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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-12733
TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4508 IDS CENTER 55402
MINNEAPOLIS, MINNESOTA (Zip Code)
(Address of principal executive offices)
(612) 342-2310
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at April 30, 2001 was 44,094,424 shares.
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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, 2001 and 2000
Condensed Consolidated Balance Sheets at March 31, 2001
(unaudited) and December 31, 2000
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Three Months Ended March 31, 2001 and 2000
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 6. Exhibits and Reports on Form 8-K
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ITEM 1 - FINANCIAL INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
-------- --------
Revenues $628,376 $685,364
Cost of sales 549,105 573,642
-------- --------
Gross profit 79,271 111,722
Selling, general and administrative expenses 35,299 34,656
Amortization expense 6,078 5,099
-------- --------
Operating income 37,894 71,967
Interest expense, net 19,722 13,197
-------- --------
Income before provision for income taxes 18,172 58,770
Provision for income taxes 7,028 23,508
-------- --------
Income before equity in earnings of joint
ventures and minority interest 11,144 35,262
Equity in earnings of joint ventures 4,381 4,480
Minority interest - dividends on trust preferred
securities, net (2,664) (2,619)
-------- --------
Net income $ 12,861 $ 37,123
======== ========
Basic earnings per share $ 0.29 $ 0.79
======== ========
Diluted earnings per share $ 0.28 $ 0.65
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
- ---------------------------------------------------------------- ----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ -- $ 3,373
Accounts receivable, net 365,970 278,707
Inventories, net 114,056 132,478
Prepaid tooling and other 108,292 133,935
----------- -----------
Total current assets 588,318 548,493
----------- -----------
Property, plant and equipment, net 1,240,673 1,199,964
Investments in joint ventures 301,684 267,217
Goodwill and other assets, net 865,111 877,073
----------- -----------
$ 2,995,786 $ 2,892,747
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt and capital lease $ 134,834 $ 149,066
obligations
Accounts payable 290,046 248,389
Accrued liabilities 200,357 175,219
----------- -----------
Total current liabilities 625,237 572,674
----------- -----------
Long-term debt, net of current maturities 996,505 933,442
Obligations under capital leases, net of current maturities 6,714 8,458
Convertible subordinated notes 200,000 200,000
Deferred income taxes 35,276 33,884
Other noncurrent liabilities 170,249 185,444
----------- -----------
Total noncurrent liabilities 1,408,744 1,361,228
----------- -----------
Mandatorily redeemable trust convertible preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 477 476
Additional paid-in capital 451,088 450,455
Retained earnings 320,817 307,956
Deferred income stock plan (8,942) (8,942)
Accumulated comprehensive loss (20,207) (9,672)
Treasury stock, at cost (40,178) (40,178)
----------- -----------
Total stockholders' investment 703,055 700,095
----------- -----------
$ 2,995,786 $ 2,892,747
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------
2001 2000
--------- ----------
OPERATING ACTIVITIES:
Net income $ 12,861 $ 37,123
Adjustments to reconcile net income to net cash provided by (used in)
operating activities -
Depreciation and amortization 39,074 35,838
Deferred income tax provision 5,492 10,476
Changes in other operating items (16,636) (72,143)
--------- ---------
Net cash provided by operating activities 40,791 11,294
--------- ---------
INVESTING ACTIVITIES:
Acquisitions and investment in joint ventures (7,562) (102,364)
Capital expenditures, net (68,864) (57,273)
--------- ---------
Net cash used in investing activities (76,426) (159,637)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 678,255 840,952
Repayment of debt (646,627) (695,617)
Proceeds from issuance of stock 634 1,118
--------- ---------
Net cash provided by financing activities 32,262 145,463
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,373) (1,890)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,373 3,617
--------- ---------
End of period $ -- $ 1,727
========= =========
NON-CASH FINANCING ACTIVITIES:
Notes payable converted to common stock $ 201 $ --
========= =========
Deferred income stock plan $ -- $ 4,458
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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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, 2000.
Revenues and operating results for the three months ended March 31, 2001
are not necessarily indicative of the results to be expected for the full
year.
2. Inventories consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------- -----------
Raw materials $ 53,158 $ 54,958
Work in process 26,791 40,281
Finished goods 34,107 37,239
--------- -----------
$ 114,056 $ 132,478
========= ===========
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 for the three months ended March 31,
2000 were determined on the assumptions: (i) the Edgewood notes were
converted at the beginning of the period, (ii) the Convertible Subordinated
Notes were converted at the beginning of the period, and (iii) the
Preferred Securities were converted at the beginning of the period. The
Preferred Securities were not included in the computation of earnings per
share for the three months ended March 31, 2001 due to their anti-dilutive
effect (in thousands, except for per share data):
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THREE MONTHS ENDED
MARCH 31,
--------------------
2001 2000
------- -------
Net income $12,861 $37,123
Interest expense on Edgewood notes, net of tax 7 8
Interest expense on Convertible Subordinated Notes, net
of tax 1,652 1,626
Dividends on Preferred Securities, net of tax -- 2,619
------- -------
Net income applicable to common stockholders -- diluted $14,520 $41,376
======= =======
Weighted average number of common shares outstanding 44,111 47,209
Dilutive effect of outstanding stock options and
warrants after application of the treasury stock method 129 274
Dilutive effect of Edgewood notes, assuming conversion 264 289
Dilutive effect of Convertible Subordinated Notes,
assuming conversion 7,729 7,729
Dilutive effect of Preferred Securities, assuming conversion -- 8,425
------- -------
Diluted shares outstanding 52,233 63,926
======= =======
Basic earnings per share $ 0.29 $ 0.79
======= =======
Diluted earnings per share $ 0.28 $ 0.65
======= =======
4. Long-term debt consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
Revolving credit facility $ 413,454 $ 345,919
Senior Euro notes 131,625 141,330
Term credit facility 325,000 325,000
Industrial development revenue bonds 43,765 43,765
Edgewood notes 727 878
Other foreign subsidiary indebtedness 154,785 151,171
Other 59,403 72,969
----------- -----------
1,128,759 1,081,032
Less-current maturities (132,254) (147,590)
----------- -----------
Total long-term debt $ 996,505 $ 933,442
=========== ===========
On July 25, 2000, the Company replaced its existing $750 million amortizing
credit agreement 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
tradable offshore currencies, and letter of credit sublimits of $100
million. As of March 31, 2001, approximately $13.4 million of the
outstanding borrowings are denominated in Japanese yen and $62.3 million of
the outstanding borrowings are denominated in Euro. Interest on the new
credit facility is at the financial institutions' 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 7.6 percent for three months ended
March 31, 2001. 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 March 31, 2001, the Company was in compliance with
all debt covenants.
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On July 25, 2000, R. J. Tower (the "Issuer"), a wholly-owned subsidiary of
the Company, issued Euro-denominated senior unsecured notes in the amount
of 150 million. The notes bear interest at a rate of 9.25 percent, 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.
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 under its $1.15 billion senior
unsecured credit facility. The contracts have the effect of converting the
floating rate interest to a fixed rate of approximately 6.9 percent, 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 and expires in September 2005.
5. On November 30, 2000, the Company completed the acquisition of Strojarne
Malacky, a.s. ("Presskam"), a manufacturer of upper body structural
assemblies for Volkswagen, Porsche and Skoda, located near Bratislava,
Slovakia. The Company paid total consideration of approximately $10 million
for Presskam and intends to use the investment to further support
Volkswagen's Bratislava assembly operation.
On July 6, 2000, the Company acquired the remaining 60 percent equity
interest in Metalurgica Caterina S.A. ("Caterina") for approximately $42
million. The initial 40 percent interest was acquired in March 1998, for
approximately $48 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.
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 March 23, 2000, the Company invested $2.1 million in the formation of a
product technology and development joint venture with Defiance Testing &
Engineering Services, Inc., a subsidiary of GenTek Inc. The joint venture,
DTA Development, located in Westland, Michigan, provides the Company with
product-testing services. Traditionally, the Company utilizes both internal
and external product testing extensively to validate complex systems during
the development stage of a program. This joint venture allows the Company
to have access to a broader and more cost efficient range of testing
capabilities. DTA Development blends the benefits of chassis product
technology and development activities with leading edge commercial testing
services.
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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. Based on the purchase contract, the
Company will pay an additional $24 million during 2001 for achieving
certain operating earnings targets during the 2000 period. 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 Caterina and Presskam 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 Caterina and Presskam
acquisitions and as a result, will likely result in adjustments to the
preliminary allocation of the purchase price.
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, 2000, approximately
$7.3 million and $3.9 million were recorded for facility shutdown and
payroll related costs, respectively. Costs incurred and charged to such
reserves amounted to $0.7 million for facility shutdown costs and $1.1
million for payroll related termination costs for the three months ended
March 31, 2001. At March 31, 2001, liabilities of approximately $6.6
million for costs associated with facility shutdown and consolidation
activities and $2.8 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, 2001.
6. The Company is a 40 percent 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 net earnings, the Company paid Proeza approximately $9.0 million
and $7.9 million in additional consideration during 1999 and 2000,
respectively. Based upon Metalsa's 2000 net earnings, the Company will pay
Proeza approximately $8.0 million in additional consideration during 2001.
7. On October 2, 2000, the Company's board of directors approved a
comprehensive operational realignment plan (the "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 recognized a charge to operations of
approximately $141.3 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.
The charge includes costs associated with asset impairments, severance and
outplacement costs related to employee terminations, loss contract
provisions and certain other exit costs. These activities are anticipated
to result in a reduction of more than 800 employees. Through March 31,
2001, the Company had eliminated approximately 850 employees pursuant to
the Plan. The estimated realignment charge does 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.
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The asset impairments consist of long-lived assets, including fixed assets,
manufacturing equipment and land, from the facilities the Company intends
to dispose of or discontinue. For assets that will be disposed of
currently, the Company measured impairment based on estimated proceeds on
the sale of the facilities and equipment. The carrying value of the
long-lived assets held for sale or disposal is approximately $3.8 million
as of March 31, 2001. For assets that will be held and used in the future,
the Company prepared a forecast of expected undiscounted cash flows to
determine whether asset impairment existed, and used fair values to measure
the required write-downs. These asset impairments have arisen only as a
consequence of the Company making the decision to exit these activities
during the fourth quarter of 2000. The assets will be abandoned or disposed
of upon the exit of the activity, with expected completion during the first
nine months of 2001.
The accrual for operational realignment and other costs is included in
accrued liabilities in the accompanying consolidated balance sheet as of
March 31, 2001. The table below summarizes the accrued operational
realignment and other charges through March 31, 2001 (in millions):
SEVERANCE AND OTHER
ASSET OUTPLACEMENT LOSS EXIT
IMPAIRMENTS COSTS CONTRACTS COSTS TOTAL
------------------------------------------------------------------------------
Provision for operational realignment
and other charges $103.7 $25.2 $8.1 $4.3 $ 141.3
Cash payments -- (8.7) (2.5) (0.3) (11.5)
Non cash charges (73.1) -- -- -- (73.1)
------------------------------------------------------------------------------
Balance at December 31, 2000 30.6 16.5 5.6 4.0 56.7
Cash payments -- (6.0) (2.2) (0.3) (8.5)
Non cash charges (10.3) -- -- -- (10.3)
------------------------------------------------------------------------------
Balance at March 31, 2001 $20.3 $10.5 $3.4 $3.7 $37.9
==============================================================================
8. Supplemental cash flow information (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---------- ----------
Cash paid for -
Interest $27,007 $17,473
Income taxes 1,683 6,462
9. The following table presents comprehensive income, defined as changes in
the stockholders' investment of the Company, for the three months ended
March 31, 2001 and 2000 (in thousands):
THREE MONTHS ENDED MARCH 31
---------------------------
2001 2000
---------------------------
Net income $12,861 $37,123
Change in cumulative translation adjustment (3,835) (954)
Transition adjustment relating to loss on
qualifying cash flow hedges (4,200) --
Unrealized loss on qualifying cash flow hedges (2,500) --
---------------------------
Comprehensive income $2,326 $36,169
===========================
10. On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," issued by the Financial
Accounting Standards Board in 1998. SFAS No. 133, as amended, establishes
accounting and reporting standards requiring the recording of each
derivative instrument in the balance sheet as either an asset or liability
measured at fair value. Changes in the derivative instrument's fair value
must be recognized currently in earnings unless specific hedge accounting
criteria is met. For hedges which meet the criteria, the derivative
instrument's gains and
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losses, to the extent effective, may be recognized in accumulated other
comprehensive income or loss, rather than in earnings.
The Company has entered into an interest rate swap (see note 4) to hedge
the exposure to interest rate fluctuations on the credit agreement. This
agreement meets the specific hedge accounting criteria and is designated as
a cash flow hedge. The effective portion of the cumulative gain or loss on
the derivative instrument has been reported as a component of accumulated
other comprehensive loss in stockholders' investment and will be recognized
into current earnings in the same period or periods during which the hedged
transactions affect current earnings.
The adoption of SFAS No. 133 on January 1, 2001 resulted in a pretax charge
to accumulated other comprehensive loss of $6.8 million ($4.2 million net
of income tax benefit) for derivative instruments that were issued,
acquired or modified after December 31, 1998. The accumulated other
comprehensive loss was attributable to losses on effective cash flow
hedges. Amounts currently recorded in accumulated other comprehensive loss
($6.7 million at March 31, 2001) will be reclassified into current earnings
by September 2005, the termination date for the current agreement.
Derivative liabilities relating to the interest rate swap agreement
totaling $10.8 million have been recorded in accrued liabilities on the
balance sheet as of March 31, 2001. The fair value of the interest rate
swap agreement is based upon the difference between the contractual rates
and the present value of the expected future cash flows on the hedged
interest rate.
11. The following consolidating financial information presents balance sheets,
statements 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 percent senior unsecured notes issued by R. J. Tower Corporation, on a
joint and several basis. Tower Automotive, Inc. (the parent company) has
also fully and unconditionally guaranteed the note and is reflected as the
Parent Guarantor in the consolidating financial information. 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.
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TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT MARCH 31, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR
CORPORATION GUARANTOR COMPANIES
----------- ----------- -----------
ASSETS
- -----------------------------------------------------------
Current assets:
Cash and cash equivalents $ (8,222) $ -- $ 208
Accounts receivable, net 5,507 -- 247,780
Inventories, net 2,055 -- 76,982
Prepaid tooling and other 24,255 -- 49,951
----------- ----------- -----------
Total current assets 23,595 -- 374,921
----------- ----------- -----------
Property, plant and equipment, net 39,696 -- 958,034
Investments in joint ventures 252,278 44,740 4,666
Investment in subsidiaries 542,776 703,055 --
Goodwill and other assets, net 22,511 10,680 553,122
----------- ----------- -----------
$ 880,856 $ 758,475 $ 1,890,743
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- -----------------------------------------------------------
Current liabilities
Current maturities of long-term debt and capital
lease obligations $ 32,579 $ -- $ 2,580
Accounts payable (2,920) -- 199,931
Accrued liabilities 56,111 1,667 88,436
----------- ----------- -----------
Total current liabilities 85,770 1,667 290,947
----------- ----------- -----------
Long-term debt, net of current maturities 866,100 -- 44,765
Obligations under capital leases, net of current maturities -- -- 6,714
Convertible subordinated notes -- 200,000 --
Due to/(from) affiliates (829,903) (404,997) 991,299
Deferred income taxes 30,276 -- --
Other noncurrent liabilities 9,237 -- 121,751
----------- ----------- -----------
Total noncurrent liabilities 75,710 (204,997) 1,164,529
----------- ----------- -----------
Manditorily redeemable trust convertible preferred securities -- 258,750 --
Stockholders' investment 727,141 703,055 435,267
Accumulated other comprehensive loss (7,765) -- --
----------- ----------- -----------
Total stockholders' investment 719,376 703,055 435,267
----------- ----------- -----------
$ 880,856 $ 758,475 $ 1,890,743
=========== =========== ===========
NON-GUARANTOR
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------
ASSETS
- -----------------------------------------------------------
Current assets:
Cash and cash equivalents $ 8,014 $ -- $ --
Accounts receivable, net 112,683 -- 365,970
Inventories, net 35,019 -- 114,056
Prepaid tooling and other 34,086 -- 108,292
----------- ----------- -----------
Total current assets 189,802 -- 588,318
----------- ----------- -----------
Property, plant and equipment, net 242,943 -- 1,240,673
Investments in joint ventures -- -- 301,684
Investment in subsidiaries -- (1,245,831) --
Goodwill and other assets, net 278,798 -- 865,111
----------- ----------- -----------
$ 711,543 $(1,245,831) $ 2,995,786
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- -----------------------------------------------------------
Current liabilities
Current maturities of long-term debt and capital
lease obligations $ 99,675 $ -- $ 134,834
Accounts payable 93,035 -- 290,046
Accrued liabilities 54,143 -- 200,357
----------- ----------- -----------
Total current liabilities 246,853 -- 625,237
----------- ----------- -----------
Long-term debt, net of current maturities 85,640 -- 996,505
Obligations under capital leases, net of current maturities -- -- 6,714
Convertible subordinated notes -- -- 200,000
Due to/(from) affiliates 243,601 -- --
Deferred income taxes 5,000 -- 35,276
Other noncurrent liabilities 39,261 -- 170,249
----------- ----------- -----------
Total noncurrent liabilities 373,502 -- 1,408,744
----------- ----------- -----------
Manditorily redeemable trust convertible preferred securities -- -- 258,750
Stockholders' investment 103,630 (1,245,831) 723,262
Accumulated other comprehensive loss (12,442) -- (20,207)
----------- ----------- -----------
Total stockholders' investment 91,188 (1,245,831) 703,055
----------- ----------- -----------
$ 711,543 $(1,245,831) $ 2,995,786
=========== =========== ===========
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TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
R.J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------- ----------- --------- --------- ------------ ------------
Revenues $ 18,623 $ -- $ 399,876 $ 209,877 $ -- $ 628,376
Cost of sales 9,453 -- 355,123 184,529 -- 549,105
--------- --------- --------- --------- --------- ---------
Gross profit 9,170 -- 44,753 25,348 -- 79,271
Selling, general and administrative expenses 342 -- 25,731 9,226 -- 35,299
Amortization expense 533 321 3,617 1,607 -- 6,078
--------- --------- --------- --------- --------- ---------
Operating income 8,295 (321) 15,405 14,515 -- 37,894
Interest expense, net 18,518 1,672 (3,712) 3,244 -- 19,722
--------- --------- --------- --------- --------- ---------
Income before provision for income taxes (10,223) (1,993) 19,117 11,271 -- 18,172
Provision for income taxes (3,987) (778) 7,456 4,337 -- 7,028
--------- --------- --------- --------- --------- ---------
Income before equity in earnings of
joint ventures and minority interest (6,236) (1,215) 11,661 6,934 -- 11,144
Equity in earnings of joint ventures and 22,976 16,740 -- -- (35,335) 4,381
subsidiaries
Minority interest - dividends on trust preferred, -- (2,664) -- -- -- (2,664)
net
--------- --------- --------- --------- --------- ---------
Net income $ 16,740 $ 12,861 $ 11,661 $ 6,934 $ (35,335) $ 12,861
========= ========= ========= ========= ========= =========
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14
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
R.J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------- ----------- --------- --------- ------------ -------------
OPERATING ACTIVITIES:
Net income $ 16,740 $ 12,861 $ 11,661 $ 6,934 $ (35,335) $ 12,861
Adjustments required to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 1,452 321 28,360 8,941 -- 39,074
Deferred income tax provision 5,274 -- 631 (413) -- 5,492
Changes in other operating items 6,969 (2,119) 22,739 (26,983) (17,242) (16,636)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities 30,435 11,063 63,391 (11,521) (52,577) 40,791
--------- --------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net (3,370) -- (58,418) (7,076) -- (68,864)
Acquisitions and other, net (42,765) (11,697) (5,677) -- 52,577 (7,562)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities (46,135) (11,697) (64,095) (7,076) 52,577 (76,426)
--------- --------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 660,830 -- -- 17,425 -- 678,255
Repayments of debt (634,580) -- (663) (11,384) -- (646,627)
Net proceeds from the issuance of common stock -- 634 -- -- -- 634
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for) financing
activities 26,250 634 (663) 6,041 -- 32,262
--------- --------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 10,550 -- (1,367) (12,556) -- (3,373)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
(18,772) -- 1,575 20,570 -- 3,373
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ (8,222) $ -- $ 208 $ 8,014 $ -- $ --
========= ========= ========= ========= ========= =========
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15
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
R. J. TOWER PARENT GUARANTOR
CORPORATION GUARANTOR COMPANIES
----------- --------- ---------
ASSETS
- ---------------------------------------------------------
Current assets:
Cash and cash equivalents $ (18,772) $ -- $ 1,575
Accounts receivable, net 6,983 381 172,332
Inventories, net 2,032 -- 83,479
Prepaid tooling and other 24,704 -- 82,923
----------- ----------- -----------
Total current assets 14,947 381 340,309
----------- ----------- -----------
Property, plant and equipment, net 37,245 -- 924,359
Investments in joint ventures 221,165 43,912 2,140
Investment in subsidiaries 541,468 734,624 --
Goodwill and other assets, net 21,527 11,001 536,142
----------- ----------- -----------
$ 836,352 $ 789,918 $ 1,802,950
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ---------------------------------------------------------
Current liabilities
Current maturities of long-term debt and capital lease $ 56,569 $ -- $ 1,477
obligations
Accounts payable (13,260) -- 156,724
Accrued liabilities 35,183 4,167 101,001
----------- ----------- -----------
Total current liabilities 78,492 4,167 259,202
----------- ----------- -----------
Long-term debt, net of current maturities 800,401 -- 44,787
Obligations under capital leases, net of current maturities -- -- 8,458
Convertible subordinated notes -- 200,000 --
Due to/(from) affiliates (822,981) (373,094) 915,331
Deferred income taxes 29,102 -- (631)
Other noncurrent liabilities 9,060 -- 132,105
----------- ----------- -----------
Total noncurrent liabilities 15,582 (173,094) 1,100,050
----------- ----------- -----------
Mandatorily redeemable trust convertible preferred securities -- 258,750 --
Stockholders' investment 744,296 700,095 443,698
Accumulated other comprehensive income (loss) - cumulative
translation adjustment (2,018) -- --
----------- ----------- -----------
Total stockholders' investment 742,278 700,095 443,698
----------- ----------- -----------
$ 836,352 $ 789,918 $ 1,802,950
=========== =========== ===========
NON-GUARANTOR
COMPANIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------
ASSETS
- ---------------------------------------------------------
Current assets:
Cash and cash equivalents $ 20,570 $ -- $ 3,373
Accounts receivable, net 99,011 -- 278,707
Inventories, net 46,967 -- 132,478
Prepaid tooling and other 26,308 -- 133,935
----------- ----------- -----------
Total current assets 192,856 -- 548,493
----------- ----------- -----------
Property, plant and equipment, net 238,360 -- 1,199,964
Investments in joint ventures -- -- 267,217
Investment in subsidiaries -- (1,276,092) --
Goodwill and other assets, net 308,403 -- 877,073
----------- ----------- -----------
$ 739,619 $(1,276,092) $ 2,892,747
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ---------------------------------------------------------
Current liabilities
Current maturities of long-term debt and capital lease $ 91,020 $ -- $ 149,066
obligations
Accounts payable 104,925 -- 248,389
Accrued liabilities 34,868 -- 175,219
----------- ----------- -----------
Total current liabilities 230,813 -- 572,674
----------- ----------- -----------
Long-term debt, net of current maturities 88,254 -- 933,442
Obligations under capital leases, net of current maturities -- -- 8,458
Convertible subordinated notes -- -- 200,000
Due to/(from) affiliates 280,744 -- --
Deferred income taxes 5,413 -- 33,884
Other noncurrent liabilities 44,279 -- 185,444
----------- ----------- -----------
Total noncurrent liabilities 418,690 -- 1,361,228
----------- ----------- -----------
Mandatorily redeemable trust convertible preferred securities -- -- 258,750
Stockholders' investment 97,770 (1,276,092) 709,767
Accumulated other comprehensive income (loss) - cumulative
translation adjustment (7,654) -- (9,672)
----------- ----------- -----------
Total stockholders' investment 90,116 (1,276,092) 700,095
----------- ----------- -----------
$ 739,619 $(1,276,092) $ 2,892,747
=========== =========== ===========
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16
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS - UNAUDITED)
R.J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------- ----------- --------- --------- ------------ -------------
Revenues
$ 21,889 $ $ 549,193 $ 114,282 $ $ 685,364
Cost of sales 15,660 -- 456,008 101,974 -- 573,642
--------- --------- --------- --------- --------- ---------
Gross profit 6,229 -- 93,185 12,308 -- 111,722
Selling, general and administrative expenses 3,454 -- 26,808 4,394 -- 34,656
Amortization expense 364 435 3,560 740 -- 5,099
--------- --------- --------- --------- --------- ---------
Operating income 2,411 (435) 62,817 7,174 -- 71,967
Interest expense, net 10,529 1,931 (1,234) 1,971 -- 13,197
--------- --------- --------- --------- --------- ---------
Income before provision for income taxes (8,118) (2,366) 64,051 5,203 -- 58,770
Provision for income taxes (3,248) (946) 25,621 2,081 -- 23,508
--------- --------- --------- --------- --------- ---------
Income before equity in earnings of
joint ventures and minority interest (4,870) (1,420) 38,430 3,122 -- 35,262
Equity in earnings of joint ventures and
subsidiaries 46,032 41,162 -- -- (82,714) 4,480
Minority interest - dividends on trust preferred,
net -- (2,619) -- -- -- (2,619)
--------- --------- --------- --------- --------- ---------
Net income $ 41,162 $ 37,123 $ 38,430 $ 3,122 $ (82,714) $ 37,123
========= ========= ========= ========= ========= =========
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17
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS - UNAUDITED)
R.J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------- ----------- --------- --------- ------------ -------------
OPERATING ACTIVITIES:
Net income $ 41,162 $ 37,123 $ 38,430 $ 3,122 $ (82,714) $ 37,123
Adjustments required to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 1,447 435 29,548 4,408 -- 35,838
Deferred income tax provision 10,559 -- -- (83) -- 10,476
Changes in other operating items (133,682) (2,500) (6,026) 82,942 (12,877) (72,143)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities (80,514) 35,058 61,952 90,389 (95,591) 11,294
--------- --------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net 326 -- (53,674) (3,925) -- (57,273)
Acquisitions and other, net (62,755) (36,176) (6,104) (92,920) 95,591 (102,364)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities (62,429) (36,176) (59,778) (96,845) 95,591 (159,637)
--------- --------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 835,226 -- 21 5,705 -- 840,952
Repayments of debt (691,223) -- (3,158) (1,236) -- (695,617)
Net proceeds from the issuance of common stock -- 1,118 -- -- -- 1,118
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for) financing
activities 144,003 1,118 (3,137) 4,469 -- 146,453
--------- --------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,060 -- (963) (1,987) -- (1,890)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,312 -- 484 821 -- 3,617
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,372 $ -- $ (479) $ (1,166) $ -- $ 1,727
========= ========= ========= ========= ========= =========
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18
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, 2001 TO THE THREE MONTHS ENDED
MARCH 31, 2000
Revenues -- Revenues for the first quarter of 2001 were $628.4 million, an 8.3
percent decrease, compared to $685.4 million for the prior period. The decrease
in revenues is comprised of a decline in volumes on models such as the Dodge
Dakota and Durango, the Chrysler LH, the Ford Ranger and the Lincoln LS/Jaguar
S-Type. The volume decline, which primarily affected the U.S. and Canada
business units, accounted for $126.8 million of the revenue decline in the first
quarter of 2001 as compared to the first quarter of 2000. Other declines in
revenues from the first quarter of 2001 are attributable to the decline in
General Motors light truck program sales and heavy truck business and amounted
to $45.0 million. These declines were offset by increases in revenue in the
first quarter of 2001 due to the Algoods, Caterina, Presskam and Seojin
acquisitions totaling $114.8 million. The strength of sales volumes for the
remainder of 2001 continues to be uncertain.
Cost of Sales -- Cost of sales as a percentage of revenues for the first quarter
of 2001 was 87.4 percent compared to 83.7 percent for the prior period. The
decline in gross profit was primarily due to decreased production volumes and
product mix on light truck, sport utility and other models served by the Company
in North America and increasing sales with lower margins in Europe, Asia, and
South America. Increased costs associated with the launch of the Ford Explorer,
Dodge Ram truck and GM Sigma programs also contributed to the first quarter of
2001 decline in gross margins from the first quarter of 2000.
S, G & A Expenses -- Selling, general and administrative expenses increased to
$35.3 million, or 5.6 percent of revenues, for the first quarter of 2001
compared to $34.7 million, or 5.1 percent of revenues for the prior period. This
increase was due primarily to incremental costs associated with the Company's
acquisitions of Algoods, Caterina, Presskam and Seojin of $4.3 million. This
increase was offset by $3.7 million in decreased costs due mainly to reductions
in headcount in the consolidation of the Company's support activities.
Amortization Expense -- Amortization expense for the first quarter of 2001 was
$6.1 million compared to $5.1 million for the prior period. The increase was due
to incremental goodwill amortization related to the acquisitions of Algoods,
Caterina, Presskam, and Seojin.
Interest Expense -- Interest expense for the first quarter of 2001 was $19.7
million compared to $13.2 million for the prior period. Interest expense was
affected by increased borrowings incurred to fund the Company's acquisitions of
Algoods, Caterina, and Presskam. Rate increases on the credit facilities entered
into in July 2000 along with the issuance of the senior Euro notes in July 2000
also contributed to the increase in interest expense. These increases were
offset by an increase in capitalized interest of $1.9 million.
Income Taxes -- The effective income tax rate was 38.7 percent and 40.0 percent
for the first quarters of 2001 and 2000, respectively. The decrease in the
effective rate is due primarily as a result of increased income in lower tax
jurisdictions.
Equity in Earnings of Joint Ventures -- Equity in earnings of joint ventures,
net of tax, was $4.4 million and $4.5 million for the first quarters of 2001 and
2000, 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 2001 and 2000
represents dividends, net of income tax benefits, on the Preferred Securities.
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19
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
On October 2, 2000, the Company's board of directors approved a comprehensive
operational realignment plan (the "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
recognized a charge to operations of approximately $141.3 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.
The charge includes costs associated with asset impairments, severance and
outplacement costs related to employee terminations, loss contract provisions
and certain other exit costs. These activities are anticipated to result in a
reduction of more than 800 employees. Through March 31, 2001, the Company had
eliminated approximately 850 employees pursuant to the Plan. The estimated
realignment charge does 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 the facilities the Company intends to
dispose of or discontinue. For assets that will be disposed of currently, the
Company measured impairment based on estimated proceeds on the sale of the
facilities and equipment. The carrying value of the long-lived assets held for
sale or disposal is approximately $3.8 million as of March 31, 2001. For assets
that will be held and used in the future, the Company prepared a forecast of
expected undiscounted cash flows to determine whether asset impairment existed,
and used fair values to measure the required write-downs. These asset
impairments have arisen only as a consequence of the Company making the decision
to exit these activities during the fourth quarter of 2000. The assets will be
abandoned or disposed of upon the exit of the activity, with expected completion
during the first nine months of 2001.
The accrual for operational realignment and other costs is included in accrued
liabilities in the accompanying consolidated balance sheet as of March 31, 2001.
The table below summarizes the accrued operational realignment and other charges
through March 31, 2001 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT LOSS OTHER EXIT
IMPAIRMENTS COSTS CONTRACTS COSTS TOTAL
----------- ------------- --------- ---------- -----
Provision for operational
realignment and other charges $103.7 $25.2 $8.1 $4.3 $141.3
Cash payments -- (8.7) (2.5) (0.3) (11.5)
Non cash charges (73.1) -- -- -- (73.1)
----------------------------------------------------------------------------------
Balance at December 31, 2000 30.6 16.5 5.6 4.0 56.7
Cash payments -- (6.0) (2.2) (0.3) (8.5)
Non cash charges (10.3) -- -- -- (10.3)
----------------------------------------------------------------------------------
Balance at March 31, 2001 $20.3 $10.5 $3.4 $3.7 $37.9
==================================================================================
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20
LIQUIDITY AND CAPITAL RESOURCES
In July 2000, the Company replaced its existing $750 million amortizing credit
agreement 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 tradable offshore currencies, and
letter of credit sublimits of $100 million. As of March 31, 2001, approximately
$13.4 million of the outstanding borrowings are denominated in Japanese yen and
$62.3 million of the outstanding borrowings are denominated in Euro. Interest on
the new credit facility is at the financial institutions' 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 7.6 percent for year ended March 31, 2001. 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.
In July 2000, R. J. Tower (the "Issuer"), a wholly-owned subsidiary of the
Company, issued Euro-denominated senior unsecured notes in the amount of 150
million (approximately $131.6 million at March 31, 2001). The notes bear
interest at a rate of 9.25 percent, 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.
In 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 under its $1.15 billion senior unsecured credit
facility. The contracts have the effect of converting the floating rate interest
to a fixed rate of approximately 6.9 percent, 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 and it expires in September 2005.
Effective January 1, 2001, unrealized gains and losses on interest rate swap
agreements used to hedge the Company's exposure to interest rate fluctuations
are recognized currently for financial reporting purposes. The swap agreement is
marked to market on a quarterly basis. The effect of this change as of January
1, 2001, was a pretax charge to accumulated other comprehensive loss of $6.8
million ($4.2 million net of income tax benefit). During the first quarter of
2001, pretax other comprehensive loss increased by $4.0 million ($2.5 million
net of income tax benefit) to reflect an unrealized loss on the swap agreement
from January 1, 2001 to March 31, 2001.
During the first quarter of 2001, the Company generated $40.8 million of cash
from operations compared with generating $11.3 million in the 2000 period. Cash
provided by net income, depreciation, amortization, and deferred income tax
provision of $57.4 million in 2001 and $83.4 million in 2000, was partially
offset by cyclical increases in working capital requirements and other operating
items of $16.6 million and $72.1 million, respectively.
Net cash used in investing activities was $76.4 million during the first quarter
of 2001 as compared to $159.6 million in the prior period. Net capital
expenditures totaled $68.9 million in the first quarter of 2001 for equipment
and dedicated tooling purchases related to new or replacement programs. This
compares with net capital expenditures of $57.3 million for the prior period.
Net cash provided by financing activities totaled $32.3 million for the first
quarter of 2001 compared with $146.5 million in 2000.
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21
At March 31, 2001, the Company had unused borrowing capacity of approximately
$121 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 2001
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 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, 2001, the Company had total debt and obligations under capital
leases of $1.3 billion. The debt is comprised of fixed rate debt of $491.6
million and floating rate debt of $846.4 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 $8.5 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, Asia, and South America. The results of operations and
financial position of the Company's foreign operations are principally measured
in its respective currency and translated into U. S. dollars. The effects of
foreign currency fluctuations in Europe, Asia, and South America 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, 2001, the Company held no foreign
currency hedge positions. Management believes the effect of a one percent
appreciation or depreciation in
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22
foreign currency rates would not materially affect the Company's financial
position or results of operations for the periods presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended on January 1, 2001 (see note 10). The effect of
this change as of January 1, 2001, was a pretax charge to accumulated other
comprehensive loss of $6.8 million ($4.2 million net of income tax benefit).
During the first quarter of 2001, pretax other comprehensive loss increased by
$4.0 million ($2.5 million net of income tax benefit) to reflect an unrealized
loss on the swap agreement from January 1, 2001 through March 31, 2001.
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.
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23
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:
(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 2,
2001, Under Item 5 (Commission File No. 1-12733).
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24
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, 2001 By /s/ Anthony A. Barone
----------------------------------------------
Anthony A. Barone
Vice President, Chief Financial Officer
(principal accounting and financial officer)
-24-