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, 2002
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.)
5211 CASCADE ROAD SE - SUITE 300 49546
GRAND RAPIDS, MICHIGAN (Zip Code)
(Address of principal executive offices)
(616) 802-1600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at May 13, 2002 was 65,812,519 shares.
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, 2002 and 2001
Condensed Consolidated Balance Sheets at March 31, 2002
(unaudited) and December 31, 2001
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 2002 and 2001
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
-2-
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,
----------------------------
2002 2001
--------- ---------
Revenues $ 668,107 $ 628,376
Cost of sales 599,098 549,105
--------- ---------
Gross profit 69,009 79,271
Selling, general and administrative expenses 32,907 35,299
Amortization expense 979 6,078
Restructuring and asset impairment charge 75,407 --
--------- ---------
Operating income (loss) (40,284) 37,894
Interest expense, net 17,140 19,722
Gain on sale of plant (3,839) --
--------- ---------
Income (loss) before provision for income taxes,
equity in earnings of joint ventures and minority
interest (53,585) 18,172
Provision (benefit) for income taxes (18,756) 7,028
--------- ---------
Income (loss) before equity in earnings of
joint ventures and minority interest (34,829) 11,144
Equity in earnings of joint ventures, net 4,385 4,381
Minority interest, net (4,073) (2,664)
--------- ---------
Net income (loss) $ (34,517) $ 12,861
========= =========
Basic earnings (loss) per common share $ (0.72) $ 0.29
========= =========
Basic shares outstanding 48,253 44,111
========= =========
Diluted earnings (loss) per common share $ (0.72) $ 0.28
========= =========
Diluted shares outstanding 48,253 52,233
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-3-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
March 31, December 31,
Assets 2002 2001
--------------------------------------------------------------- ----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 14,601 $ 21,767
Accounts receivable 287,888 216,638
Inventories 103,140 112,536
Prepaid tooling and other 109,789 89,229
----------- -----------
Total current assets 515,418 440,170
----------- -----------
Property, plant and equipment, net 1,041,063 1,120,259
Investments in joint ventures 247,191 243,198
Deferred income taxes 82,949 61,461
Goodwill and other assets, net 666,987 668,348
----------- -----------
$ 2,553,608 $ 2,533,436
=========== ===========
Liabilities and Stockholders' Investment
---------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt and capital lease
obligations $ 183,283 $ 172,083
Accounts payable 386,033 368,910
Accrued liabilities 264,439 278,962
----------- -----------
Total current liabilities 833,755 819,955
----------- -----------
Long-term debt, net of current maturities 644,477 601,084
Obligations under capital leases, net of current maturities 3,905 4,620
Convertible subordinated notes 199,984 199,984
Other noncurrent liabilities 196,907 201,635
----------- -----------
Total noncurrent liabilities 1,045,273 1,007,323
----------- -----------
Mandatorily redeemable trust convertible preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 485 481
Additional paid-in capital 457,426 456,627
Retained earnings 5,915 40,432
Deferred compensation plans (14,294) (15,571)
Accumulated other comprehensive loss (33,702) (34,561)
----------- -----------
Total stockholders' investment 415,830 447,408
----------- -----------
$ 2,553,608 $ 2,533,436
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
-4-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------
2002 2001
------------ -----------
OPERATING ACTIVITIES:
Net income (loss) $ (34,517) $ 12,861
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities -
Depreciation and amortization 33,392 39,074
Deferred income tax provision (benefit) (22,283) 5,492
Deferred compensation plans 815 --
Gain on sale of plant (3,839) --
Equity in earnings of joint ventures, net (4,385) (4,381)
Restructuring and asset impairment charge 75,407 --
Change in working capital and other operating items (73,728) (22,984)
--------- ---------
Net cash provided by (used in) operating activities (29,138) 30,062
--------- ---------
INVESTING ACTIVITIES:
Acquisitions, divestitures and investment in joint ventures (38,039) (3,181)
Capital expenditures, net (13,201) (62,516)
--------- ---------
Net cash used in investing activities (51,240) (65,697)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 486,549 678,255
Repayment of debt (414,612) (646,627)
Proceeds from issuance of stock 1,275 634
--------- ---------
Net cash provided by financing activities 73,212 32,262
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (7,166) (3,373)
CASH AND CASH EQUIVALENTS:
Beginning of period 21,767 3,373
--------- ---------
End of period $ 14,601 $ --
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 23,613 $ 27,007
========= =========
Income taxes paid (refunded) $ (425) $ 1,683
========= =========
NON-CASH FINANCING ACTIVITIES:
Notes payable converted to common stock $ -- $ 201
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-5-
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, 2001.
Revenues and operating results for the three months ended March 31, 2002
are not necessarily indicative of the results to be expected for the full
year.
Certain prior year amounts were reclassified to conform to current year
presentation.
2. Inventories consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2002 2001
-------- -----------
Raw materials $ 47,085 $ 52,579
Work in process 15,282 24,636
Finished goods 40,773 35,321
-------- --------
$103,140 $112,536
======== ========
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,
2001 were determined on these assumptions: (i) the Edgewood notes were
converted at the beginning of the period, and (ii) the Convertible
Subordinated Notes were converted at the beginning of the period. The
Preferred Securities, totaling approximately 8.4 million shares, were not
included in the computation of earnings per share for the three months
ended March 31, 2001 due to their anti-dilutive effect. None of the common
stock equivalents, totaling approximately 16.2 million shares, were
included in the computation of earnings per share for the three months
ended March 31, 2002 due to their anti-dilutive effect (in thousands,
except for per share data):
-6-
THREE MONTHS ENDED
MARCH 31,
----------------------
2002 2001
-------- --------
Net income (loss) $(34,517) $ 12,861
Interest expense on Edgewood notes, net of tax -- 7
Interest expense on Convertible Subordinated Notes, net of tax -- 1,652
-------- --------
Net income (loss) applicable to common stockholders -- diluted $(34,517) $ 14,520
======== ========
Weighted average number of common shares outstanding 48,253 44,111
Dilutive effect of outstanding stock options and warrants
after application of the treasury stock method -- 129
Dilutive effect of Edgewood notes, assuming conversion -- 264
Dilutive effect of Convertible Subordinated Notes, assuming
conversion -- 7,729
-------- --------
Diluted shares outstanding 48,253 52,233
======== ========
Basic earnings (loss) per share $ (0.72) $ 0.29
======== ========
Diluted earnings (loss) per share $ (0.72) $ 0.28
======== ========
4. Long-term debt consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2002 2001
-------- --------
Revolving credit facility $170,536 $100,608
Senior Euro notes 131,025 133,560
Term credit facility 325,000 325,000
Industrial development revenue bonds 43,765 43,765
Edgewood notes 50 50
Other foreign subsidiary indebtedness 131,118 136,987
Other 23,493 30,474
-------- --------
824,987 770,444
Less-current maturities (180,510) (169,360)
-------- --------
Total long-term debt $644,477 $601,084
======== =========
In July 2000, the Company replaced its previous $750 million amortizing
credit facility with a new six-year $1.15 billion senior unsecured credit
agreement (the "Credit Agreement"). The Credit Agreement includes a
non-amortizing revolving facility of $825 million along with an amortizing
term loan of $325 million. The Credit Agreement 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, 2002, approximately $25.5
million of the outstanding borrowings are denominated in Japanese yen,
$32.8 million are denominated in Euro, and $15.7 million are denominated in
Canadian dollars. Interest on the Credit Agreement 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
5.9 percent for the three months ended March 31, 2002. The Credit Agreement
has a final maturity of 2006.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage and maximum
leverage ratio. The Credit Agreement also limits the Company's ability to
pay dividends. As of March 31, 2002, the Company was in compliance with all
debt covenants.
-7-
In July 2000, R. J. Tower Corporation, a wholly-owned subsidiary of the
Company, issued Euro-denominated senior unsecured notes in the amount of
Euro 150 million ($131.0 million at March 31, 2002). 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 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 Credit Agreement. 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 Credit Agreement. The interest rate swap contract was
executed to balance the Company's fixed-rate and floating-rate debt
portfolios and expires in September 2005.
The adoption of Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," 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). The accumulated other comprehensive loss was attributable to
losses on effective cash flow hedges. As of March 31, 2002, there is $6.9
million recorded in accumulated other comprehensive loss related to the
cash flow hedge.
Derivative liabilities relating to the interest rate swap agreement
totaling $11.2 million have been recorded in accrued liabilities on the
balance sheet as of March 31, 2002. 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.
5. At March 31, 2002, the Company had sold $117.9 million of net accounts
receivable pursuant to its accounts receivable securitization program in
exchange for $15.4 million of cash and a retained subordinated interest in
the receivables sold of $102.5 million. The receivables sold represented
amounts owed to the Company from customers as of February 28, 2002. The
majority of such receivables were collected in March 2002 and as a result,
the Company's retained interest in accounts receivable is not significant
as of March 31, 2002 and is not presented separately from accounts
receivable. As of March 31, 2002, the Company recorded a liability to the
funding agent of $15.4 million, which represents receivables for which the
Company has received collections from customers and is required to be
submitted to the funding agent. Settlement of amounts due to the funding
agent, as well as the cost of funding at a rate of approximately 7.6
percent, occurs during the month subsequent to the sale of the receivables.
6. 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 million plus earnout
payments of $2.7 million paid in 2001 and $26.9 million paid in the first
quarter of 2002. 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's acquisitions 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 excess of the purchase price over the fair value of the
assets acquired and liabilities assumed has been recorded as goodwill.
The Company is committed under existing certain agreements, assumed in
connection with prior acquisitions, to supply product to its customers at
selling prices that are not sufficient to cover the direct costs to produce
those parts. The Company is obligated to supply these products for the life
of the related
-8-
vehicles, which is typically three to ten years. Accordingly, the Company
recognizes losses at the time these losses are probable and reasonably
estimable at an amount equal to the minimum amount necessary to fulfill its
obligations to its customers. The reserves established in connection with
these recognized losses are reversed as the product is shipped to the
customers.
In conjunction with its acquisitions, the Company has established reserves
for certain costs associated with facility shutdown and consolidation
activities, for general and payroll related costs primarily for planned
employee termination activities, and for provisions for acquired loss
contracts. A rollforward of these reserves is as follows (in millions):
FACILITY PAYROLL
SHUTDOWN RELATED LOSS
COSTS COSTS CONTRACTS
----- ----- ---------
Balance at December 31, 2001 $ 5.2 $ 1.1 $ 17.0
Utilization (0.1) (1.0) (1.0)
------- ------- -------
Balance at March 31, 2002 $ 5.1 $ 0.1 $ 16.0
======= ======= =======
The timing of facility shutdown and consolidation activities has been
adjusted to reflect customer concerns with supply interruption. As of March
31, 2002, the facilities have been shutdown, but the Company continues to
incur costs related to maintenance, taxes and other costs related to
buildings that are held for sale. 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, 2002.
7. The Company has a 31 percent equity interest in Yorozu Corporation
("Yorozu") acquired from Nissan Motor Co. Ltd. ("Nissan"). Yorozu, based in
Japan, is publicly traded on the first tier of the Tokyo Stock Exchange and
is a supplier of suspension modules and structural parts to the Asian and
North American automotive markets with principal customers including
Nissan, Auto Alliance, General Motors, Ford and Honda. The Company will pay
Nissan approximately $68 million over two and one half years for its
original 17 percent interest acquired in September 2000 and its subsequent
13.8 percent interest it acquired in February 2001. As of March 31, 2002,
$23.5 million remains to be paid under these arrangements and is recorded
as indebtedness in the Company's balance sheet. As of March 31, 2002, the
traded market value of shares held in Yorozu was $17.9 million and the
Company's investment in Yorozu was $54.5 million. The Company periodically
assesses its investment in Yorozu to determine the proper carrying value
for the investment in its financial statements. The periodic assessment of
value takes into account market value of shares, operating performance, and
the Company's book or liquidation value in ascertaining whether an other
than temporary impairment has occurred in the investment. Based on this
assessment, the Company does not believe at this time that its investment
in Yorozu has suffered an other than temporary impairment.
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"). Metalsa is the largest
supplier of vehicle frames and structures in Mexico. In connection with the
original agreement, the Company paid $120 million to Proeza with an
additional amount of up to $45 million payable based upon net earnings of
Metalsa during 1998, 1999, and 2000. Based upon Metalsa's 1998 and 1999 net
earnings, the Company paid Proeza $9.0 million and $7.9 million in
additional consideration during 1999 and 2000, respectively. Based upon
Metalsa's 2000 net earnings, the Company paid $8.6 million of additional
consideration during the first quarter of 2002.
8. On February 1, 2002, the Company sold its Iwahri, Korea plant to a Hyundai
affiliate for net proceeds of $4.2 million after fees and debt assumed by
the purchaser and realized a gain on sale of the plant of $3.8 million in
the first quarter of 2002. The net proceeds were used to repay outstanding
subsidiary indebtedness. The results of operations of the Iwahri plant,
which assembles the Kia Sportage lower vehicle module, are not significant
to the operating results of the Company as a whole, and therefore, pro
forma financial information has not been provided as the results would not
be materially different.
-9-
The Company will continue to manufacture body structure components in
Korea, including those components used in the Kia Sportage module.
9. The Company produces a broad range of assemblies and modules for vehicle
body structures and suspension systems for the global automotive industry.
These operations have similar characteristics including the nature of
products, production processes and customers, and produce lower vehicle
structures, body structures (including Class A surfaces), suspension
components, and modular assemblies for the automotive industry. Management
reviews the operating results of the Company and makes decisions based upon
two operating segments: United States/Canada and International. Financial
information by segment is as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
------ ------------- -----
THREE MONTHS ENDED MARCH 31, 2002:
Revenues $ 516,399 $151,708 $ 668,107
Operating income (loss) (43,450) 3,166 (40,284)
Restructuring and asset impairment charge 71,757 3,650 75,407
Total assets 1,798,686 754,922 2,553,608
THREE MONTHS ENDED MARCH 31, 2001:
Revenues $ 455,097 $173,279 $ 628,376
Operating income 25,819 12,075 37,894
Restructuring and asset impairment charge -- -- --
Total assets 2,345,655 650,131 2,995,786
10. A summary of the Company's restructuring activities is as follows:
MILWAUKEE PRESS OPERATIONS:
On January 31, 2002, the Company announced that it will discontinue the
remaining stamping and ancillary processes currently performed at its
Milwaukee Press Operations and relocate the remaining work to other Tower
locations or Tier II suppliers. The Company expects to complete the
transfer process during the third quarter of 2002. As a result of these
efforts (the "2002 Plan"), the Company recorded a restructuring charge in
the first quarter of 2002 totaling $75.4 million, which reflects the
estimated qualifying "exit costs" to be incurred over the next 12 months
pertaining to the 2002 Plan.
The 2002 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to employee terminations and
certain other exit costs. These activities are anticipated to result in a
reduction of approximately 490 colleagues in the Company's Milwaukee,
Wisconsin manufacturing location. Through March 31, 2002, the Company had
eliminated approximately 100 colleagues pursuant to the 2002 Plan. The
estimated restructuring charge does not cover certain aspects of the 2002
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,
buildings and manufacturing equipment from the facilities the Company
intends to dispose of or discontinue. The carrying value of the long-lived
assets written off was $47.2 million. Fixed assets that will be disposed of
as part of the 2002 Plan were written down to their estimated residual
values. For assets that will be sold currently, the Company measured
impairment based on estimated proceeds on the sale of the facilities and
equipment. These asset impairments have arisen as a consequence of the
Company making the decision to exit these activities during the first
quarter of 2002.
The Company anticipates this charge will require cash payments of $15.8
million and other future obligations of $12.4 million, in addition to the
$47.2 million write-off of assets.
-10-
The accrual for operational realignment and other costs is included in
accrued liabilities in the accompanying consolidated balance sheet as of
March 31, 2002. The table below summarizes the accrued operational
realignment and other charges related to the 2002 Plan through March 31,
2002 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT OTHER EXIT
IMPAIRMENTS COSTS COSTS TOTAL
----------- ----- ----- -----
Provision $ 47.2 $ 8.4 $ 19.8 $ 75.4
Non-cash charges (47.2) -- -- (47.2)
----------- ----------- ---------- -----------
Balance at March 31, 2002 $ -- $ 8.4 $ 19.8 $ 28.2
=========== =========== ========== ===========
SEBEWAING AND MILWAUKEE PRESS OPERATIONS:
In October 2001, the Company's board of directors approved a restructuring
of the enterprise that included the closing of the Sebewaing, Michigan
facility. In addition, in December 2001, the Company's board of directors
approved a restructuring plan that related to the consolidation of
technical activities and a reduction of other salaried colleagues in
conjunction with a reorganization of the Company's U.S. and Canada
operations and the relocation of some component manufacturing from the
Company's Milwaukee Press Operations to other Tower locations. As a result
of these realignment efforts (the "2001 Plan"), the Company recorded a
restructuring charge in the fourth quarter of 2001 of $178.1 million, which
reflects the estimated qualifying "exit costs" to be incurred over the next
12 months pertaining to the 2001 Plan.
The 2001 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to employee terminations and
certain other exit costs. These activities are anticipated to result in a
reduction of more than 700 colleagues in the Company's technical and
administrative centers in Novi, Rochester Hills, and Grand Rapids,
Michigan; Milwaukee, Wisconsin; and its U.S. and Canada manufacturing
locations. Through March 31, 2002, the Company had eliminated approximately
570 colleagues pursuant to the 2001 Plan. The estimated restructuring
charge does not cover certain aspects of the 2001 Plan, including movement
of equipment and employee relocation and training. These costs are being
recognized as incurred.
The Company anticipates this charge will require cash payments of
approximately $34.9 million and other future obligations of $15.8 million
combined with previously recorded asset write-offs of $127.4 million,
including $87.5 million of goodwill.
The accrual for operational realignment and other costs, which was
established in the fourth quarter of 2001, is included in accrued
liabilities in the accompanying consolidated balance sheet as of March 31,
2002. The table below summarizes the accrued operational realignment and
accrued other charges related to the 2001 Plan through March 31, 2002 (in
millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
----- ----- -----
Balance at December 31, 2001 $ 23.9 $ 31.4 $ 55.3
Cash payments (6.1) (5.3) (11.4)
------------ ---------- --------
Balance at March 31, 2002 $ 17.8 $ 26.1 $ 43.9
============ ========== ========
-11-
11. The following table presents comprehensive income (loss) for the three
months ended March 31, 2002 and 2001 (in thousands):
THREE MONTHS ENDED
MARCH 31,
---------------------
2002 2001
-------- -------
Net income (loss) $(34,517) $12,861
Change in cumulative translation adjustment (569) (3,835)
Transition adjustment relating to loss on
qualifying cash flow hedges -- (4,200)
Unrealized gain (loss) on qualifying cash flow
hedges 1,428 (2,500)
-------- -------
Comprehensive income (loss) $(33,658) $ 2,326
======== =======
12. On May 13, 2002, the Company completed an underwritten primary offering of
17.25 million shares of Tower Automotive, Inc. common stock which includes
the exercise of the underwriters' option to acquire 2.25 million shares to
cover over-allotment. The net proceeds from the offering were approximately
$222.5 million, based on an offering price of $13.75 per share. The Company
intends to use the net proceeds to repay borrowings under its Credit
Agreement.
13. On June 29, 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Intangible Assets." Major provisions of
these Statements are as follows: all business combinations initiated after
June 30, 2001 must use the purchase method of accounting; the pooling of
interest method of accounting is prohibited except for transactions
initiated before July 1, 2001; intangible assets acquired in a business
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either
individually or as part of a related contract, asset or liability; goodwill
and intangible assets with indefinite lives are not amortized but tested
for impairment annually, except in certain circumstances, and whenever
there is an impairment indicator; all acquired goodwill must be assigned to
reporting units for purposes of impairment testing; effective January 1,
2002, goodwill is no longer subject to amortization.
The Company has applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. As of March 31,
2002, the Company has unamortized goodwill of approximately $564 million
that will be subject to the transition provisions of the Statements. The
Company has not yet determined whether it will be required to recognize any
transitional impairment losses as a cumulative effect of a change in
accounting principle. Application of the nonamortization provisions of the
Statements is expected to result in a reduction in goodwill amortization
expense of approximately $16 million in fiscal 2002, after reflecting 2001
goodwill writedowns of $196.1 million.
Under the adoption of SFAS No. 142, the Company discontinued the
amortization of goodwill. The following table presents a reconciliation of
net income and earnings per share adjusted for the exclusion of goodwill,
net of tax (in thousands, except per share amounts):
-12-
THREE MONTHS ENDED
MARCH 31,
------------------------
2002 2001
-------- ----------
Reported net income (loss) $(34,517) $ 12,861
Add: Goodwill amortization, net of tax -- 3,223
-------- ----------
Adjusted net income (loss) $(34,517) $ 16,084
======== ==========
Reported basic earnings (loss) per common share $ (0.72) $ 0.29
Add: Goodwill amortization, net of tax -- 0.07
-------- ----------
Adjusted basic earnings (loss) per common share $ (0.72) $ 0.36
======== ==========
Reported diluted earnings (loss) per common share $ (0.72) $ 0.28
Add: Goodwill amortization, net of tax -- 0.06
-------- ----------
Adjusted diluted earnings (loss) per common share $ (0.72) $ 0.34
======== ==========
The change in the carrying amount of goodwill for the three months ended
March 31, 2002, by operating segment, are as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
------ ------------- -----
Balance at December 31, 2001 $337,527 $229,553 $567,080
Currency translation adjustment -- (2,865) (2,865)
-------- -------- --------
Balance at March 31, 2002 $337,527 $226,688 $564,215
======== ======== ========
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after
December 15, 2001. The provisions of this Statement provide a single
accounting model for impairment of long-lived assets. The adoption of SFAS
No. 144 on January 1, 2002 did not have a material impact on the Company's
financial position or its results of operations.
14. 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 include 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.
-13-
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT MARCH 31, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ----------- ------------ -----------
ASSETS
----------------------------------------------------
Current assets:
Cash and cash equivalents $ -- $ -- $ 853 $ 13,748 $ -- $ 14,601
Accounts receivable, net -- -- 180,668 107,220 -- 287,888
Inventories, net -- -- 69,559 33,581 -- 103,140
Prepaid tooling and other -- -- 66,352 43,437 -- 109,789
----------- ----------- ----------- ----------- ----------- -----------
Total current assets -- -- 317,432 197,986 -- 515,418
----------- ----------- ----------- ----------- ----------- -----------
Property, plant and equipment, net -- -- 755,934 285,129 -- 1,041,063
Investments in joint ventures 241,848 -- 4,178 1,165 -- 247,191
Investment in subsidiaries 443,188 415,830 -- -- (859,018) --
Goodwill and other assets, net 9,228 9,490 446,110 285,108 -- 749,936
----------- ----------- ----------- ----------- ----------- -----------
$ 694,264 $ 425,320 $ 1,523,654 $ 769,388 $ (859,018) $ 2,553,608
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------------------
Current liabilities:
Current maturities of long-term debt and capital
lease obligations $ 75,311 $ -- $ 2,773 $ 105,199 $ -- $ 183,283
Accounts payable -- -- 275,706 110,327 -- 386,033
Accrued liabilities 2,986 6,033 187,709 67,711 -- 264,439
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 78,297 6,033 466,188 283,237 -- 833,755
----------- ----------- ----------- ----------- ----------- -----------
Long-term debt, net of current maturities 531,038 -- 44,765 68,674 -- 644,477
Obligations under capital leases, net of current
maturities -- -- 3,905 -- -- 3,905
Convertible subordinated notes -- 199,984 -- -- -- 199,984
Due to/(from) affiliates (356,671) (455,277) 748,804 63,144 -- --
Other noncurrent liabilities -- -- 145,753 51,154 -- 196,907
----------- ----------- ----------- ----------- ----------- -----------
Total noncurrent liabilities 174,367 (255,293) 943,227 182,972 -- 1,045,273
----------- ----------- ----------- ----------- ----------- -----------
Mandatorily redeemable trust convertible preferred
securities -- 258,750 -- -- -- 258,750
Stockholders' investment 449,532 415,830 128,711 314,477 (859,018) 449,532
Accumulated other comprehensive loss (7,932) -- (14,472) (11,298) -- (33,702)
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' investment 441,600 415,830 114,239 303,179 (859,018) 415,830
----------- ----------- ----------- ----------- ----------- -----------
$ 694,264 $ 425,320 $ 1,523,654 $ 769,388 $ (859,018) $ 2,553,608
=========== =========== =========== =========== =========== ===========
-14-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- --------- ------------ ------------
Revenues $ -- $ -- $ 479,204 $ 188,903 $ -- $ 668,107
Cost of sales -- -- 434,686 164,412 -- 599,098
--------- --------- --------- --------- --------- ---------
Gross profit -- -- 44,518 24,491 -- 69,009
Selling, general and administrative expenses -- -- 21,461 11,446 -- 32,907
Restructuring and asset impairment charge -- -- 71,757 3,650 -- 75,407
Amortization expense 431 321 -- 227 -- 979
--------- --------- --------- --------- --------- ---------
Operating income (loss) (431) (321) (48,700) 9,168 -- (40,284)
Interest expense, net 11,481 2,500 420 2,739 -- 17,140
Gain on sale of plant -- -- -- (3,839) -- (3,839)
--------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes, equity in earnings of
joint ventures and minority interest (11,912) (2,821) (49,120) 10,268 -- (53,585)
Provision (benefit) for income taxes (4,169) (987) (17,194) 3,594 -- (18,756)
--------- --------- --------- --------- --------- ---------
Income (loss) before equity in earnings
of joint ventures and minority interest (7,743) (1,834) (31,926) 6,674 -- (34,829)
Equity in earnings of joint ventures and
subsidiaries (22,102) (29,845) -- -- 56,332 4,385
Minority interest, net -- (2,838) -- (1,235) -- (4,073)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ (29,845) $ (34,517) $ (31,926) $ 5,439 $ 56,332 $ (34,517)
========= ========= ========= ========= ========= =========
-15-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- --------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ (29,845) $ (34,517) $ (31,926) $ 5,439 $ 56,332 $ (34,517)
Adjustments required to reconcile net income
(loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 431 321 24,635 8,005 -- 33,392
Deferred income tax provision (benefit) -- -- (38,615) 16,332 -- (22,283)
Deferred compensation plans -- -- 815 -- -- 815
Gain on sale of plant -- -- -- (3,839) -- (3,839)
Equity in earnings of joint ventures, net (4,385) -- -- -- -- (4,385)
Restructuring and asset impairment charge -- -- 71,757 3,650 -- 75,407
Changes in working capital and other
operating items 231,192 1,867 (132,299) (24,900) (149,588) (73,728)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities 197,393 (32,329) (105,633) 4,687 (93,256) (29,138)
--------- --------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net -- -- 936 (14,137) -- (13,201)
Acquisitions and other, net (272,517) 31,054 106,164 4,004 93,256 (38,039)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities (272,517) 31,054 107,100 (10,133) 93,256 (51,240)
--------- --------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 458,961 -- -- 27,588 -- 486,549
Repayments of debt (386,230) -- (665) (27,717) -- (414,612)
Proceeds from the issuance of common stock -- 1,275 -- -- -- 1,275
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for) financing
activities 72,731 1,275 (665) (129) -- 73,212
--------- --------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,393) -- 802 (5,575) -- (7,166)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
2,393 -- 51 19,323 -- 21,767
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ -- $ 853 $ 13,748 $ -- $ 14,601
========= ========= ========= ========= ========= =========
-16-
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ----------- ------------ -----------
ASSETS
------------------------------------------------
Current assets:
Cash and cash equivalents $ -- $ -- $ 2,444 $ 19,323 $ -- $ 21,767
Accounts receivable, net -- -- 140,402 76,236 -- 216,638
Inventories, net -- -- 72,003 40,533 -- 112,536
Prepaid tooling and other -- -- 52,238 36,991 -- 89,229
----------- ----------- ----------- ----------- ----------- -----------
Total current assets -- -- 267,087 173,083 -- 440,170
----------- ----------- ----------- ----------- ----------- -----------
Property, plant and equipment, net -- -- 824,437 295,822 -- 1,120,259
Investments in joint ventures 237,834 -- 4,177 1,187 -- 243,198
Investment in subsidiaries 744,808 447,408 -- -- (1,192,216) --
Goodwill and other assets, net 9,659 9,700 428,186 282,264 -- 729,809
----------- ----------- ----------- ----------- ----------- -----------
$ 992,301 $ 457,108 $ 1,523,887 $ 752,356 $(1,192,216) $ 2,533,436
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
------------------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 67,381 $ -- $ 2,723 $ 101,979 $ -- $ 172,083
Accounts payable -- -- 263,800 105,110 -- 368,910
Accrued liabilities 7,234 4,167 203,832 63,729 -- 278,962
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 74,615 4,167 470,355 270,818 -- 819,955
----------- ----------- ----------- ----------- ----------- -----------
Long-term debt, net of current maturities 472,373 -- 44,765 83,946 -- 601,084
Obligations under capital leases, net of
current maturities -- -- 4,620 -- -- 4,620
Convertible subordinated notes -- 199,984 -- -- -- 199,984
Due to/(from) affiliates (27,392) (453,201) 428,037 52,556 -- --
Other noncurrent liabilities -- -- 150,639 50,996 -- 201,635
----------- ----------- ----------- ----------- ----------- -----------
Total noncurrent liabilities 444,981 (253,217) 628,061 187,498 -- 1,007,323
----------- ----------- ----------- ----------- ----------- -----------
Manditorily redeemable trust convertible
preferred securities -- 258,750 -- -- -- 258,750
Stockholders' investment 481,969 447,408 439,943 304,865 (1,192,216) 481,969
Accumulated other comprehensive loss (9,264) -- (14,472) (10,825) -- (34,561)
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' investment 472,705 447,408 425,471 294,040 (1,192,216) 447,408
----------- ----------- ----------- ----------- ----------- -----------
$ 992,301 $ 457,108 $ 1,523,887 $ 752,356 $(1,192,216) $ 2,533,436
=========== =========== =========== =========== =========== ===========
-17-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR 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 (loss) 8,295 (321) 15,405 14,515 -- 37,894
Interest expense, net 18,518 1,672 (3,712) 3,244 -- 19,722
--------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes, equity earnings of joint
ventures and minority interest (10,223) (1,993) 19,117 11,271 -- 18,172
Provision (benefit) for income taxes (3,987) (778) 7,456 4,337 -- 7,028
--------- --------- --------- --------- --------- ---------
Income (loss) 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
subsidiaries 22,976 16,740 -- -- (35,335) 4,381
Minority interest, net -- (2,664) -- -- -- (2,664)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 16,740 $ 12,861 $ 11,661 $ 6,934 $ (35,335) $ 12,861
========= ========= ========= ========= ========= =========
-18-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR 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
Equity in earnings of joint ventures, net (4,381) -- -- -- -- (4,381)
Changes in other operating items 6,969 (2,119) 16,391 (26,983) (17,242) (22,984)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities 26,054 11,063 57,043 (11,521) (52,577) 30,062
--------- --------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net (3,370) -- (52,070) (7,076) -- (62,516)
Acquisitions and other, net (38,384) (11,697) (5,677) -- 52,577 (3,181)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities (41,754) (11,697) (57,747) (7,076) 52,577 (65,697)
--------- --------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 660,830 -- -- 17,425 -- 678,255
Repayments of debt (634,580) -- (663) (11,384) -- (646,627)
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 $ -- $ --
========= ========= ========= ========= ========= =========
-19-
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, 2002 TO THE THREE MONTHS ENDED
MARCH 31, 2001
Revenues. Revenues for the three months ended March 31, 2002 were $668.1
million, a 6.3 percent increase, compared to $628.4 million for the three months
ended March 31, 2001. The increase was comprised of volume increases of $57.4
million, primarily in the following platforms: Dodge Dakota, Cadillac CTS, Ford
Explorer, and Lincoln LS/Jaguar S-Type and incremental revenues in the 2002
period of $11.9 million associated with the consolidation of Tower Golden Ring,
which first occurred in the third quarter of 2001. These increases were offset
by a decline in revenues of $29.6 million, which were attributable to the sale
of the Iwahri, Korea plant to an affiliate of Hyundai.
Cost of Sales. Cost of sales as a percent of revenues for the three months ended
March 31, 2002 was 89.7 percent compared to 87.4 percent for the three months
ended March 31, 2001. The decline in the gross profit margin was primarily due
to the effect of customer productivity price reductions beginning in the first
quarter of 2002 and changes in product mix on light truck, sport utility and
other models served by the Company. The decline in the gross profit margin is
also attributable to a decline in profitability on the Ford Explorer and Dodge
Ram pickup platforms and increased operating lease costs in the 2002 period.
S, G & A Expenses. Selling, general and administrative expenses decreased to
$32.9 million, or 4.9 percent of revenues, for the three months ended March 31,
2002 compared to $35.3 million, or 5.6 percent of revenues, for the three months
ended March 31, 2001. This decrease was due primarily to $3.3 million in
decreased costs due to reductions in headcount in the consolidation of the
Company's engineering and support activities, offset by incremental costs of
$0.9 million associated with the Company's consolidation of Tower Golden Ring.
Amortization Expense. Amortization expense for the three months ended March 31,
2002 was $1.0 million compared to $6.1 million for the three months ended March
31, 2001. The decrease was due to the adoption of the requirements of SFAS No.
142, and as a result, beginning January 1, 2002, the Company no longer records
amortization expense of goodwill.
Interest Expense, net. Interest expense (net of interest income) for the three
months ended March 31, 2002 was $17.1 million compared to $19.7 million for the
three months ended March 31, 2001. Interest expense decreased due to the (i)
decreased borrowings during the first three months of 2002 compared to the first
three months of 2001 of $3.8 million, and (ii) decreased interest rates and
decreased spreads associated with the Credit Agreement of $2.8 million, offset
by (iii) decreased capitalized interest on construction projects in the 2002
period of $3.0 million and (iv) decreased interest income in the 2002 period of
$1.0 million.
Income Taxes. The effective income tax rate was 35.0 percent and 38.7 percent
for the first three months of 2002 and 2001, respectively. The effective tax
rate reflects the actual rates in the tax jurisdictions in which the Company
operates, adjusted for permanent differences.
Equity in Earnings of Joint Ventures, net. Equity in earnings of joint ventures,
net of tax, was $4.4 million for both the three months ended March 31, 2002 and
the three months ended March 31, 2001. These amounts represent the Company's
share of the earnings from its joint venture interests in Metalsa, Yorozu, and
DTA Development, in the 2002 period and Metalsa, Tower Golden Ring, Yorozu, and
DTA Development in the 2001 period. The Company's share of Metalsa's joint
venture earnings has increased quarter over quarter by $2.3 million which was
offset by a reduction in equity earnings of $2.3 million due to the
consolidation of Tower Golden Ring beginning in third quarter of 2001.
Minority Interest, net. Minority interest, net of tax, for the three months
ended March 31, 2002 represents dividends, net of income tax benefits, on the 6
3/4% Trust Preferred Securities ("Preferred Securities") and the minority
interest held by the 40 percent joint venture partners in Tower Golden Ring.
Minority interest for the three months ended March 31, 2001 represents
dividends, net of income tax benefits, on the Preferred
-20-
Securities. The increase in minority interest expense in 2002 was due primarily
to the consolidation of Tower Golden Ring in the third quarter of 2001.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
The Company's growth through acquisitions coincided with an extended period of
high automotive production that resulted in higher levels of utilization of the
Company's acquired resources and capacity and contributed to periods of strong
operating results. More recently, as automotive production declined from
previous levels, the Company focused its efforts on reducing the capacity of the
enterprise and improving the efficiency of its continuing operations. During the
18 month period beginning in the fourth quarter of 2000, the Company: (i)
divested itself of its non-core heavy truck business, (ii) consolidated its
manufacturing operations by closing manufacturing locations in Kalamazoo,
Michigan; Sebewaing, Michigan; and certain operations in Milwaukee, Wisconsin,
(iii) reduced redundant overhead through a consolidation of its technical
activities and a reduction of other salaried colleagues, and (iv) reorganized
the management of its U.S. and Canada region. These were accomplished through
three restructurings, described in more detail below. The first restructuring
was initiated in October 2000 (the "2000 Plan"), the second restructuring was
initiated in October 2001 (the "2001 Plan"), with the discontinuance of the
remaining stamping and ancillary processes currently performed at the Company's
Milwaukee Press Operations announced in January 2002 (the "2002 Plan").
The restructuring and asset impairment charges consist of both restructuring
charges and non-restructuring related asset impairments, major components of
which are discussed in the sections below. The following table summarizes the
principal components of these charges (in millions):
2002 PLAN 2001 PLAN 2000 PLAN
--------- --------- ---------
RESTRUCTURING AND RELATED ASSET IMPAIRMENTS
Asset impairments $47.2 $127.4 $103.7
Severance and outplacement costs 8.4 24.6 25.2
Loss contracts -- -- 8.1
Other exit costs 19.8 26.1 4.3
----- ------ ------
Total 75.4 178.1 141.3
OTHER GOODWILL AND ASSET IMPAIRMENTS
Goodwill writedown -- 108.6 --
Other asset impairments -- 50.7 --
Investment impairment -- 46.3 --
----- ------ ------
Total -- 205.6 --
----- ------ ------
TOTAL RESTRUCTURING AND ASSET IMPAIRMENT CHARGES $75.4 $383.7 $141.3
===== ====== ======
Non-cash charges $47.2 $333.0 $103.7
----- ------ ------
Cash charges $28.2 $ 50.7 $ 37.6
----- ------ ------
Under the 2000 Plan, the Company realized cash savings of approximately $32
million in 2001 as a result of reductions in payroll costs directly related to
restructuring activities. These cash savings from permanent payroll reductions
are expected to be realized annually. Under the 2001 Plan, the Company has
realized approximately $5 million through March 31, 2002 and expects to realize
an additional $30 million of cash savings through the remainder of 2002
attributable to permanent payroll reductions. Under the 2002 Plan, the Company
is expected to realize annual cash savings of approximately $15 million
attributable to permanent payroll reductions beginning later in 2002 with full
realization beginning in 2003.
MILWAUKEE PRESS OPERATIONS:
On January 31, 2002, the Company announced that it will discontinue the
remaining stamping and ancillary processes currently performed at the Company's
Milwaukee Press Operations and relocate the remaining work
-21-
to other Tower locations or Tier II suppliers. The Company expects to complete
the transfer process during the third quarter of 2002. As a result of these
efforts (the "2002 Plan"), the Company recorded a restructuring charge in the
first quarter of 2002 totaling $75.4 million, which reflects the estimated
qualifying "exit costs" to be incurred over the next 12 months pertaining to the
2002 Plan.
The 2002 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to employee terminations and certain other exit
costs. These activities are anticipated to result in a reduction of
approximately 490 colleagues in the Company's Milwaukee, Wisconsin manufacturing
location. Through March 31, 2002, the Company had eliminated approximately 100
colleagues pursuant to the 2002 Plan. The estimated restructuring charge does
not cover certain aspects of the 2002 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,
buildings and manufacturing equipment from the facilities the Company intends to
dispose of or discontinue. The carrying value of the long-lived assets written
off was $47.2 million. Fixed assets that will be disposed of as part of the 2002
Plan were written down to their estimated residual values. For assets that will
be sold currently, the Company measured impairment based on estimated proceeds
on the sale of the facilities and equipment. These asset impairments have arisen
as a consequence of the Company making the decision to exit these activities
during the first quarter of 2002.
The Company anticipates this charge will require cash payments of $15.8 million
combined with the $47.2 million write-off of assets and other future obligations
of $12.4 million.
The accrual for operational realignment and other costs is included in accrued
liabilities in the accompanying consolidated balance sheet as of March 31, 2002.
The table below summarizes the accrued operational realignment and other charges
through March 31, 2002 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT OTHER EXIT
IMPAIRMENTS COSTS COSTS TOTAL
----------- ----- ----- -----
Provision $47.2 $8.4 $19.8 $75.4
Non-cash charges (47.2) -- -- (47.2)
----- ---- ----- -----
Balance at March 31, 2002 $ -- $8.4 $19.8 $28.2
===== ==== ===== =====
SEBEWAING AND MILWAUKEE PRESS OPERATIONS:
In October 2001, the Company's board of directors approved a restructuring of
the enterprise that included the closing of the Sebewaing, Michigan facility. In
addition, in December 2001, the Company's board of directors approved a
restructuring plan that related to the consolidation of technical activities and
a reduction of other salaried colleagues in conjunction with a reorganization of
the Company's U.S. and Canada operations and the relocation of some component
manufacturing from the Company's Milwaukee Press Operations to other Tower
locations. As a result of these realignment efforts (the "2001 Plan"), the
Company recorded a restructuring charge in the fourth quarter of 2001 of $178.1
million, which reflects the estimated qualifying "exit costs" to be incurred
over the next 12 months pertaining to the 2001 Plan.
The 2001 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to employee terminations and certain other exit
costs. These activities are anticipated to result in a reduction of more than
700 colleagues in the Company's technical and administrative centers in Novi,
Rochester Hills, and Grand Rapids, Michigan; Milwaukee, Wisconsin; and its U.S.
and Canada manufacturing locations. Through March 31, 2002, the Company had
eliminated approximately 570 colleagues pursuant to the 2001 Plan. The estimated
restructuring charge does not cover certain aspects of the 2001 Plan, including
movement of equipment and employee relocation and training. These costs are
being recognized in future periods as incurred.
-22-
The Company anticipates this charge will require cash payments of approximately
$34.9 million and other future obligations of $15.8 million combined with
previously recorded asset write-offs of $127.4 million, including $87.5 million
of goodwill.
The accrual for operational realignment and other costs, which was established
in the fourth quarter of 2001, is included in accrued liabilities in the
accompanying consolidated balance sheet as of March 31, 2002. The table below
summarizes the accrued operational realignment and other accrued charges through
March 31, 2002 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
----- ----- -----
Balance at December 31, 2001 $23.9 $31.4 $55.3
Cash payments (6.1) (5.3) (11.4)
----- ----- -----
Balance at March 31, 2002 $17.8 $26.1 $43.9
===== ===== =====
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH
The Company's principal sources of cash are cash flow from operations,
commercial borrowings and capital markets activities. During the three months
ended March 31, 2002, the Company used $29.1 million of cash from operations.
This compares with $30.1 million generated during the same period in 2001. Net
income before depreciation and amortization, deferred income taxes, deferred
compensation plans, gain on sale of plant, equity in joint venture earnings, and
restructuring and asset impairment charges was $44.6 million and $53.1 million
for the 2002 and 2001 periods, respectively. Operating cash flow was reduced by
$11.4 million in 2002 and $8.5 million in 2001 for cash restructuring payments,
and was increased by net tax refunds of $0.4 million in 2002 and decreased as a
result of net tax payments of $1.7 million in 2001. In total, working capital
and other operating items decreased operating cash flow by $73.7 million and
$23.0 million during 2002 and 2001, respectively.
The issuance of stock from the Company's colleague stock purchase plan and
option plans contributed an additional $1.3 million and $0.6 million to cash
flow for the 2002 and 2001 periods, respectively.
In July 2000, the Company replaced its previous $750 million amortizing credit
facility with a new six-year $1.15 billion senior unsecured credit agreement
(the "Credit Agreement"). The Credit Agreement includes a non-amortizing
revolving facility of $825 million along with an amortizing term loan of $325
million. The Credit Agreement 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, 2002, approximately $25.5 million of the outstanding borrowings are
denominated in Japanese yen, $32.8 million are denominated in Euro, and $15.7
million are denominated in Canadian dollars. Interest on the Credit Agreement 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 5.9 percent
for the three months ended March 31, 2002. The Credit Agreement has a final
maturity of 2006.
At March 31, 2002, the Company had borrowed $170.5 million under its revolving
credit facility of $825 million. In order to borrow under the revolving
facility, the Company must meet certain covenant ratios. Based on these
covenants, the amount of unused availability under the revolving facility was
$57.9 million at March 31, 2002, compared to unused availability of $131.5
million at March 31, 2001. This reduction in availability resulted from a
decrease in trailing four quarter EBITDA, offset in part by an increase in
availability due to the reduction of indebtedness (as defined in the credit
agreement) between the periods. The credit agreement requires the Company to
meet certain financial tests, including but not limited to a minimum interest
coverage and maximum leverage ratio. The covenant conditions contained in the
credit agreement also limit the Company's ability to pay dividends to the
available
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borrowings under the revolving facility. As of March 31, 2002, the Company was
in compliance with all debt covenants.
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 the credit agreement. 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.
In July 2000, R. J. Tower Corporation, a wholly owned subsidiary of the Company,
issued Euro-denominated senior unsecured notes in the amount of Euro 150 million
($131.0 million at March 31, 2002). 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 credit facility. The notes mature on August 1, 2010.
USES OF CASH
The Company's principal uses of cash are debt repayment, capital expenditures
and acquisitions and investments in joint ventures. Net cash used in investing
activities was $51.2 million during the three months ended March 31, 2002, as
compared to $65.7 million in the prior period. Net capital expenditures totaled
$13.2 million and $62.5 million for the comparable 2002 and 2001 periods,
respectively. Earnout payments and payments on notes payable made in connection
with previous acquisitions and investments in joint ventures, offset by net
proceeds received from the sale of a plant, reduced investment cash flows by
$38.0 million and $3.2 million for the 2002 and 2001 periods, respectively. Net
cash provided by financing activities totaled $73.2 million and $32.3 million
for the three months ended March 31, 2002 and 2001, respectively.
The Company estimates its 2002 capital expenditures will be approximately $155
million. Where appropriate, the Company may lease rather than purchase such
equipment, which would have the effect of reducing this anticipated level of
capital expenditures.
WORKING CAPITAL
During the three months ended March 31, 2002, working capital increased by $61.5
million. This net increase is comprised of working capital increases due to a
$71.3 million increase in accounts receivable attributable to the significant
sales increase in March 2002 relative to December 2001, a $20.5 million
timing-related increase in tooling receivables, and a $3.4 million net decrease
in other liabilities; offset by working capital decreases due to a $17.1 million
increase in accounts payable related to the continued renegotiation of terms
with key suppliers, a $7.2 million decrease in cash on hand, and a $9.4 million
decrease in inventory as a result of the Company's continued emphasis of low
inventory levels.
The Company expects to continue to maintain a low working capital position
through a continuation of the efforts discussed above and continued focus on
minimizing the length of the cash flow cycle. The Company believes that the
available borrowing capacity under its credit agreement, together with funds
generated by operations, should provide sufficient liquidity and capital
resources to pursue its business strategy for the foreseeable future, with
respect to working capital, capital expenditures, and other operating needs.
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.
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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 to not 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.
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 or cash flows. Conversely for floating rate debt, interest
rate changes generally do not affect the fair market value but do impact future
earnings and cash flows, assuming other factors are held constant.
At March 31, 2002, Tower Automotive had total debt and obligations under capital
leases of $1.032 billion. The debt is comprised of fixed rate debt of $491.0
million and floating rate debt of $541.0 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 $5.4 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 revenues were 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 are based in its foreign operations and
are 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, 2002, the Company held no foreign
currency hedge positions. Management believes the effect of a one percent
appreciation or depreciation 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
On June 29, 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and
Intangible Assets." Major provisions of these Statements are as follows: all
business combinations initiated after June 30, 2001 must use the purchase method
of accounting; the pooling of interest method of accounting is prohibited except
for transactions initiated before July 1, 2001; intangible assets acquired in a
business combination must be recorded separately from goodwill if they arise
from contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either individually
or as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator; all acquired goodwill must be
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assigned to reporting units for purposes of impairment testing; effective
January 1, 2002, goodwill is no longer subject to amortization.
The Company has applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. As of March 31, 2002,
the Company has unamortized goodwill of approximately $564 million that will be
subject to the transition provisions of the Statements. The Company has not yet
determined whether it will be required to recognize any transitional impairment
losses as a cumulative effect of a change in accounting principle. Preliminary
indications suggest that a transitional impairment charge in the range of $100
million to $200 million may be recorded as a result of the initial goodwill
impairment review process, which is expected to be completed during the second
quarter of 2002. However, the Company is in the process of hiring an independent
appraiser to assist in the finalization of the amount of the change to be taken,
if any. It is possible that the amount of any charge recorded after completing
the formal appraisal process may not fall within the range suggested by the
preliminary analysis. Application of the nonamortization provisions of the
Statements were adopted on January 1, 2002 and is expected to result in a
reduction in goodwill amortization expense of approximately $16 million in
fiscal 2002, after reflecting the writedowns of goodwill totaling $196.1
million, which were recorded during 2001.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001. The provisions of this Statement provide a single accounting model for
impairment of long-lived assets. The adoption of SFAS No. 144 on January 1, 2002
did not have a material impact on the Company's financial position or its
results of operations.
DISCLOSURE REGARDING 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 (the "Exchange Act"). 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; (vii) the highly competitive nature of the
automotive supply industry; (viii) the ability to achieve the anticipated volume
of production from new and planned supply programs; and (ix) such other factors
noted in this Form 10-Q with respect to the Company's businesses. 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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PART II. OTHER INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None.
Item 2. Change in Securities and Use of Proceeds:
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/A dated January 3,
2002, under Item 5 (Commission File No. 1-12733).
2. The Company's Current Report on Form 8-K dated February 1,
2002, under Item 5 (Commission File No. 1-12733).
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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, 2002 By /s/ Anthony A. Barone
----------------------------------
Anthony A. Barone
Vice President, Chief Financial
Officer (principal accounting
and financial officer)
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