 September 30,
--------------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues............................................ $536,210 $536,152
Cost of sales....................................... 471,482 453,851
-------- --------
Gross profit................................... 64,728 82,301
Selling, general and administrative expenses........ 31,535 29,382
Amortization expense................................ 5,576 4,451
-------- --------
Operating income............................... 27,617 48,468
Interest expense, net............................... 16,405 10,642
-------- --------
Income before provision for income taxes....... 11,212 37,826
Provision for income taxes.......................... 4,484 15,130
-------- --------
Income before equity in earnings of
joint ventures and minority interest......... 6,728 22,696
Equity in earnings of joint ventures................ 5,844 3,664
Minority interest--dividends on trust
preferred, net.................................... (2,619) (2,619)
-------- --------
Income before extraordinary item............... 9,953 23,741
Extraordinary loss on early extinguishments
of debt, net...................................... 2,988 --
-------- --------
Net income..................................... $ 6,965 $ 23,741
======== ========
Basic earnings per share (Note 3):
Income before extraordinary loss............... $ 0.21 $ 0.50
Extraordinary loss............................. (0.06) --
-------- --------
Net income................................... $ 0.15 $ 0.50
======== ========
Diluted earnings per share (Note 3):
Income before extraordinary loss............... $ 0.21 $ 0.44
Extraordinary loss............................. (0.06) --
-------- --------
Net income................................... $ 0.15 $ 0.44
======== ========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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</TABLE>
<PAGE> 4
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except per Share Amounts - Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues........................................ $1,902,594 $1,565,404
Cost of sales................................... 1,611,773 1,316,627
---------- ----------
Gross profit.................................. 290,821 248,777
Selling, general and administrative expenses.... 99,622 76,386
Amortization expense............................ 15,793 11,642
---------- ----------
Operating income.............................. 175,406 160,749
Interest expense, net........................... 43,136 25,171
---------- ----------
Income before provision for income taxes...... 132,270 135,578
Provision for income taxes...................... 52,908 54,231
---------- ----------
Income before equity in earnings of joint
ventures and minority interest................ 79,362 81,347
Equity in earnings of joint ventures............ 14,864 10,959
Minority interest -- dividends on trust
preferred, net................................ (7,857) (7,861)
---------- ----------
Income before extraordinary item.............. 86,369 84,445
Extraordinary loss on early extinguishments
of debt, net.................................. 2,988 --
---------- ----------
Net income.................................... $ 83,381 $ 84,445
========== ==========
Basic earnings per share (Note 3):
Income before extraordinary item.............. $ 1.81 $ 1.80
Extraordinary loss............................ (0.06) --
---------- ----------
Net income.................................. $ 1.75 $ 1.80
========== ==========
Diluted earnings per share (Note 3):
Income before extraordinary item.............. $ 1.54 $ 1.52
Extraordinary loss............................ (0.05) --
---------- ----------
Net income.................................. $ 1.49 $ 1.52
========== ==========
</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 BALANCE SHEETS
(Amounts in Thousands)
September 30, December 31,
Assets 2000 1999
----------------------------------------- ------------- -----------
(unaudited)
Current assets:
Cash and cash equivalents................ $ 1,404 $ 3,617
Accounts receivable, net................. 347,272 353,351
Inventories, net......................... 116,506 110,897
Prepaid tooling and other................ 107,353 90,191
---------- ----------
Total current assets................... 572,535 558,056
---------- ----------
Property, plant and equipment, net......... 1,213,065 1,075,861
Investments in joint ventures.............. 309,081 290,705
Goodwill and other assets, net............. 814,945 627,928
---------- ----------
$2,909,626 $2,552,550
========== ==========
Liabilities and Stockholders' Investment
------------------------------------------
Current liabilities:
Current maturities of long-term debt
and capital lease obligations........... $ 20,660 $ 13,876
Accounts payable......................... 235,110 276,673
Accrued liabilities...................... 129,396 140,567
---------- ----------
Total current liabilities.............. 385,166 431,116
---------- ----------
Long-term debt, net of current maturities.. 975,405 699,678
Obligations under capital leases,
net of current maturities................ 17,437 21,543
Convertible subordinated notes............. 200,000 200,000
Deferred income taxes...................... 67,525 50,736
Other noncurrent liabilities............... 180,325 163,592
---------- ----------
Total noncurrent liabilities........... 1,440,692 1,135,549
---------- ----------
Mandatorily redeemable trust convertible
preferred securities..................... 258,750 258,750
---------- ----------
Stockholders' investment:
Preferred stock.......................... -- --
Common stock............................. 475 469
Additional paid-in capital............... 452,403 437,210
Retained earnings........................ 377,903 294,522
Warrants to acquire common stock......... -- 2,000
Deferred income stock plan............... (8,942) (4,484)
Accumulated other comprehensive
income (loss) -- cumulative
translation adjustment.................. 3,179 (2,582)
---------- ----------
Total stockholders' investment........ 825,018 727,135
---------- ----------
$2,909,626 $2,552,550
========== ==========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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<PAGE> 6
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands - Unaudited)
Nine Months Ended September 30,
-------------------------------
2000 1999
----------- -----------
OPERATING ACTIVITIES:
Net income............................... $ 83,381 $ 84,445
Adjustments to reconcile net income
to net cash provided by
operating activities -
Depreciation and amortization......... 112,790 80,665
Deferred income tax provision......... 14,516 --
Extraordinary loss on
extinguishments of debt.............. 2,988 --
Changes in other operating items...... (76,457) (65,395)
----------- -----------
Net cash provided by operating
activities........................... 137,218 99,715
----------- -----------
INVESTING ACTIVITIES:
Acquisitions and investment
in joint venture....................... (232,651) (331,767)
Capital expenditures, net............... (157,547) (160,299)
Change in restricted cash............... -- 2,677
----------- -----------
Net cash used in investing
activities........................... (390,198) (489,389)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings............... 2,729,055 1,647,118
Repayment of debt...................... (2,484,282) (1,269,190)
Proceeds from issuance of stock........ 5,994 9,379
----------- -----------
Net cash provided by
financing activities................ 250,767 387,307
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS...... (2,213) (2,367)
CASH AND CASH EQUIVALENTS:
Beginning of period.................... 3,617 3,434
----------- -----------
End of period.......................... $ 1,404 $ 1,067
=========== ===========
NON-CASH FINANCING ACTIVITIES:
Deferred Income Stock Plan............. $ 4,458 $ 4,484
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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<PAGE> 7
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 1999 Annual Report Form and
10-K for the year ended December 31, 1999.
Revenues and operating results for the three and nine months ended
September 30, 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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials..................... $ 42,621 $ 47,231
Work in process................... 42,042 34,143
Finished goods.................... 31,843 29,523
-------- --------
$116,506 $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 would be 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); however, the convertible
subordinated notes and preferred securities were not included in the
computation of diluted earnings per share for the three months ended
September 30, 2000, as their inclusion would have had an anti-dilutive
effect on earnings per share.
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<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income......................... $ 6,965 $23,741 $83,381 $84,445
Interest expense on Edgewood
notes, net of tax................ 7 9 23 28
Interest expense on Convertible
Subordinated Notes, net of tax... -- 1,627 4,879 4,881
Dividends on Preferred Securities,
net of tax....................... -- 2,619 7,857 7,861
------- ------- ------- -------
Net income applicable to common
stockholders -- diluted.......... $ 6,972 $27,996 $96,140 $97,215
======= ======= ======= =======
Weighted average number of common
shares outstanding............... 47,986 47,081 47,649 46,871
Dilutive effect of outstanding
stock options and warrants
after application of the treasury
stock method..................... 136 569 193 647
Dilutive effect of Edgewood notes,
assuming conversion.............. 289 296 289 339
Dilutive effect of Convertible
Subordinated Notes, assuming
conversion....................... -- 7,728 7,728 7,728
Dilutive effect of Preferred
Securities, assuming conversion.. -- 8,425 8,425 8,425
------- ------- ------- -------
Diluted shares outstanding......... 48,411 64,099 64,284 64,010
======= ======= ======= =======
Basic earnings per share........... $ 0.15 $ 0.50 $ 1.75 $ 1.80
======= ======= ======= =======
Diluted earnings per share......... $ 0.15 $ 0.44 $ 1.49 $ 1.52
======= ======= ======= =======
</TABLE>
4. Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Revolving credit facility............. $427,938 $321,679
Term credit facility.................. 325,000 324,210
Euro bonds............................ 132,555 --
Industrial development revenue bonds.. 43,765 43,765
Edgewood notes........................ 878 878
Other................................. 60,993 11,644
-------- --------
991,129 702,176
Less-current maturities............... (15,724) (2,498)
-------- --------
Total long-term debt................ $975,405 $699,678
======== ========
</TABLE>
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<PAGE> 9
On July 25, 2000, the Company replaced its existing $675 million revolving
credit agreement and its $325 million term loan with a new six-year $1.15
billion senior unsecured credit agreement. The new credit agreement
includes a non-amortizing revolving facility of $825 million along with an
amortizing term loan of $325 million. The new facility also includes a
multi-currency borrowing feature that allows the Company to borrow up to
$500 million in certain freely tradeable offshore currencies, and letter of
credit sublimits of $100 million. As of September 30, 2000, approximately
$8.7 million of the outstanding borrowings are denominated in Japanese yen
and $52.1 million of the outstanding borrowings are denominated in Euro.
Interest on the new credit facility is at the financial institution's
reference rate, LIBOR, or the Eurodollar rate plus a margin ranging from 0
to 200 basis points depending on the ratio of the consolidated funded debt
for restricted subsidiaries of the Company to its total EBITDA. The
weighted average interest rate for such borrowings was 6.95% for the nine
months ended September 30, 2000. The new credit agreement has a final
maturity of 2006. As a result of the debt replacement, the Company recorded
an extraordinary loss, net of tax, of $3.0 million during the third quarter
of 2000.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage and maximum
leverage ratio. As of September 30, 2000, the Company was in compliance
with all debt covenants.
On July 25, 2000, the Company issued Euro-denominated senior unsecured
notes in the amount of of 9.25%, payable semi-annually. The notes rank
equally with all of the Company's other unsecured and unsubordinated debt.
The net proceeds after issuance costs were used to repay a portion of the
Company's existing Euro-denominated indebtedness under its existing credit
facility. The notes mature on August 1, 2010.
For the periods presented through July 24, 2000, the Company's Credit
Agreement included a revolving credit facility that provided 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 could be
denominated in Italian lira. The amount available under the revolving
credit facility reduced to $675 million in April 2000, $600 million in
April 2001 and $500 million in April 2002. The Credit Agreement had a final
maturity of April 2003. Interest on the credit facility was 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.
On August 23, 1999, the Company amended and restated its Credit Agreement
to include a term loan add on facility of $325 million. The term loan
facility would have matured in eight equal repayments beginning September
2002 with final maturity in June 2004. Interest on the term loan facility
was at the prime rate or LIBOR plus a margin ranging from 25 to 175 basis
points depending on the Company's ratio of consolidated indebtedness to its
total capitalization. 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.
During September 2000, the Company entered into an interest rate swap
contract to hedge against interest rate exposure on approximately
$160 million of its floating rate indebtedness. The contracts have the
effect of converting the floating rate interest to a fixed rate of
approximately 6.9%, plus any applicable margin required under the revolving
credit facility. The interest rate swap contract was executed to balance
the Company's fixed-rate and floating-rate debt portfolios.
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, is a leading
designer and producer of large structural stampings and assemblies
including Class A exposed metal surfaces to the North American automotive
industry. Active's principle 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
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<PAGE> 10
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.
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 lightweight vehicle structural
products. The acquisition was funded with proceeds from the Company's
revolving credit facility.
On July 6, 2000, the Company acquired the remaining 60% equity interest in
Metalurgica Caterina S.A. ("Caterina") for approximately $42 million.
Caterina is a supplier of structural stampings and assemblies to the
Brazilian automotive market, including Volkswagen and Mercedes-Benz. The
acquisition was funded with proceeds from the Company's revolving credit
facility.
These 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 Dr. Meleghy, Algoods, and
Caterina have been recorded based on preliminary estimates of fair value as
of the date of the 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 Dr. Meleghy,
Algoods, and Caterina acquisitions and as a result, will likely result in
adjustments to the preliminary allocation of the purchase price.
In conjunction with acquisitions made, reserves have been established 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. Cost incurred and charged to such
reserves amounted to $4.9 for facility shutdown costs and $3.1 million for
payroll related termination costs for the nine months ended September 30,
2000. Additional acquisition reserves of $1.0 million related to facility
costs were recorded for the nine months ended September 30, 2000. At
September 30, 2000, liabilities for approximately $9.9 million for costs
associated with facility shutdown and consolidation activities and
$3.3 million of general and payroll related and costs primarily 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 September 30,
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. On
May 24, 2000, the Company made an additional investment of $11.0 million in
exchange for a 3.4% equity interest in J. L. French.
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<PAGE> 11
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 currently bear interest
at 6% per annum. 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%. On October 31, 2000, the Company exercised its right to
convert the Bonds into 17% of the common stock of Seojin. Based upon the
formula for conversion of the Seojin variable rate bonds, the Company paid
$1.2 million for the additional equity interest.
8. On September 20, 2000, the Company loaned $20.0 million to Seojin. The loan
bears interest at the three month LIBOR rate plus a margin of 400 basis
points and is payable on the last day of the quarter beginning December 31,
2000. At September 30, 2000, the interest rate on the loan was 10.7%. The
principal is due to be repaid on September 21, 2001. The loan is guaranteed
by the personal assets of the Company's partner in the Seojin joint
venture.
9. On September 21, 2000, the Company acquired a 17 percent equity interest in
Yorozu Corporation ("Yorozu"), a supplier of suspension modules and
structural parts to the Asian and North American automotive markets, from
Nissan Motor Co. Ltd. ("Nissan"). Yorozu is based in Japan and is publicly
traded on the first tier of the Tokyo Stock Exchange. Its principal
customers include Nissan, Auto Alliance, General Motors, Ford, and Honda.
The Company will pay Nissan approximately $38 million over the next two and
a half years to acquire the 17 percent interest. In addition, the Company
will have the opportunity to increase its holdings in Yorozu through the
purchase of additional Yorozu shares.
10. 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.
11. Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Cash paid for -
Interest......... $19,232 $11,447 $51,505 $25,438
Income taxes........ $ 1,128 $ 2,100 $17,345 $12,356
</TABLE>
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<PAGE> 12
12. The following presents comprehensive income, defined as changes in the
stockholders' investment of the Company, for the three and nine month
periods ended September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income................. $ 6,965 $23,741 $83,381 $84,445
Change in cumulative
translation adjustment... 6,511 333 5,761 (686)
------- ------- ------- -------
Comprehensive income....... $13,476 $24,074 $89,142 $83,759
======= ======= ======= =======
</TABLE>
13. In connection with the Company's acquisition of MascoTech Stamping
Technologies, Inc. in June 1996, the Company issued warrants to acquire
400,000 shares of the Company's Common Stock at an exercise price of $9 per
share to MascoTech, Inc. ("MascoTech"). On May 5, 2000, MascoTech exercised
all of the warrants outstanding under this agreement.
14. 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 is currently analyzing and quantifying the impact of adopting SFAS
No. 133 and 137, and believes the impact will not be material to the
financial statements.
15. On October 2, 2000, the Company signed a definitive agreement to sell its
Roanoke, Virginia heavy truck rail manufacturing business to its joint
venture partner, Metalsa S. de R.L. for $55 million plus an earnout of up
to $30 million based on achieving certain profit levels over the next three
years. The transaction is expected to close by the end of December 2000.
Additionally, on October 2, 2000, the Company's board of directors approved
a comprehensive operational realignment plan, which is intended to improve
the Company's long-term competitive position and lower its cost structure.
The plan includes phasing out the heavy truck rail manufacturing in
Milwaukee, Wisconsin; reducing stamping capacity by closing the Kalamazoo,
Michigan facility; and consolidating related support activities across the
enterprise. The Company plans to record a charge to operations of
approximately $140 million in the fourth quarter of 2000, which reflects
the estimated qualifying "exit costs" to be incurred over the next
12 months under the plan. Certain of the estimates used for the severance
and outplacement costs are subject to collective bargaining discussions and
thus these costs will qualify as "exit costs" upon completion of these
negotiations.
The charge will include costs associated with asset impairments, severance
and outplacement costs related to employee terminations, and loss contract
provisions. These activities are anticipated to result in a reduction of
more than 800 employees. The charges do not cover certain aspects of the
plan, including movement of equipment and employee relocation and training.
These costs will be recognized in future periods as incurred.
The asset impairments consist of long-lived assets, including fixed assets,
manufacturing equipment, and land, from facilities the Company intends to
dispose of or discontinue. For assets to be disposed of currently,
impairment was measured based on estimated proceeds on the sale of the
facilities and equipment. For assets to be held and used in the future, the
Company prepared a forecast of expected undiscounted cash flows to
determine whether asset impairment existed, and we used fair values to
measure the required writedowns.
16. On May 26, 2000, the Company announced that its board of directors approved
the purchase of up to $100 million of its common stock, if authorized by
the executive committee of the board. The shares may be purchased in the
open market at prevailing prices and at times and amounts to be determined
by the board's executive committee as market conditions and the Company's
capital position warrant. During October 2000 and through November 10,
2000, approximately 2.6 million shares, at a total cost of approximately
$25.1 million have been purchased. These shares will be placed in treasury
and may subsequently be reissued for general corporate purposes.
17. The following consolidating financial information presents balance sheet,
statement of operations and cash flow information related to the Company's
business. Each Guarantor, as defined, is a direct or indirect wholly-owned
subsidiary of the Company and has fully and unconditionally guaranteed the
9.25% senior unsecured notes issued by R. J. Tower Corporation, on a joint
and several basis. The Non-Guarantors are the Company's foreign
subsidiaries. Separate financial statements and other disclosures
concerning the Guarantors have not been presented because management
believes that such information is not material to investors.
-11-
<PAGE> 13
TOWER AUTOMOTIVE, INC.
Consolidating Balance Sheets at September 30, 2000
(Amounts in thousands -- unaudited)
[CAPTION]
<TABLE>
R. J. Tower Guarantor Non-Guarantor
Assets Corporation Companies Companies Eliminations Consolidated
------------------------------------------------- ----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ (9,423) $ 2,301 $ 8,526 $ -- $ 1,404
Accounts receivable, net.................... 17,138 235,715 94,419 -- 347,272
Inventories, net............................ 2,130 83,254 31,122 -- 116,506
Prepaid tooling and other................... 18,105 74,964 14,284 -- 107,353
--------- ---------- -------- --------- ----------
Total current assets...................... 27,950 396,234 148,351 -- 572,535
--------- ---------- -------- --------- ----------
Property, plant and equipment, net............... 24,845 1,071,824 116,396 -- 1,213,065
Investments in joint ventures.................... 277,195 31,886 -- -- 309,081
Investment in subsidiaries....................... 519,160 -- -- (519,160) --
Goodwill and other assets, net................... 36,382 558,726 219,837 -- 814,945
--------- ---------- -------- --------- ----------
$ 885,532 $2,058,670 $484,584 $(519,160) $2,909,626
========= ========== ======== ========= ==========
Liabilities and Stockholders' Investment
-------------------------------------------------
Current liabilities
Current maturities of long-term
debt and capital lease obligations..... $ 2,411 $ 4,936 $ 13,313 $ -- $ 20,660
Accounts payable............................ (4,748) 168,476 71,382 -- 235,110
Accrued liabilities......................... (19,205) 118,385 30,216 -- 129,396
--------- ---------- -------- --------- ----------
Total current liabilities.............. (21,542) 291,797 114,911 -- 385,166
--------- ---------- -------- --------- ----------
Long-term debt, net of current maturities........ 886,380 44,787 44,238 -- 975,405
Obligations under capital leases,
net of current maturities................... -- 17,437 -- -- 17,347
Convertible subordinated notes................... -- 200,000 -- -- 200,000
Due to/(from) affiliates......................... (890,293) 632,885 257,408 -- --
Deferred income taxes............................ 62,856 -- 4,669 -- 67,525
Other noncurrent liabilities..................... 26,149 137,124 17,052 -- 180,325
--------- ---------- -------- --------- ----------
Total noncurrent liabilities.......... 85,092 1,032,233 323,367 -- 1,440,692
--------- ---------- -------- --------- ----------
Manditorily redeemable trust convertible
preferred securities........................ -- 258,750 -- -- 258,750
Stockholders' investment......................... 821,839 475,890 43,270 (519,160) 821,839
Accumulated other comprehensive income (loss) -
cumulative translation adjustment........... 143 -- 3,036 -- 3,179
--------- ---------- -------- --------- ----------
Total stockholders' investment......... 821,982 475,890 46,306 (519,160) 825,018
--------- ---------- -------- --------- ----------
$ 885,532 $2,058,670 $484,584 $(519,160) $2,909,626
========= ========== ======== ========= ==========
</TABLE>
-13-
<PAGE> 14
TOWER AUTOMOTIVE, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
(Amounts in thousands -- unaudited)
[CAPTION]
<TABLE>
R. J. Tower Guarantor Non-Guarantor
Corporation Companies Companies Eliminations Consolidated
------------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $17,538 $414,218 $104,454 $ -- $536,210
Cost of sales................................. 6,159 371,108 94,215 -- 471,482
------- --------- -------- -------- --------
Gross profit................................ 11,379 43,110 10,239 -- 64,728
Selling, general and administrative expenses.. 336 26,406 4,793 -- 31,535
Amortization expense.......................... 794 3,544 1,238 -- 5,576
------- ------- -------- -------- --------
Operating income............................ 10,249 13,160 4,208 -- 27,617
Interest expense, net......................... 17,482 (2,313) 1,236 -- 16,405
------- ------- -------- -------- --------
Income before provision for income taxes.... (7,233) 15,473 2,972 -- 11,212
Provision for income taxes.................... (2,893) 6,189 1,188 -- 4,484
------- ------- -------- -------- --------
Income before equity in earnings of
joint ventures and minority interest...... (4,340) 9,284 1,784 -- 6,728
Equity in earnings of joint ventures
and subsidiaries............................. 14,293 -- -- (8,449) 5,844
Minority interest -- dividends on trust
preferred, net.............................. -- (2,619) -- -- (2,619)
------- ------- -------- ------- --------
Income before extraordinary item........... 9,953 6,665 1,784 (8,449) 9,953
Extraordinary loss on early extinguishments
of debt, net................................. 2,988 -- -- -- 2,988
------- ------- -------- ------- --------
Net income................................. $ 6,965 $ 6,665 $ 1,784 $(8,449) $ 6,965
======= ======== ======== ======== ========
</TABLE>
-13-
<PAGE> 15
TOWER AUTOMOTIVE, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Amounts in thousands -- unaudited)
<TABLE>
<CAPTION>
R. J. Tower Guarantor Non-Guarantor
Corporation Companies Companies Eliminations Consolidated
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $ 59,884 $1,501,294 $341,416 $ -- $1,902,594
Cost of sales..................................... 38,216 1,268,815 304,742 -- 1,611,773
-------- ---------- -------- -------- ----------
Gross profit.................................... 21,668 232,479 36,674 -- 290,821
Selling, general and administrative
expenses........................................ 5,676 80,491 13,455 -- 99,622
Amortization expense.............................. 2,392 10,630 2,771 -- 15,793
-------- ---------- -------- -------- ----------
Operating income................................. 13,600 141,358 20,448 -- 175,406
Interest expense, net............................. 40,221 (1,919) 4,834 -- 43,136
-------- ---------- -------- -------- ----------
Income before provision for income taxes......... (26,621) 143,277 15,614 -- 132,270
Provision for income taxes........................ (10,648) 57,311 6,245 -- 52,908
-------- ---------- -------- -------- ----------
Income before equity in earnings of
joint ventures and minority interest............ (15,973) 85,966 9,369 -- 79,362
Equity in earnings of joint ventures
and subsidiaries................................ 102,342 -- -- (87,478) 14,864
Minority interest -- dividends on trust
preferred, net.................................. -- (7,857) -- -- (7,857)
-------- ---------- -------- -------- ----------
Income before extraordinary item................. 86,369 78,109 9,369 (87,478) 86,369
Extraordinary loss on early extinguishments
of debt, net.................................... 2,988 -- -- -- 2,988
-------- ---------- -------- -------- ----------
Net income....................................... $ 83,381 $ 78,109 $ 9,369 $(87,478) $ 83,381
======== ========== ======== ======== ==========
</TABLE>
-14-
<PAGE> 16
TOWER AUTOMOTIVE, INC.
Consolidating Statements of Cash Flows for the
Nine Months Ended September 30, 2000
(Amounts in thousands -- unaudited)
<TABLE>
<CAPTION>
R. J. Tower Guarantor Non-Guarantor
Corporation Companies Companies Eliminations Consolidated
----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................. $ 83,381 $ 78,109 $ 9,369 $(87,478) $ 83,381
Adjustments required to reconcile
net income to net cash provided
by (used in) operating activities
Depreciation and amortization....... 5,252 94,187 13,351 -- 112,790
Deferred income tax provision....... 14,667 -- (151) -- 14,516
Extraordinary loss on extinguishments
of debt........................... 2,988 -- -- -- 2,988
Changes in other operating items.... (313,651) 13,231 223,963 -- (76,457)
----------- --------- --------- -------- ----------
Net cash provided by (used in)
operating activities............. (207,363) 185,527 246,532 (87,478) 137,218
----------- --------- --------- -------- ----------
INVESTING ACTIVITIES:
Capital expenditures, net............... (3,279) (154,348) 80 -- (157,547)
Acquisitions and other, net............. (142,354) (20,000) (157,775) 87,478 (232,651)
----------- --------- --------- -------- ----------
Net cash used in investing
activities....................... (145,633) (174,348) (157,695) 87,478 (390,198)
=========== ========= ========= ======== ==========
FINANCING ACTIVITIES:
Proceeds from borrowings................ 2,684,777 21 44,257 -- 2,729,055
Repayments of debt...................... (2,349,510) (9,383) (125,389) -- (2,484,282)
Net proceeds from the issuance of
common stock........................... 5,994 -- -- -- 5,994
----------- --------- --------- -------- ---------
Net cash provided by (used for)
financing activities............. 341,261 (9,362) (81,132) -- 250,767
=========== ========= ========= ======== ==========
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ (11,735) 1,817 7,705 -- (2,213)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.............................. 2,312 484 821 -- 3,617
----------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, END
OF PERIOD.............................. $ (9,423) $ 2,301 $ 8,526 $ -- $ 1,404
=========== ========= ========= ======== =========
</TABLE>
-15-
<PAGE> 17
TOWER AUTOMOTIVE, INC.
CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
R.J. Tower Guarantor Non-Guarantor
Corporation Companies Companies Eliminations Consolidated
----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
-------------------------------------------
Current assets:
Cash and cash equivalents............. $ 2,312 $ 484 $ 821 $ -- $ 3,617
Accounts receivable, net.............. 8,279 280,543 64,529 -- 353,351
Inventories, net...................... 2,580 99,454 8,863 -- 110,897
Prepaid tooling and other............. 21,539 53,877 14,775 -- 90,191
--------- ---------- -------- ---------- ----------
Total current assets............. 34,710 434,358 88,988 -- 558,056
--------- ---------- -------- ---------- ----------
Property, plant and equipment, net......... 24,426 1,001,033 50,402 -- 1,075,861
Investments in joint ventures.............. 260,705 30,000 -- -- 290,705
Investment in subsidiaries................. 415,247 -- -- (415,247) --
Goodwill and other assets, net............. 25,469 551,406 51,053 -- 627,928
--------- ---------- -------- ---------- ----------
$ 760,557 $2,016,797 $190,443 $ (415,247) $2,552,550
========= ========== ======== ========== ==========
Liabilities and Stockholders' Investment
-------------------------------------------
Current liabilities
Current maturities of long-term debt
and capital lease obligations....... $ 11 $ 12,098 $ 1,767 $ -- $ 13,876
Accounts payable...................... 7,889 198,281 70,503 -- 276,673
Accrued liabilities................... (45,601) 177,782 8,386 -- 140,567
--------- ---------- -------- ---------- ----------
Total current liabilities........ (37,701) 388,161 80,656 -- 431,116
--------- ---------- -------- ---------- ----------
Long-term debt, net of current maturities.. 553,513 42,881 103,284 -- 699,678
Obligations under capital leases,
net of current maturities................ -- 21,543 -- -- 21,543
Convertible subordinated notes............. -- 200,000 -- -- 200,000
Due to/(from) affiliates................... (531,960) 554,153 (22,193) -- --
Deferred income taxes...................... 48,189 -- 2,547 -- 50,736
Other noncurrent liabilities............... 534 153,528 9,530 -- 163,592
--------- ---------- -------- ---------- ----------
Total noncurrent liabilities..... 70,276 972,105 93,168 -- 1,135,549
--------- ---------- -------- ---------- ----------
Manditorily redeemable trust convertible
preferred securities.................... -- 258,750 -- -- 258,750
Stockholders' investment................... 729,717 397,781 17,466 (415,247) 729,717
Accumulated other comprehensive
income (loss) - cumulative translation
adjustment............................... (1,735) -- (847) -- (2,582)
--------- ---------- -------- ---------- ----------
Total stockholders' investment.. 727,982 397,781 16,619 (415,247) 727,135
--------- ---------- -------- ---------- ----------
$ 760,557 $2,016,797 $190,443 $ (415,247) $2,552,550
========= ========== ======== ========== ==========
</TABLE>
-16-
<PAGE> 18
TOWER AUTOMOTIVE, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in thousands -- unaudited)
<TABLE>
<CAPTION>
R.J. Tower Guarantor Non-Guarantor
Corporation Companies Companies Eliminations Consolidated
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 18,592 $461,377 $56,183 $ -- $536,152
Cost of sales.......................... 18,278 382,189 53,384 -- 453,851
-------- -------- ------- -------- --------
Gross profit...................... 314 79,188 2,799 -- 82,301
Selling, general and administrative
expenses.......................... 2,162 25,920 1,300 -- 29,382
Amortization expense................... 1,161 2,924 366 -- 4,451
-------- -------- ------- -------- --------
Operating income.................. (3,009) 50,344 1,133 -- 48,468
Interest expense, net.................. 8,572 1,262 808 -- 10,642
-------- -------- ------- -------- --------
Income before provision for
income taxes.................... (11,581) 49,082 325 -- 37,826
Provision for income taxes............. (4,633) 19,633 130 -- 15,130
-------- -------- ------- -------- --------
Income before equity in earnings
of joint ventures and minority
interest........................ (6,948) 29,449 195 -- 22,696
Equity in earnings of joint ventures
and subsidiaries.................. 30,689 -- -- (27,025) 3,664
Minority interest -- dividends on
trust preferred, net................. -- (2,619) -- -- (2,619)
-------- -------- ------- -------- --------
Income before extraordinary item.. 23,741 26,830 195 (27,025) 23,741
Extraordinary loss on early
extinguishments of debt, net........ -- -- -- -- --
-------- -------- ------- -------- --------
Net income........................ $ 23,741 $ 26,830 $ 195 $(27,025) $ 23,741
======== ======== ======= ======== ========
</TABLE>
-17-
<PAGE> 19
TOWER AUTOMOTIVE, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in Thousands - Unaudited)
<TABLE>
<CAPTION>
R. J. Tower Guarantor Non-Guarantor
Corporation Companies Companies Eliminations Consolidated
----------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 62,099 $1,305,431 $197,874 $ -- $ 1,565,404
Cost of sales.................................... 56,494 1,077,530 182,603 -- 1,316,627
--------- ---------- -------- -------- -----------
Gross profit................................... 5,605 227,901 15,271 -- 248,777
Selling, general and administrative expenses..... 2,254 69,968 4,164 -- 76,386
Amortization expense............................. 2,644 7,980 1,018 -- 11,642
--------- ---------- -------- -------- -----------
Operating income............................... 707 149,953 10,089 -- 160,749
Interest expense, net............................ 18,980 3,831 2,360 -- 25,171
--------- ---------- -------- -------- -----------
Income before provision for income taxes....... (18,273) 146,122 7,729 -- 135,578
Provision for income taxes....................... (7,310) 58,450 3,091 -- 54,231
--------- ---------- -------- -------- -----------
Income before equity in earnings of
joint ventures and minority interest......... (10,963) 87,672 4,638 -- 81,347
Equity in earnings of joint ventures and
subsidiaries..................................... 95,408 -- -- (84,449) 10,959
Minority interest -- dividends on trust
preferred, net................................. -- (7,861) -- -- (7,861)
--------- ---------- -------- -------- -----------
Income before extraordinary item............... 84,445 79,811 4,638 (84,449) 84,445
Extraordinary loss on early extinguishments
of debt, net -- -- -- -- --
--------- ---------- -------- -------- -----------
Net income..................................... $ 84,445 $ 79,811 $ 4,638 $(84,449) $ 84,445
========= ========== ======== ======== ===========
</TABLE>
-18-
<PAGE> 20
TOWER AUTOMOTIVE, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
(Amounts in thousands-unaudited)
[CAPTION]
<TABLE>
R.J. Tower Guarantor Non-Guarantor
Corporation Companies Companies Eliminations Consolidated
----------- --------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income
Adjustments required to reconcile net income to net.. $ 84,445 $ 79,811 $ 4,638 $ (84,449) $ 84,445
cash provided by (used in) operating activities
Depreciation and amortization.................. 5,158 70,557 4,950 -- 80,665
Deferred income tax provision.................. 50 2,061 (2,111) -- --
Changes in other operating items............... (355,210) 298,511 (8,696) -- (65,395)
---------- --------- -------- ----------- -----------
Net cash provided by (used in) operating
activities.................................. (265,557) 450,940 (1,219) (84,449) 99,715
---------- --------- -------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net............................ (3,708) (146,926) (9,665) -- (160,299)
Acquisitions and other, net.......................... (95,318) (319,373) (1,525) 84,449 (331,767)
Change in restricted cash............................ 2,677 -- -- -- 2,677
---------- --------- -------- ----------- -----------
Net cash used in investing activities...... (96,349) (466,299) (11,190) 84,449 (489,389)
========== ========= ======== =========== ===========
FINANCING ACTIVITIES:
Proceeds from borrowings............................. 1,600,100 -- 47,018 -- 1,647,118
Repayments of debt................................... (1,236,866) (4,160) (28,164) -- (1,269,190)
Net proceeds from the issuance of common stock....... 9,379 -- -- -- 9,379
---------- --------- -------- ----------- -----------
Net cash provided by (used for) financing
activities................................ 372,613 (4,160) 18,854 -- 387,307
========== ========= ======== =========== ===========
NET CHANGE IN CASH AND CASH EQUIVALENTS.............. 10,707 (19,519) 6,445 -- (2,367)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................................... 685 (77) 2,826 -- 3,434
---------- --------- -------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 11,392 $ (19,596) $ 9,271 $ -- $ 1,067
========== ========= ======== =========== ===========
</TABLE>
-19-
<PAGE> 21
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2000 to the three months
ended September 30, 1999
Revenues -- Revenues for the third quarter of 2000 was $536.2 million. The
revenues for the 2000 period included increases of approximately $48 million
relating to the Dodge Dakota Quad Cab, Ford Expedition, and Ford Explorer when
compared with the 1999 period. These increases were offset by lower sales in
General Motors light truck, Ford Ranger, Dodge Ram, Heavy Truck, and passenger
car models served by the Company of approximately $106 million. New acquisitions
contributed $58 million to the revenue in the 2000 period.
Cost of Sales -- Cost of Sales as a percentage of revenues for the third
quarter of 2000 was 87.9% compared to 84.6% for the prior period. The increase
was due to the unavoidable costs associated with the unexpected shutdown of the
Ford Ranger and Explorer production lines due to the tire recall in August
2000, the continued weakening in Heavy Truck rail sales, and general sales
softening totalling approximately $13.2 million. Additionally, costs incurred
for launch and pre-launch activity on new programs, including the next
generation Ford Explorer, increased cost of sales by approximately $3 million
in the 2000 period. Decreased offload activity at the Active locations also
contributed to the lower overall gross margins for the third quarter of
2000 compared with the 1999 period.
S, G & A Expenses -- Selling, general and administrative expenses increased to
$31.5 million, or 5.9% of revenues, for the third quarter of 2000 compared to
$29.4 million, or 5.5% of revenues for the prior period. The increased expense
was due primarily to $4.3 million of incremental costs associated with the
Company's acquisitions of Dr. Meleghy, Algoods, and Caterina offset by
reductions in general and administrative costs, associated with the acquisition
of Active from the 1999 period.
Amortization Expense -- Amortization expense for the third quarter of 2000 was
$5.6 million compared to $4.5 million for the prior period. The increase was
primarily due to incremental goodwill amortization related to the acquisitions
of Dr. Meleghy, Algoods and Caterina.
Interest Expense -- Interest expense for the third quarter of 2000 was $16.4
million compared to $10.6 million for the prior period. Interest expense was
primarily affected by increased borrowings to fund the Company's acquisition of
Active, Dr. Meleghy, the additional equity interest in Caterina, and Algoods of
approximately $5.2 million. Additionally, general rate increases, the impact of
refinancing the credit facility, and the issuance of the Euro Bond increased the
2000 expense by approximately $4.4 million. These increases were offset by
increased capitalized interest of $2.6 million and increases in interest in
income of $1.2 million associated the convertible notes from Seojin and J. L.
French.
Income Taxes -- The effective income tax rate was 40% for the third quarter 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 for
the third quarter of 2000 and 1999 represents the Company's share of the
earnings from its joint venture interests in Metalsa, Caterina and Tower Golden
Ring, and Seojin.
Minority Interest -- Minority interest for the third quarter of 2000 and 1999
represents dividends, net of income tax benefits, on the Preferred Securities.
-21-
<PAGE> 22
Comparison of the nine months ended September 30, 2000 to the nine months ended
September 30, 1999
Revenues -- Revenues for the nine months ended September 30, 2000 were $1,902.6
million, compared to $1,565.4 million for the nine months ended September 30,
1999. The increase in revenue of $337.2 million was composed primarily of net
new business on the Lincoln LS/Jaguar S-Type, Ford Explorer, Ford Focus, and
Ford Excursion of $111.2 million. These increases were offset by decreases of
$92.3 million on the General Motors truck programs, which ended in the 1999
period. Additionally, the acquisitions of Active, Dr. Meleghy, Algoods, and
Caterina contributed approximately $370 million of new sales to the Company.
These new sales related predominately to our customer DaimlerChrysler, both in
North America and in Europe. Heavy Truck rail manufacturing sales declines
totaled $36.1 million in 2000 compared to the 1999 period. Overall net declines
on all other platforms of $15.6 million composed the balance of the revenue
change.
Cost of Sales -- Cost of sales as a percentage of revenues for the nine months
ended September 30, 2000 was 84.7% compared to 84.1% for the nine months ended
September 30, 1999. The increase in cost of sales during the 2000 period was
primarily due to the accelerated softening of Heavy Truck rail sales of
approximately $9.1 million and the impact of costs incurred to support launch
and pre-launch activity on new programs, including the next generation Ford
Explorer, of approximately $3 million. Additional impacts on cost of sales due
to softening volumes during the third quarter of 2000 were effectively offset
by increased volumes during the first and second quarters.
S, G & A Expenses -- Selling, general and administrative expenses increased to
$99.6 million, or 5.2% of revenues, for the nine months ended September 30, 2000
compared to $76.4 million, or 4.9% of revenues, for the nine months ended
September 30, 1999. The increased expense was due to incremental costs
associated with the Company's acquisitions of Active, Dr. Meleghy, Algoods, and
Caterina of $19.7 million and increased engineering, program development, and
launch costs related to new business of approximately $5.4 million. The
realization of gains on the cash settlement of amounts due under the interest
rate swap and lock agreements during the first nine months of 1999 had the
effect of reducing the 1999 expense by $1.9 million.
Amortization Expense -- Amortization expense for the nine months ended
September 30, 2000 was $15.8 million compared to $11.6 million for the
nine months ended September 30, 1999. The increase was due to amortization
related to incremental goodwill amortization related to the acquisitions of
Active in July 1999, Dr. Meleghy in January 2000, Algoods in May 2000, and
Caterina in July 2000.
Interest Expense -- Interest expense for the nine months ended September 30,
2000 was $43.1 million compared to $25.2 million for the nine months ended
September 30, 1999. The increase in interest expense was primarily due to
increased borrowings to fund the Company's acquisitions of Active, Dr. Meleghy,
Algoods, Caterina, and investments in J.L. French and Seojin of approximately
$17.9 million. Additionally, the effects of a general increase in rates, the
increased spreads on the new credit facility and the rate increase with the new
Euro bonds of $7.9 million was offset by increases in interest income and
capitalized interest of $7.8 million.
Income Taxes -- The effective income tax rate was 40% for the nine months ended
September 30, 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 for
the first nine months of 2000 and 1999 represents the Company's share of the
earnings from its joint venture interests in Metalsa, Caterina and Tower Golden
Ring, and Seojin.
Minority Interest -- Minority interest for the first nine months of 2000 and
1999 represents dividends, net of income tax benefits, on the Preferred
Securities.
-22-
<PAGE> 23
RECENT DEVELOPMENTS
On October 2, 2000, the Company signed a definitive agreement to sell
its Roanoke, Virginia heavy truck rail manufacturing business to its joint
venture partner, Metalsa S. de R.L. for $55 million plus an earnout of up to
$30 million based on achieving certain profit levels over the next three
years. The transaction is expected to close by the end of December 2000.
Additionally, on October 2, 2000, the Company's board of directors approved
a comprehensive operational realignment plan, which is intended to improve
the Company's long-term competitive position and lower its cost structure.
The plan includes phasing out the heavy truck rail manufacturing in Milwaukee,
Wisconsin; reducing stamping capacity by closing the Kalamazoo, Michigan
facility; and consolidating related support activities across the
enterprise. The Company plans to record a charge to operations of
approximately $140 million in the fourth quarter of 2000, which reflects the
estimated qualifying "exit costs" to be incurred over the next 12 months
under the plan. Certain of the estimates used for the severance and
outplacement costs are subject to collective bargaining discussions and
thus these costs will qualify as "exit costs" upon completion of these
negotiations.
The charge will include costs associated with asset impairments, severance
and outplacement costs related to employee terminations, and loss
contract provisions. These activities are anticipated to result in
a reduction of more than 800 employees. The charges do not cover certain
aspects of the plan, including movement of equipment and employee relocation
and training. These costs will be recognized in future periods as incurred.
The asset impairments consist of long-lived assets, including fixed
assets, manufacturing equipment, and land, from facilities the Company
intends to dispose of or discontinue. For assets to be disposed of currently,
impairment was measured based on estimated proceeds on the sale of the
facilities and equipment. For assets to be held and used in the future, the
Company prepared a forecast of expected undiscounted cash flows to
determine whether asset impairment existed, and we used fair values to
measure the required writedowns.
Based on the current plan, the Company anticipates this charge will require cash
payments of approximately $38 million over the next 12 months combined with the
write-off of assets having a book value of approximately $102 million. These
assets include Milwaukee heavy truck rail manufacturing machinery and
equipment of approximately $47 million, Milwaukee and Corporate campus support
operating assets of approximately $52 million, and the Kalamazoo Stamping
operations land, buildings, and equipment of approximately $3 million.
Based upon the historical financial results of the discontinued and
transferred operations, as well as certain assumptions relating to the future
performance of the transferred business, the costs of implementing the
restructuring, and other factors over which the Company has no control, the
Company could realize annual savings of between 15 and 25 cents per share from
this restructuring.
In addition to the proceeds of $55 million realized on the sale of Roanoke,
the Company expects working capital savings of approximately $20 million
relating to the exiting businesses. The Company also expects to also realize
approximately $10 million in cash tax savings as a result of the above
actions. These cash proceeds will more than offset the approximately
$38 million of cash payments expected with the restructuring activities.
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LIQUIDITY AND CAPITAL RESOURCES
On July 25, 2000, the Company replaced its existing $675 million revolving
credit agreement and its $325 million term loan with a new six-year $1.15
billion senior unsecured credit agreement. The new credit agreement includes a
non-amortizing revolving facility of $825 million along with an amortizing term
loan of $325 million. The new facility also includes a multi-currency borrowing
feature that allows the Company to borrow up to $500 million in certain freely
tradeable offshore currencies, and letter of credit sublimits of $100 million.
As of September 30, 2000, approximately $8.7 million of the outstanding
borrowings are denominated in Japanese yen and $52.1 million of the outstanding
borrowings are denominated in Euro. Interest on the new credit facility is at
the financial institution's reference rate, LIBOR, or the Eurodollar rate plus a
margin ranging from 0 to 200 basis points depending on the ratio of the
consolidated funded debt for restricted subsidiaries of the Company to its total
EBITDA. The weighted average interest rate for such borrowings was 6.95% for the
nine months ended September 30, 2000. The new credit agreement has a final
maturity of 2006. As a result of the debt replacement, the Company recorded an
extraordinary loss, net of tax, of $3.0 million during the third quarter of
2000.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage and maximum leverage
ratio. As of September 30, 2000, the Company was in compliance with all debt
covenants.
On July 25, 2000, the Company issued Euro-denominated senior unsecured notes in
the amount of payable semi-annually. The notes rank equally with all of the
Company's other unsecured and unsubordinated debt. The net proceeds after
issuance costs were used to repay a portion of the Company's existing
Euro-denominated indebtedness under its existing credit facility. The notes
mature on August 1, 2010.
For the periods presented through July 24, 2000, the Company's Credit Agreement
included a revolving credit facility that provided 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 could be denominated in Italian
lira. The amount available under the revolving credit facility reduced to
$675 million in April 2000, $600 million in April 2001 and $500 million in
April 2002. The Credit Agreement had a final maturity of April 2003. Interest on
the credit facility was 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.
On August 23, 1999, the Company amended and restated its Credit Agreement to
include a term loan add on facility of $325 million. The term loan facility
would have matured in eight equal repayments beginning September 2002 with final
maturity in June 2004. Interest on the term loan facility was at the prime rate
or LIBOR plus a margin ranging from 25 to 175 basis points depending on the
Company's ratio of consolidated indebtedness to its total capitalization. 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.
During September 2000, the Company entered into an interest rate swap contract
to hedge against interest rate exposure on approximately $160 million of its
floating rate indebtedness. The contracts have the effect of converting the
floating rate interest to a fixed rate of approximately 6.9%, plus any
applicable margin required under the revolving credit facility. The interest
rate swap contract was executed to balance the Company's fixed-rate and
floating-rate debt portfolios.
During the first nine months of 2000, the Company generated $137.2 million of
cash from operations. This compares with $99.7 million provided during the same
period in 1999. Cash provided by net income, depreciation, amortization,
deferred income tax provision, and the extraordinary loss was $213.8 million and
$165.1 million for 2000 and 1999, respectively. An increase in working capital
relating primarily to customer tooling inventory and receivables an new program
launches decreased operating cash flow by approximately $76.5 million and $65.3
million for the comparable 2000 and 1999 periods, respectively.
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<PAGE> 25
Net cash used in investing activities was $390.2 million during the first
nine months of 2000 as compared to $489.4 million in the prior period. Net
capital expenditures totaled $157.5 million and $160.3 million for the
comparable 2000 and 1999 periods, respectively. Acquisitions and investments
in joint ventures and other were approximately $232.7 million and
$329.1 million for the 2000 and 1999 periods, respectively.
Net cash provided by financing activities totaled $250.8 million for the
first nine months of 2000 compared with $387.3 million in the prior period.
At September 30, 2000, the Company had unused borrowing capacity of
$390 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 business 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 periodically enters into financial
instruments to manage and reduce the impact of changes in interest rates.
At September 30, 2000, the Company had total debt and obligations under
capital leases of $1.2 billion. The debt is comprised of fixed rate debt of
$493 million and floating rate debt of $721 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 $7.2 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.
During June of 1999, the Company terminated its position in interest rate swaps
in the notional amount of $300 million, resulting in a gain of $0.5 million. The
swaps were held as a hedge to convert floating rate indebtedness to fixed rate
indebtedness without changing the underlying debt instrument. The Company
believes that over the life of the revolving credit facility, interest rates
will continue to remain stable, decreasing the effectiveness of the interest
swap, and therefore, terminated the hedge.
During September 2000, the Company entered into an interest rate swap contract
to hedge against interest rate exposure on approximately $160 million of its
floating rate indebtedness. The contracts have the effect of converting the
floating rate interest to a fixed rate of approximately 6.9%, plus any
applicable margin required under the revolving credit facility. The interest
rate swap contract was executed to balance the Company's fixed-rate and
floating-rate debt portfolios.
FOREIGN CURRENCY TRANSACTIONS
A portion of Tower Automotive's revenues was derived from manufacturing
operations in Europe. The results of operations and financial position of the
Company's operations in Europe are principally measured in its respective
currency and translated into U. S. dollars. The effects of foreign currency
fluctuations in Europe are somewhat mitigated by the fact that expenses are
generally incurred in the same currency in which revenues are generated. The
reported income of these subsidiaries will be higher or lower depending on
a weakening or strengthening of the U. S. dollar against the respective
foreign currency.
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<PAGE> 26
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 September 30, 2000, the Company
held no foreign currency hedge positions. Management believes the effect on
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.
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 is currently
analyzing and quantifying the impact of adopting SFAS No. 133 and 137, and
believes the impact will not be material to the financial statements.
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. Other risks and
uncertainties include a change in the terms, timing or an inability to complete
the sale of business to Metalsa; unanticipated costs associated with the
discontinuation of operations at Kalamazoo and phasing out of heavy truck rail
operations in Milwaukee, changes in estimated costs of the restructuring charge
elements and other risks detailed from time to time in the company's Securities
and Exchange Commission filings. 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.
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<PAGE> 27
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 July 25, 2000
(Commission File No. 1-12733).
2. The Company's Current Report on Form 8-K dated August 1, 2000
(Commission File No. 1-12733).
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<PAGE> 28
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: November 14, 2000 By /s/ Anthony A. Barone
---------------------------------------
Anthony A. Barone
Vice President, Chief Financial Officer
(principal accounting and
financial officer)
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